Aircraft biofuel blending becoming a reality

UOP While there is considerable controversy regarding the Greenhouse gas emission-related benefits of biofuels, a number of air lines, notably United, are starting to use a “natural” jet fuel produced by a process patented by UOP. The fact that this biofuel is produced from waste rather than from crops is significant as no hydrocarbon-related fuels or chemicals are used for the specific purpose of making the fuel. While carbon dioxide is, of course, emitted into the atmosphere when the biofuel burns, this carbon can be assumed as again being absorbed into plants through photosynthesis, completing the cycle, so that no net carbon dioxide is emitted as would be the case for crude oil-based jet fuel. UOP claims that use of its bio jet fuel can reduce GHG emissions by 65-80 percent

The UOP Green Jet process had its origins in DARPA-conducted research to produce military  jet fuel from renewable sources. In the basic process. natural oil or greases  and deoxygenated and isomerized to produce green Diesel. With selective cracking, jet fuel is produced.

AltAir Fuels will retrofit part of an existing petroleum refinery to make 30 million gallons per year of advanced biofuel from non-edible natural oils and agricultural wastes. This fuel can blend up to 50% with fossil kerosene. Fulcrum Bioenergy has developed a process that turns municipal waste (household trash) into sustainable aviation fuel and will supply United Airlines, which has invested in Fulcrum’s refinery. Fulcrum’s president claims it can produce bio jet fuel for around one dollar per gallon – half the cost of what United paid for jet fuel last year.  British Airways is in a joint venture to build a biofuels refinery near Heathrow airport. Cathay Air Lines and Alaska Airlines are likewise engaged in a plan to make and/or blend natural jet fuel into traditional fuel.

A Middle East firm Petrixo Oil and Gas claims it will use the UOP process to produce one million tons per year of biofuels at a cost of $ 800 million in the United Arab Emirates. (Feedstock source not identified).

Behind these developments is a government push to reduce airlines’ carbon emissions. The Obama administration has set out guidelines to achieve key reductions, recognizing that airline GHG emissions are rising at a fairly rapid rate.

So, let’s put this in context. The good news is that it is now apparently possible to make blendable jet fuel economically from natural materials and, more interestingly, from municipal waste and crop wastes. And there is a net carbon benefit in doing this. There is really no bad news, except for the fact that there are immense logistical challenges in making biojet fuel production a major industry. While it was quite easy to develop a “gasohol” industry from corn, given the fact that corn was already available in huge quantities in silos and could easily be diverted to fuel instead of foodstuff use. This would be impossible to do with municipal waste or even agricultural waste, where many thousands of tons would have to be collected from many sources and brought to refineries. greatly increasing the production costs and the carbon emissions. For specific locations and situations, however, there is an economic and carbon footprint-related reason to build a certain amount of biojet fuel capacity.

 

 

 

 

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Tidal Power: How close to reality?

imagesProduction of electricity from the difference between high and low tide has been an area of interest since for centuries water turbines have turned in many areas of the world to drive heavy wheels used to grind wheat or make gunpowder. Electricity-producing turbines are installed in tidal basins that capture water at high tide and release it at low tide. Tidal power plants with a capacity around 250MW have been installed in LaRance, France(1966) and in Korea(2011). A similar-sized plant is completing construction in Swansea, South Wales and there is now renewed interest in this technology, which would take its place next to solar and wind as the most basic form of renewable energy. The one billion Pound Sterling plant, which takes advantage of one of the largest high tide/low tide height differentials in Europe, is based on a man-made lagoon where a seawall encloses 11.5 square miles of ocean off the coast.

The initial cost of power generation from a plant of this kind is high at around $250 per megawatt hour versus $ 210 from wind and $ 150 from fossil fuels. However, economics of scale can bring the cost down to that of wind power. If Swansea builds five more tidal lagoons the projected cost of power will be comparable to nuclear and the plant would then produce about 8 percent of the U.K.’s demand for electricity. If the cost of solar power had not been coming down so dramatically, the U.S.,with promising locations, would have been looking at tidal power more seriously as interest in renewable, zero carbon, energy has grown in recent years. Canada could long have installed tidal power at the Bay of Fundy (largest known tide differential globally with studies showing three locations that could each provide between 1000 and 3000 MW), but the country has built much lower cost hydropower generation so no reason to build high capital cost tidal power plants.

