Biofuels: Think outside the Barrel

1
Biofuels Think outside the Barrel
Vinod KhoslaFeb. 2006
Ver 3.2
2
Assertions for Alternative Fuels

• We dont need oil for cars light trucks
• We definitely dont need hydrogen!
• We dont need new car/engine designs
• We dont need new distribution systems
• Rapid (3-5 yrs) changeover of automobiles is
  possible!
• Shift has little cost to consumers, automakers,
  government

3
Not so Magic Answer Ethanol
Cheaper Today in Brazil!
4
Why Ethanol

• Todays cars todays fuel distribution
• Todays liquid fuel infrastructure
• Leverages current trends
• Flex-fuel vehicles proven in millions!
• Hybrid drivetrain compatible
• Leverages Lightweighting improved efficiency of
  cars
• Already part of fuel market through blending
• Just add E85 fuel category (third pump!)
• Existing ethanol market in the billions
  growing!
• Incremental introduction possible UNDERWAY!
• Ethanol is cheaper than gasoline at current prices

5
Why Ethanol

• Multiple Issues, One Answer
• Cheaper fuel for consumers (20b per NRDC)
• More energy security diversified sources
• Significant (80-95) carbon emission reduction
  (with cellulosic ethanol)
• Higher farm incomes rural employment
• Faster GDP growth, Smaller Import Bill, Lower
  worldwide energy prices

6
Why Ethanol

• Significant Upside Today Tomorrow
• New Crop uses Use agricultural waste
• Improved Crop yield
• Improved Process technology
• Bioengineered crops, enzymes,.
• economic/environmental/land use upside thru
  technology/scale/
• Multiple sources including clean coal, natural
  gas, animal waste
• Custom ethanol engines Higher performance than
  gasoline!
• Biodiesel heavy trucks

7
Why Now

• Brazil has proven model of ethanol
• Low risk auto conversion model to FFV
• Initial fuel markets thru blending- reduced
  production risk
• Excess supply for kick start available from
  Brazil
• High oil prices accommodate startup costs of
  ethanol
• Breakeven at scale likely to be 35/barrel
• Carbon considerations will further improve
  economics
• 20 /yr increase of US ethanol production
  already in process
• Significant increase in farm profits feasible -
  better use for farm subsidies
• 4m US FFV vehicles, 4b gals ethanol supply,
  blending in place,.
• Many US car models available at same price (FFV
  or gasoline)

8
Flex Fuel Vehicles (FFV)

• Almost no incremental cost to produce low risk
• Confidence on fuel availability to consumers
• Easy switchover for automobile manufacturers
• 4 million FFV cars in the US today (to earn CAFE
  credits)
• Consumer choice use EITHER ethanol or gasoline
  (no risk)
• Fully compatible with Hybrid cars
• Brazil Proof new car sales from 4 FFV to
  70 in 3 years!
• Growth in ethanol use driven by low prices of
  ethanol
• Brazil 50b on oil imports savings

9
Interest Groups

• US Automakers less investment than hydrogen
  compatible with hybrids
• Agricultural Interests more income, less
  pressure on subsidies new opportunity for
  Cargill, ADM, farmers co-operatives,
• Environmental Groups faster lower risk to
  renewable future aligned with instead of against
  other interests
• Oil Majors equipped to build/own ethanol
  factories distribution lower geopolitical
  risk, financial wherewithal to own ethanol
  infrastruct. diversification
• Distribution (old New) no significant
  infrastructure change potential new distribution
  sources (e.g. Walmart)

10
Prioritized Action Items

• Require all cars to be Flex Fuel Vehicles (FFVs)
• Require E85 ethanol distribution at 10 of gas
  stations
• Assist debt financibility of first 5 plants with
  any new technology
• Allow fleets to import ethanol without tax burden
• Require automakers to promote ethanol usage to
  get CAFÉ credit
• Switch subsidies (same /acre) from existing to
  energy crops
• Allow carbon credits for cellulosic ethanol
• Fully fund current legislation reduce earmarks!
• Fund future demand with improved efficiency
  requirements!
• Establish early demand by creating strategic
  ethanol reserve

11
RISK Oil vs. Hydrogen vs. Ethanol
12
Objections

• Land Use
• Energy Balance (Energy OUT vs. IN)
• Environmental pollution
• Subsidies?

