What’s Next For Cellulosic Biofuels and the D3 RIN? Part 3 – Rewind to the Fast Crash of Kior, a Cellulosic Biofuel Company
Read other posts in this series: What’s next for cellulosic biofuels and the D3 RIN?
- Part 1 – The Market That Fizzled
- Part 2 – The Biogas Solution
- Part 3 – Rewind to the Fast Crash of Kior, a Cellulosic Biofuel Company
In 2007, a primary objective of the Renewable Fuel Standard (RFS) was to stimulate development of at least 16 billion gallons/year of liquid fuels made from cellulosic biomass which consists of non-food crops and waste biomass like corn stalks, corncobs, straw, wood, and wood byproducts.
But the 2007 vision of making gasoline from wood chips never materialized and things evolved into a very different reality. Today’s cellulosic biofuel industry generates, gathers, and moves methane from landfills and dairy farms into the combustion chambers of heavy duty trucks. This blog series tells this story with a focus on the D3 Renewable Identification Number (RIN) which is the U.S. federal subsidy designed to enable production of cellulosic biofuel. Today’s episode gives a high level overview of the 17 year, on-the-ground history of cellulosic biofuels.
Part 1 focused on the history of the D3 RIN, which is the primary subsidy driving the potential growth of a cellulosic biofuel industry in the U.S. The D3 RIN started life in the spotlight, as part of a high-profile vision to stimulate growth of an industry that made liquid fuels from wood chips.
But, because that industry never got off the ground, the D3 RIN, in 2010, was effectively deactivated by a workaround called the cellulosic waiver credit (CWC). That move recognized it was impossible for increases in the D3 RIN price to stimulate growth of a non-existent industry. The CWC workaround meant the D3 RIN would be priced higher than other RINs but would not exceed a defined price cap.
The D3 RIN stayed in that neutered state 13 years, until the end of 2022, when it disappeared from the picture, at which point the D3 RIN was put back into service as a subsidy aimed at stimulating 25%/year growth of cellulosic biofuel. That change, at the start of 2023, along with the budding of a new cellulosic biofuel industry, put the D3 RIN back in the spotlight and raised the question of how high its price might go.
The budding cellulosic biofuel industry of 2024 looks very different than the wood-to-gasoline vision of 2007. It consists of the gathering and upgrading of biogas from landfills and dairy farms, transporting that gas through natural gas pipelines, distributing, and delivering it into compressed natural gas (CNG)-fueled heavy-duty vehicles.
But before going deeper into the cellulosic biofuel industry of today, we will rewind to 2007 and tell the story of Kior, Inc., the most prominent case study in the wood-to-gasoline story that dominated the cellulosic biofuel world in the early days of the RFS.
Kior, Inc. was formed in 2007 as a joint venture between BIOeCON, a Dutch technology company, and Khosla Ventures, a venture capital firm owned by Vinod Khosla, a Silicon Valley venture capitalist and co-founder of Sun Microsystems.
Kior’s plan was to commercialize a process for converting Mississippi Southern Yellow Pine wood chips into a bio-crude oil using fluid catalytic cracking, the same cracking process used in petroleum refineries to produce 40% of the U.S. gasoline pool.
As explained in Part 2 of our RBN Energy blog series “Breaking the Chains”, fluid catalytic cracking breaks large crude oil molecules into small ones in the gasoline and diesel fuel range. It can do the same to high molecular weight cellulosic molecules.
Pilot plant testing at Kior’s facility in Houston and at Chemical Process Engineering Research Institute in Thessaloniki, Greece, showed the basic feasibility of the process and provided initial estimates of process performance and yields.
By 2010, Kior had designed a commercial plant for construction at the site of a former paper mill in Columbus, Mississippi, to convert 500 tons per day of dry wood chips into 35,000 gallons per day of bio-crude oil containing 37% renewable naphtha (naphtha is a generic name for gasoline-range liquid hydrocarbons), 55% renewable diesel, and 8% fuel oil, with an oil yield of 67 gallons of bio-crude per ton of feedstock. The business plan also called for construction of two more commercial plants, each three times that size, in Nachez, Mississippi, with a goal of reaching as high as 92 gallons per ton liquid yield and broadening the feedstock slate to include other cellulosic materials.
On May 12, 2011, Kior held a groundbreaking ceremony in Columbus with Halley Barbour, governor of Mississippi, and other state and local politicians. The group was excited, describing the Kior process as “almost like spinning gold out of straw”, according to the Columbus newspaper.
In June, 2011, Kior raised $150 million in an initial public offering, which was less than they had expected, indicating some early investor skepticism, and they secured a $75 million loan from the state of Mississippi who was eager to host the project and fill the jobs that were expected to come with it. With public investors’ and taxpayers’ money now at stake, the heat was on Kior to start making oil fast.
Kior’s market value rose to $1.5 billion in 2011, but then its stock started on a straight path down from $21 per share in October 2011 to under $2/share in early 2014, and the company went bankrupt in late 2014 with listed assets of $58 million, after spending $600 million and generating only $2 million in revenue.
The headline failure was the inability to demonstrate oil yields anywhere near the projected 67 gallons per ton. It is widely believed the claimed process performance and timeline were extremely unrealistic.
Kior’s failure led to a blizzard of lawsuits and post audits that cite a range of possible causes for the failure, including fundamental technical flaws, funding errors, poor personnel selection, infighting, and poor management.
Despite Kior’s fast crash, some still believe the concept of liquid fuels from forest product residues is a feasible, economic, and desirable route for producing cellulosic liquid fuels and D3 RINs.
Arch BioEnergy LLC is one such company. Arch BioEnergy plans to produce renewable diesel in Arkansas from forest products that previously fed a (now shrunken) paper industry. Their business strategy enables them to capture the feedstock at very low delivered cost. It will be converted to renewable diesel, sustainable aviation fuel, and other valuable byproducts using innovative, commercially proven, patented technology.
Other such projects are in the hopper. Higher D3 RIN prices would further subsidize and accelerate such innovation and could eventually make a real industry out of cellulosic liquid fuels made from wood chips.
A key difference between Arch BioEnergy and Kior’s approach is the higher value and marketability of Arch BioEnergy’s products, which include renewable diesel, sustainable aviation fuel, and a solid biochar byproduct that can be upgraded to graphene. By contrast, Kior’s bio-crude product was neither marketable nor eligible to earn D3 RINs until it was further refined into marketable liquid fuels, which proved to be a major obstacle to Kior’s success.
Meanwhile, In the 2010s, while Kior and other projects to produce cellulosic liquid fuels kept fizzling, there was slow but steady growth in the production of CNG and liquefied natural gas (LNG) derived from biogas from landfills, sewage plants, waste treatment plants, and animal manure digesters. (“Biogas” is a term describing the raw gas product from such sources).
Biogas is mostly methane that, in the past, has been flared, used to produce electricity, or emitted directly into the atmosphere. Methane is a potent, heat-trapping greenhouse gas, 100 times worse than carbon dioxide.
The next episode in this series will tell how the vision of wood chips-to-gasoline morphed into today’s reality of cow manure-to-heavy duty fleet fuel.
Recommendation Get Hoekstra Research Report 10
Hoekstra Trading clients use the ATTRACTOR spreadsheet to compare theoretical and market Renewable Identification Number (RIN) prices, analyze departures from theoretical value, and identify trading opportunities on the premise RIN market prices will be attracted toward their fundamental economic values.
Get the Attractor spreadsheet, it is included with Hoekstra Research Report 10 and is available to anyone at negligible cost.