The downside for tidal power plants is possible effect on marine life, but the LaRance plant in northern France has not been a problem in that respect.

 

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Finally: Synthetic silk!

imagesHistorically, garments and other textiles were made from natural fibers, principally cotton, wool and silk. Of these, silk was the most prized for its strength, dyeability, and smooth, non-slippery texture. But its supply was very limited as it was the product of the silkworm (Bombyx mori)  and mostly came from China. Chemists, starting in the nineteenth century, experimented on the production of so-called manmade fibers including rayon and, later, nylon, polyester, lycra and acrylic. But none of these fibers have the unique properties of silk, the most desirable fabric for ladies fancy garments. Its chemical structure allows silk cloth to retract incoming light at different angles, producing different colors.

Some five years ago, a group of researchers decided to reverse engineer natural silk to replicate the unique properties of this fiber with certain proteins, leading to a somewhat secretive Bay area startup called Bolt Threads. According to Bloomberg Business News (June 8-14th, 2015) the new firm raised $ 40MM from two venture capital firms. The process uses genetically modified yeast, simple carbohydrates converted to excretable proteins through fermentation. The inventors claim that by slightly modifying the genetic makeup of yeast cells and tweaking the way it spins the proteins into threads it can engineer fabrics to specified levels of durability, softness and strength.

Bolt is working with partners to do fermentation in 4000 liter tanks and Unifi, a yarn manufacturer will spin Bolt’s fibers into apparel-ready yarn and textiles. The company is aiming at high-performance apparel and expects to have products late in 2016. The product will be pricey at first, but costs will come down as production levels increase.

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Ellen Kullman’s big win needs applause

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After a long, bruising battle with hedge fund Trian Partners and Nelson Peltz, Dupont’s management headed by CEO Ellen Kullman soundly defeated an attempt by the investment fund to gain seats on the DuPont board with the stated purpose of breaking up this storied company for a presumed financial gain to investors. Activist investors have recently been successful in gaining board seats to change companies’ strategies (Example: Dow). While it is true that in some cases investors have had a beneficial effect on companies’ strategies, the “raid” on DuPont had to be strongly countered to preserve the currently structured firm as it continues to innovate and lead its industry. One of my recent posts describes how another iconic firm, ICI, eventually disappeared after breaking into pieces and abandoning its traditional long range strategy, combining businesses that throw off cash with novel and specialty businesses that need cash to carry out research. Trian’s contention that DuPont’s research was not providing adequate return was soundly rejected by a number of the large funds holding DuPont stock. Their view evidently was that DuPont’s historical success in bringing new products to market gave them more confidence in DuPont’s management than in Trian Partners. And DuPont’s shareholders are happy with DuPont’s financial performance: 214% total shareholder return (12.31.08-12.31.13) versus 184% S&P chemicals and 128% S&P 500.

DuPont is a $ 36 billion company with strong positions and focus in Agriculture and Nutrition, Industrial Biosciences and Advanced Materials. As arguably the leading chemical science company, its “innovation engine generated sales of more that $ 10 billion from new products commercialized between 2010 and 2013!”  Much of DuPont’s efforts is oriented toward global population growth, renewable energy, protecting the environment and creating novel advanced materials for an increasingly urban world.

We should also consider the fact that leading European, Japanese and Chinese chemical firms are not at risk from activist investors and, like DuPont are investing heavily in research, with long range objectives. It would be tragic to lose the leadership of DuPont: continuing to innovate in its chosen areas.

As some of you know I have been very active at the Chemical Heritage Foundation in Philadelphia. Our Joseph Priestly Society seminars and luncheons frequently feature leading executives from the chemical industry. We were pleased to invite Ellen Kullman as a keynote speaker a couple of years ago and applaud her for her success in managing iconic DuPont and winning the battle with Trian Partners.