13
Land Use
14
Land Use Reality

• NRDC 114m acres can meet our transportation fuel
  needs in 2050
• Assumes only 2X switch grass yield improvement
  (10 tons/acre)
• Assumes ethanol production _at_100 gals/dry ton of
  feedstock
• Jim Woolsey/ George Shultz (Rocky Mountain
  Institute) estimate 60m acres
• 73m acres of soybean can be used for
  co-production of ethanol animal protein
• Lee Lynd Re-imagine agriculture to accommodate
  energy production
• Replace export lands with import replacement
  lands
• 20 tons/acre x 100gals/ton x 39m acres 78 b
  gals/yr from CRP lands!
• Miscanthus (www.bical.net or www.aces.uiuc.edu/DSI
  /MASGC.pdf)
• New Energy crops (www.ceres.net )
• 39m acres of CRP Lands
• Agricultural waste products animal waste
• Lee lynd Using Currently Managed Lands for
  Energy Production
• Thermochemical Ethanol from municipal sewage/
  coal/ animal waste

15
Land Use Reality

• New Feedstocks Miscanthus, Switchgrass,
• NRDC Estimates Growing Energy Report
• Prof Lee Lynd Bioenergy from Currently Managed
  Lands
• DOE Report Potential for Billion Tons of
  Biomass
• Futures New Approaches, New Technologies
• Prof. Lee Lynd Re-imagining Agriculture
• Ceres New technology Approaches

16
Switch Grass as Feedstock

• Natural prairie grass in the US
• Enriches soil carbon content less fertilizer
  less pesticide
• Less water pollution (nitrogen runoff)
• Dramatic reduction in CO2 , other reductions
• More biodiversity in switchgrass fields (vs.
  corn)
• Dramatically less topsoil loss compared to corn
  fields
• Significant potential for improvement of
  switchgrass crops
• High potential for co-production of animal feed
• Currently 60 of all agricultural land use
• Minimal extra land required for fuel production

and other varied crop possibilities exist the
worlds best agricultural lands were once
grasslands
17
Miscanthus as Feedstock?
20 tons/acre? (www.bical.net) 10-30 tons/acre
(www.aces.uiuc.edu/DSI/MASGC.pdf)
18
Economics of Miscanthus Farming
Source http//www.aces.uiuc.edu/DSI/MASGC.pdf
19
Bioenergy From Currently Managed Lands

• Expanded use of winter cover crops breeding of
  new (winter rotation) crops
• Harvest of agricultural residues, particularly in
  conjunction with multi-year crop rotations.
• Substitute crops that provide food/feed while
  also providing feedstocks for energy production.
• Breeding crops to increase co-production of
  cellulosic feedstocks. (soybeans 2-gt5 tons/acre)
• Changed cultivation practices for existing crops
  to increase recovery of cellulosic residues.
  (reduced till or no till rotation of corn with
  grasses etc)
• Increases in productivity of crops, making
  currently-managed lands avail for bioenergy.
• Changes in demand for exports ( or -).
• Pretreatment of cellulose-rich biomass to make
  calories more available to feedlot animals
• Increased hay productivity on underutilized
  pasture land.
• Increased hay production/harvest from CRP land.
• Recovered forest residues, potentially in
  relation to prevention of catostrophic fires.
• Dietary change

• Source Lee R. Lynd, Producing Cellulosic
  Bioenergy Feedstocks from Currently Managed
  Lands October 7, 2005

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Three Important Sources
Stovers 250m tons Winter Crops 300m
tons Soybeans 350m tons

