Cellulosic Biofuel Output Will Lag 2011 Requirements, EIA Forecast Shows

Oil companies won’t be able to get as much cellulosic biofuel as they might need next year, according to the U.S. Energy Information Administration.

EIA, a unit of the Energy Department that compiles industry data, expects cellulosic biofuel production in 2011 to be 3.94 million gallons, according to a letter written by an EIA official. That’s less than 2 percent of the 250-million-gallon mandate for 2011. The government already slashed this year’s target by more than 90 percent to 6.5 million gallons.

The shortfall for renewable fuels blended into gasoline and diesel comes as ethanol is trading at its highest price in more than two years. The disparity between the amount required by law and current capabilities reflects the lack of government backing for cellulosic biofuel projects, said Matt Hartwig, a spokesman Renewable Fuel Association.

“Many producers have been struggling with accessing the capital needed to build commercial-scale production facilities,” Hartwig, whose industry group is based in Washington, wrote in an e-mail. “There are technologies that are ready to go if they could access federal loan guarantees to assist with building the first commercial-scale facilities.”

Ethanol futures on the Chicago Board of Trade have surged 59 percent June 29, trading at $2.32 a gallon yesterday, the most since August 2008.

Legal Target

The target for using ethanol was set by Congress in 2007 and is due to be revised by the Environmental Protection Agency this month. EPA officials didn’t reply to requests for comment. The agency is required to consider EIA’s letter and other public comments before issuing its final 2011 cellulosic biofuel requirement.

An EIA spokesman confirmed that Newell sent the letter. He wouldn’t comment further.

There are currently 57 cellulosic biofuel projects in various stages of development in the U.S., according to data compiled by Bloomberg New Energy Finance. No biofuel projects have received loan guarantees from the DOE.

EIA’s estimate is based on four plants that convert wood, agricultural waste, and other non-food biomass sources into fuel. The facilities, owned by KL Energy Corp., Fiberight LLC, Dupont Danisco Cellulosic Ethanol LLC and Range Fuels, have a combined production capacity of almost 12 million gallons a year, according to a letter sent by EIA administrator Richard Newell to EPA administrator Lisa Jackson on Oct. 20.

Capacity Lagging

None of them are at full capacity. The largest, Fiberight’s Blairstown, Iowa facility, has total capacity of 6 million gallons a year, and “has communicated its intention to run at a 46 percent utilization rate” next year, Newell wrote. EIA based its estimates on public information.

Under the federal Renewable Fuel Standard, gasoline and diesel producers are required to blend 36 billion gallons of biofuel into their products by 2022. The EPA set annual targets for biofuel usage when the law was enacted in 2007.

The agency also must publish by Nov. 30 each year a revised requirement. It can lower the mandate for cellulosic fuel if it expects industry capacity to be insufficient to meet the target.

In November 2009, EPA reduced its initial 2010 cellulosic biofuel requirement, from 100 million gallons to 6.5 million ethanol-equivalent gallons. That is, enough biofuel to produce the same amount of energy as 6.5 million gallons of gasoline. The 2011 target currently is 250 million gallons.

EPA is aware that current capacity cannot meet the earlier target. In July, the agency estimated industry potential for 2011 at 5 million gallons to 17.1 million gallons.

Limits of Analysis

The EIA analysis excludes some plants from its analysis and assumed lower production rates from others. It presumed a 25 percent utilization rate at Range’s plant in Soperton, Georgia, due to “repeated inability to meet stated production goals,” according to the letter.

That facility, which is supported by an $80 million loan guarantee from the Department of Agriculture and a $76 million grant from the Energy Department, will produce 1 million gallons of fuel derived from woody biomass and grasses in 2011, the EIA estimates.

Range began building the facility in 2007 and at the time said the site was permitted to produce up to 100 million gallons per year, assuming completion of several planned expansion phases.

EIA also excluded a 20 million-gallon-a-year facility owned by closely-held Cello Energy LLC, which has received funding from Khosla Ventures.

EPA’s July forecast included a “maximum potentially available volume” of 8.5 million ethanol-equivalent gallons from Cello’s plant, in Bay Minette, Alabama.

Bankruptcy Court

Cello filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Alabama on Oct. 19, according to court documents compiled by Bloomberg Law. The company said it had assets of less than $50,000, and estimated liabilities between $10 million and $50 million.

The company “faces important financial, legal, and technological issues that have yet to be resolved, and that cast significant doubt on its ability to sell or introduce any cellulosic biofuel into commerce in 2011,” Newell wrote.

In its July capacity forecast, EPA acknowledged the problems at Cello. “While having a structurally complete facility puts Cello ahead of many other potential biofuel producers they have yet to be able to produce biofuel at anywhere near the production capacity,” it wrote.

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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