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Shell Arctic Drilling: Considerations urge caution

 

imagesThe Obama administration appears to have given green light to Shell Oil Company to resume its plan to drill in the highly oil-rich Chuchki Sea in the Arctic offshore Northern Alaska. This follows an aborted effort to commence this program in 2012 when poor preparations and mistakes led to junking the two drilling vessels then sent to the area. In particular, a containment dome designed to cap runaway wells failed a crucial test. Environmental groups have stated that an oil spill in the drilling area would or could be more costly to inhabitants and wildlife than the BP Deepwater Horizon spill offshore Louisiana is 2010, which has already cost BP and others over forty billion dollars. The International Business Times said, “The Chuchki Sea is prone to icy waters, major storms and waves that can reach 50 feet high. In the event of a spill or accident the closest Coastc Guard resource with necessary equipment is more than 1000 miles away. The Alaskan coast nearby has no roads leading to major cities or ports for hundreds of miles”. Compare this to the BP spill area immediately accessible to all types of assistance – yet spilling crude oil for weeks as a result of human error and equipment failure

An almost unprecedented campaign by people and a number of organizations is underway to try and stop Shell from this initiative. Interestingly, one group is appealing to Shell shareholders asking them to consider whether they believe Shell should be risking this amount of money or more to bolster the company’s relatively modest reserve of proven oil. In 2012, Shell stated that it had $ 6,196MM bbls of proved reserves versus 12,816MM bbls. for ExxonMobil. 10,050MM bbls for BP and 16,773MM bbls, for Russian Rosneft. Drilling down on the Shell number, it includes 1,763MM bbls, for “synthetic crude oil”, which must largely be crude derived from Canada’s tar sands. So, Shell is really lagging behind its rivals in establishing proven “normal” crude oil. Remember also that Shell was castigated not many years ago for overstating its reserves, leading to management changes as I recall.

Looking at these figures, one might ask, is the Shell Arctic initiative a sort of “Hail Mary”  pass to try and ramp up Shell’s crude oil reserves? That may be a harsh judgment? If Shell believes that its approach is as safe as an be, how do we know that all the appropriate authorities have totally vetted the proposed drilling and recovery systems to assure double or triple backup protection against unforeseen events, accidents, human error, etc?

At this time, crude oil price is around $ 50-60, far too low for justifying Shell’s potential investment. With the U.S. continuing to produce more and more oil from shale it is difficult to project when oil will steadily sell at over $ 100/bbl, Renewables are cutting into oil demand creating downward pressure on crude oil.

All of this makes me wonder whether this is a good time to go ahead with Arctic drilling. Perhaps that’s worth another look in 5-10 years.

 

 

 

 

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Crude price staying down: Thanks to fracking “learning curve” and chemicals

images Like duelling banjos, the U.S. and Saudi oil producers have been carrying out a spirited contest to see who first cries “Uncle” (My apologies for these metaphors). When crude prices first started to plunge from the                $ 100/bbl level, the Saudis, who are OPEC’s main enforcer and swing producer, decided not to reduce output to halt the decline. They assumed that fracking would not be economical below the $ 60-70/bbl level. and that the world price would not go below that. What they did not take into account is that fracking shale is a new technology. It is well known that when a new technology is commercialized, experience gained with continued use in manufacturing will almost always improve economics and yield as improvements are made. That is a good reason why “first movers” will generally have a substantial advantage over “followers” using the same original technology.  It is also the reason why the Saudis miscalculated. U.S. producers within a period of less than a year have brought fracking-based crude down to $ 40/bbl or less as new approaches and innovations were applied. This has brought severe hardship to Russia, Venezuela and most other OPEC members whose economy has been sustained on  $ 80-100/bbl crude oil.  And the glut of crude oil resulting from ever-increasing U.S. production has cut into Saudi exports as regional pricing has seen buyers (including the U.S.) shift to other sources.

The most obvious gains in fracking were due to the fact that some shale formations are easier to “mine” bringing more crude to the surface than from tighter formations. Only about half the total number of rigs are now in operation, bringing up more oil than ever before. Also, experience has allowed many more horizontal spokes from a single well, substantially reducing drilling costs.

And the role of chemicals has also greatly contributed as more experience has been gained. (Chem. and Eng. News. April 13, 2015 Pp. 13-17). These include thickeners and friction reducers which allow the proppant sand – which keeps fracked fissures open – to be delivered way out in the horizontal wells. This requires a delicate approach to achieve the right balance, so that guar and cross-linkers are also added for maximum effect. Other chemicals are now used after the fracturing step to break down the thickened mixture of proppant and oil, 5000 feet down, to better allow the liberated  oil to flow to the surface. Microbes grow rapidly inside the well and can result in slime plugging, so that biocides must be used used to continue flow in “aging” horizontal sections. And since some of these chemicals (e.g. biocides) cannot be allowed to get into the cleaned-up fracking water, other chemicals must be applied to destroy the biocides, allowing their critical use inside the well.