• Production of corn stover and stalks from other
  grains (wheats, oats) totals well over 250
  million dry tons. A combination of different crop
  rotations and agricultural practices (e.g.
  reduced tillage) would appear to have potential
  for a large fraction of these residues to be
  removed. For example, although complete removal
  of corn stover would result in a loss of about
  0.26 tons of soil carbon per year, cultivation of
  perennial crops (e.g. switchgrass, Miscanthus)
  adds soil carbon at a substantially higher rate.
  Thus, a rotation of switchgrass and corn might
  maintain or even increase soil fertility even
  with 100 stover removal. This, however, brings
  up questions about the length of time land might
  be grown in each crop, since switchgrass would
  benefit from longer times to distribute the cost
  of establishment while corn would benefit from
  short times to maintain productivity and decrease
  losses due to pests. It is likely that some
  crop other than switchgrass as it exists today
  would be best for incorporation into a relatively
  high frequency rotation with corn. Targets for
  crop development could be identified and their
  feasibility evaluated.
• Winter cover crops grown on 150 million acres
  (_at_2tons/acre) 300 million tons of cellulosic
  biomass.
• In recent years, U.S. soybean production has
  averaged about 1.2 tons of dry beans per acre
  annually. Given an average bean protein mass
  fraction of about 0.4, the annual protein
  productivity of soybean production is about 0.5
  tons protein per acre. Perennial grass (e.g.
  switchgrass) could likely achieve comparable
  protein productivity on land used to grow
  soybeans while producing lignocellulosic biomass
  at about a rate of about 7 dry tons per acre
  annually. The limited data available suggest
  that the quality of switchgrass protein is
  comparable to soy protein, and technology for
  protein extraction from leafy plants is rather
  well-established. The 74 million acres currently
  planted in soybeans in the U.S. could, in
  principle, produce the same amount of feed
  protein we obtain from this land now while also
  producing over 520 million tons of
  lignocellulosic biomass. Alternatively, if new
  soy varieties were developed with increased
  above-ground biomass (option 4, Table 1), this
  could provide on the order of 350 million tons of
  lignocellulosic biomass although soil carbon
  implications would have to be addressed.
• Source Lee R. Lynd, Producing Cellulosic
  Bioenergy Feedstocks from Currnently Managed
  Lands,

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Potential for Billion Tons of Biomass

• In the context of the time required to scale
  up to a large-scale biorefinery industry, an
  annual biomass supply of more than 1.3 billion
  dry tons can be accomplished with relatively
  modest changes in land use and agricultural and
  forestry practices

Technical Feasibility of a Billion-Ton Annual
Supply US Department of Energy Report , April
2005. http//www.eere.energy.gov/biomass/pdfs/fina
l_billionton_vision_report2.pdf
. Or a 100billion gallons per year!
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Biomass Will Make a Difference
Turning South Dakota into
a member of OPEC?!
Thousand barrels/day
Today
Tomorrow
44 Million
Farm acres
44 Million
Saudi
9,101
5
15
Tons/acre
South Dakota
3,429
80
Gallons/ton
60
Nigeria
2,509
857
3,429
Thousand barrels/day
2,478
UAE
2,376
Kuwait
Iraq
2,011
Libya
1,515
Qatar
818
or 30 of U.S. transportation fuel supply!!
Source Ceres Company Presentation
23
Land Is Not Scarce
US Acreage Total 2,300M acres
U.S. Cropland Unused or Used for Export Crops
In 2015, 78M export acres plus 39M CRP acres
could produce 384M gallons of ethanol per day or
75 of current U.S. gasoline demand
Source Ceres Company Presentation
24
Farmers Are Driven By Economics
Per acre economics of dedicated biomass crops vs.
traditional row crops
Source Ceres Company Presentation
25
Biomass as Reserves One Exxon every 10 yrs!!

