Low Oil Price Won't Put Brakes on Biomass Future
The recent fall in oil prices has everybody talking about the prospects for advanced biofuels. Will commercialization be delayed? Will research and development continue? Can the industry survive $60 per barrel crude?
In the not too distant past, a precipitous drop in fossil fuels and energy prices could stall or even kill off years of progress in alternative energy R&D. Just ask someone familiar with the wind and solar industries in the '70s and '80s, or even the early algal fuels research programs in the late '80s and early '90s.
There's good reason to believe that the paths forward for biomass and biofuels will be different this time around. I doubt very much that technology advances will halt.
The commercialization strategies of today’s advanced biofuel ventures—particularly those that are developing new biomass feedstocks—are substantially different from earlier waves of alternative energy technologies. Perhaps most significantly, many are no longer solely dependent on revenue from fuels or energy sales to be sustainable as a business.
Instead, they are looking to attack multiple markets. Some examples include biomass-derived plastics, fertilizers, feeds, nutritional supplements, water treatment services, pharmaceuticals, specialty chemicals and more, in addition to fuels or fuel feedstocks that can replace petroleum or palm oil feedstocks. This flexibility justifies the technical and infrastructure investments needed today to see companies through initial commercialization over the next two to three years.
In the algae biomass industry, Cellana is one of the companies that have led the multi-market approach to commercialization. The company's multiproduct business model is based on two fractionations of harvested algae biomass to produce three product streams: algal crude oil, Omega-3 nutritional oils and protein-rich algae meal for aquaculture or livestock feeds. All three fractions are used to provide economic sustainability to complement the inherent environmental sustainability of the highest-yielding “crop” on earth—algae.
Initially, Cellana expects revenues from fuel and feed to be a small percentage of overall product revenue, which will be driven by the high-value Omega-3s and, to a lesser extent, the feed product stream, both of which can be produced today with good financial margins at relatively small commercial scales.
Profitable initial commercialization will introduce a phase of improved yields, technology advances and greater economies of scale. In turn, lower unit-production costs will enable more sales into higher volume feed markets. As prices for animal feed rise with expected global demand, and production costs decline, the company can add capacity to address solely the feed and fuel markets—a final phase of commercialization that does not rely on revenues from higher-value product streams like Omega-3s.
In the algae space, advanced biofuel pioneer Sapphire Energy is also diversifying its product portfolio, and Algenol Biofuels has added an algae crude stream to its advanced ethanol platform.
Other algae companies are following a similar strategy, and even the U.S. Department of Energy has recognized the advantages. The DOE's Bioenergy Technologies Office funding opportunity, titled Targeted Algal Biofuels and Products, announced by David Danielson, DOE assistant secretary, at the 2014 Algae Biomass Summit, specifically incents the development of coproducts, crop protection and carbon utilization technologies with algae. The end goal is not to create a new source of fishmeal or animal feeds, however. Rather, it is to enhance the state of the art and ultimately drive down the cost of algal fuels by enabling companies to produce multiple revenue streams from the same biomass feedstocks.
Much like corn, soybeans and other traditional biomass crops, which serve multiple end markets, the advantages of algae's market flexibility will drive advances even during today's crude oil glut.
Companies that are currently focused on a single product also stand to benefit from feedstock flexibility. A company that can successfully scale algal oil production will have technical knowledge (and likely a whole lot of biomass) that will be valuable in other applications, making for a possible wave of strategic partnerships as more algae-derived products hit the market.
In either case, the effect will be a commercialization pathway that marches through a number of markets with economics driven by many more factors than the price of oil alone.
The path is simple: Advance the technology and infrastructure through to initial commercialization, find revenues in new and bigger markets, repeat.
Low oil prices might alter the pace or the direction of this cycle but they will not derail progress. In fact, a growing economy, booming populations the world over, and more pressing security challenges mean governments and investors that keep the pace of R&D up will be rewarded in the near term by high revenues from feed, food and nutritional products, and will be doubly rewarded over the longer term when fossil energy again becomes expensive—which it most certainly will.
Author: Matt Carr
Executive Director, Algae Biomass Organization