And here is another interesting point! There is a huge amount of hydrocarbon-rich shale in the U.S. With improving fracking technology and no need to wildcat for new oil, U.S. producers can keep producing oil for many years ahead. They may decide to curtail some drilling to let demand catch up to supply and make fracking more profitable at, say, $ 60 per barrel.  U.S. can now become the “swing producer”. And it would be sensible for the government to stop banning and allow crude oil exports. It’s a brave new world of oil!

 

 

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End of an era: Dow spins off chlor-alkali

imgresDow Chemical has agreed to sell its Chlor-alkali assets and associated derivatives businesses to Olin Corporation in a transaction that in one stroke separates Dow from its main heritage business and makes Olin the largest domestic chlor-alkali producer. Dow will end up owning about half of Olin’s stock (to be eventually spun off to Dow’s shareholders) and has a 20-year contract to supply ethylene to Olin’s vinyl chloride and other chlorine derivatives businesses it will now own. Readers will recall that Dow was never a PVC (polyvinyl chloride) producer (except in a very minor way), and sold its styrene/polystyrene and polypropylene businesses a number of years ago. It remains a large polyethylene producer, where its proprietary technology and low cost ethylene production has given it some competitive advantage in this otherwise relatively commoditized business. Dow is getting closer to its announced goal to be largely a producer of specialty chemicals and differentiated consumer-oriented products.

It is hard to avoid comparing this and other Dow transactions to what happened with England’s premier chemical firm ICI over the last decades of the Twentieth Century: Yes, “breaking up is hard to do” when companies want to transform themselves from being largely a commodity producer to a producer of specialties. ICI failed spectacularly in this respect, following a different playbook than Dow. It decided to (a) divest its chlor-alkali and polyethylene businesses and (b) to split off as a stand-alone company its highly specialized and profitable pharma, ag chemicals and other businesses in a so-called demerger. As a much leaner firm, it then acquired a number of relatively specialized businesses from Unilever, making ICI, at one time one of the largest and most successful global chemical firms, a much smaller company with several partly differentiated businesses. Unable to establish itself as a important player with a bright future, ICI eventually was acquired by Dutch producer AKZO, which coveted ICI’s valuable coatings and adhesives businesses, bringing to the end a failed strategy of transformation for a storied company.

Dow followed a somewhat similar, but strategically superior path. Its transformation got off to a bad start when it acquired Union Carbide, which greatly increased Dow’s exposure to the wild ups and downs of the petrochemical industry. Then, seeing the light, it embarked on its own quest to become a much more differentiated chemicals producer. Already engaged in supporting strongly its differentiated plastics and performance chemicals businesses, it acquired Rohm and Haas, one of the world’s leading specialty chemical companies(electronic chemicals, coatings) in the process taking on so much debt that its future financial condition for a time became uncertain and its management under stress. (Dow had expected the Kuwaitis to buy part of Dow’s commodity assets but the Kuwaitis reneged on the deal, leaving Dow very short of cash to pay for Rohm and Haas). But Dow had continued and still continues to spend a lot of money on research to create and/or acquire additional differentiated businesses(e.g. batteries, solar roof panels, water treatment). It had also kept some of the excellent specialty businesses (e.g. ag chemicals) that ICI spun off in its demerger. Dow has also greatly benefited from the “shale revolution” giving it a very low cost ethylene business, as mentioned earlier. It is now financially sound and is highly diversified, smaller than before, and completely different from what it looked like in the past – no longer recognizable by the ghost of Herbert Dow, its iconic creator who started to produce bromine derivatives in Michigan in the late Nineteenth Century and who died in 1930. It is now probably time to move Dow’s headquarters from Midland to a more cosmopolitan venue, a move that was always resisted by Dow’s traditional management.

While a few U.S. chemical companies (Westlake Chemicals comes to mind) are still in commodity petrochemicals, most of the other large firms (think Eastman Chemicals, Ashland, Huntsman) have largely transformed themselves into producers of differentiated chemicals. Dow, always considered a leader, has now come around to recognize that commodities cannot be an important part of its future even though the shale revolution briefly gave the U.S. petrochemicals industry a typical exciting interval.

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