1 acre 100M acres
209 barrels of oil 20.9 billion barrels
Assumes 10 yr contract Source Energy
Intelligence (data as of end of 2004)
Ceres Company Presentation
26
Energy BalanceFossil Fuel Use Reductions
27
Fossil Fuel Use
Legend EtoH Ethanol
Allo. Allocation
Disp. Displacement
28
Environmental Issues
29
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Emission Levels of Two 2005 FFVs(grams per mile
_at_ 50,000 miles)
31
Subsidies ?

• Not on world ethanol prices
• Tax 0.54/gal subsidy 0.51/gal
• Cost of production lower ethanol vs. oil
• Corn ethanol Oil _at_40-45/barrel
• Cellulosic/Brazilian Oil _at_35/barrel (3years)
• Technology 10 years 25/barrel??

32
Technology Improvements

• Bioengineering
• Enzymes
• Plant engineering
• Energy crops
• Switch grass
• Poplar
• Willow
• Miscanthus
• Co-production of animal protein
  cellulose/hemi-cellulose
• Process Process Yields
• Process Cost
• Pre-treatment
• Co-production of industrial chemicals to reduce
  net fuel costs
• Process Yield gals/dry ton
• Consolidated bioprocessing

33
Ceres What one company is doing
34
Expanding Usable Acreage
Heat tolerance
Drought tolerance
Cold germination
Drought Inducible Promoters
Salt tolerance
Drought recovery
Source Company Presentations
35
Increasing Tons per Acre
Photosynthetic Efficiency
Flowering time
Increased biomass
Herbicide tolerance
Shade tolerance
Stature control
Source Company Presentations
36
Reducing Dollars per Acre
Nitrogen partitioning
Nitrogen uptake
Photosynthetic efficiency under low nitrogen
Increased root biomass
Source Company Presentations
37
Increasing Gallons per Ton
Gallons of ethanol per dry ton of feedstock
Plant structure (How easy is it to access and
digest?)
Composition (How much carbohydrate is there?)
Data represents theoretical yields as reported
by Iogen
Source Company Presentations
38
Reducing Cost Through Enzyme Production
Activation Line
Target Line
X
Promoter
Protein
Sterility Factor
Transcription factor
Fluorescent marker
Ceres proprietary gene expression system
Tissue-specific promoters
Ceres promoter
Industry standard promoter
Source Company Presentations
39
Ceres Developing Commercial Energy Crops
Generating Plant Material for DNA Libraries to be
Used in Molecular Assisted Breeding
Transformation with Ceres Traits
Embryogenic callus
1 day after trimming
Shoot regenerated from callus
Plant regeneration
Re-growth after 15 days
Ceres expects to have proprietary commercial
varieties ready for market in 2-3 years and
transgenic varieties in 5-7
Source Company Presentations
40
Other Technology Companies

• Genecore
• Novazyme
• Diversa
• Iogen
• BCI
• Mascoma
• Canavialis (www.canavialis.com.br)
• .????

41
Strategy Tactics

• Choice Oil imports or ethanol imports?
• GDP beyond food to food energy rural
  economy
• Add 5-50B to rural GDP
• Better use for subsidies through energy crops
• Rely on entrepreneurs to increase capacity
• Rely on biotechnology process technology to
  increase yields .
• Increased ethanol use mandates already in place
• 20 /yr production capacity increase plans
  already in process!
• Ethanol fuel cells possibly after ethanol
  distribution is place (if needed)

42
Brazil A Role Model
43
Brazil FFV Market Share of Light Vehicle Sales
Can Rapid Adoption of FFV Happen?
.from 4 in early 2003 to 70 in Dec. 2005!!!
44
Ethanol Learning Curve of Production Cost
100
Market Conditions
Ethanol
(producers BR)
1980
1986
1996
( Oct. 2002) US / GJ
10
2002
1990
1993
1999
Gasoline
(Rotterdam)
1
0
50000
100000
150000
200000
250000
Accumulated Ethanol Production ( 1000 m3)
(J Goldemberg, 2003)
45
Brazil sugar-cane/ethanol learning curve Liters
of ethanol produced per hectare since between
1975 to 2004
??
46
Consumer Price Ratio
São Paulo (SP)
Source Honorable Roberto Rodrigues, Minister of
Agriculture, Brazil (Assessing Biofuels Conf.,
June 2005)
SOURCE MAPA
47
Brazil Ethanol Facts

• Employment Gasoline/Ethanol is 221
  (Brazil-ANFAVEA)
• Ethanol 40 of total consumption of spark
  ignition cars (non-diesel)
• VW planning on a phase out of all gasoline cars
  in 2006?
• Canavialis (www.canavialis.com.br) plant
  genetics company developing an "energy cane"
  (more cellulose, less sucrose)

48
Status United States
49
Ethanol Capacity Expansion is Underway
50
Ethanol FFVs Are Here! Californias Motor
Vehicle Population
51
Opportunities for Oil Companies

• Upstream
• Downstream
• And more!
• Balance sheets
• Distribution
• Process Plant management
• Ownership of (Oil) vs NOCs

52
CALEAP
53
References

• NRDC Report Growing Energy (Dec 2004)
• http//soilcarboncenter.k-state.edu/conference/car
  bon2/Fiedler1_Baltimore_05.pdf
• George Schultz Jim Woolsey white paper Oil
  Security
• Rocky Mountain Institute Winning the Oil
  Endgame
• http//www.unfoundation.org/features/biofuels.asp
• http//www.transportation.anl.gov/pdfs/TA/354.pdf
• The Future of the Hydrogen Economy (
  http//www.oilcrash.com/articles/h2_eco.htm8.2 )
• Fuel Ethanol Background Public Policy Issues
  (CRS Report for Congress, Dec. 2004)

54
Comments?
Vinod Khosla vkhosla_at_kpcb.com
55
ETHANOL MARKET PERSPECTIVE
Luiz Carlos Corrêa Carvalho Sugar and Alcohol
Sectorial Chamber, Ministry of Agriculture, Brazil
Assessing the Biofuels Option Joint Seminar of
the International Energy Agency, the Brazilian
Government and the United Nations
Foundation Paris, 20 21 June 2005
56
Consumer Prices Ratio
São Paulo (SP)
Source Honorable Roberto Rodrigues, Minister of
Agriculture, Brazil (Assessing Biofuels Conf.,
June 2005
SOURCE MAPA
57
Current Situation

• Acohol-gasoline mixture set to 25 since July,
  2003.
• The automotive industry has launched
  flexible-fuel cars in March, 2003.
• Advantage to alcohol consumption if oil prices
  are above US 35 / per barrel.
• Total consumption 200,000 barrels / day of
  equivalent gasoline (30,000 gas-stations).
• 40 of total consumption of spark ignition
  cars (Otto Cycle Engines).
• May, 2005 for the first time, flexi-fuel
  vehicles sales exceeded gasoline-fueled vehicle
  sales, 49.5 against 43.3.

Source Honorable Roberto Rodrigues, Minister of
Agriculture, Brazil (Assessing Biofuels Conf.,
June 2005
58
Comparative Energy Balance
Source Leal, Regis, CO2 Life Cycle Analysis of
Ethanol Production and Use, LAMNET, Rome, may 2004
59
LIFE CYCLE GHC EMISSIONS IN ETHANOL PRODUCTION
AND USE
Source Leal, Regis, CO2 Life Cycle Analysis of
Ethanol Production and Use, LAMNET, Rome, may 2004
60
Ethanol LEARNING CURVE (J Goldemberg, 2003)
100
Market Conditions
Ethanol
(producers BR)
1980
1986
1996
( Oct. 2002) US / GJ
10
2002
1990
1993
1999
Gasoline
(Rotterdam)
1
0
50000
100000
150000
200000
250000
Accumulated Ethanol Production ( 1000 m3)
61
ETHANOL AND EMPLOYMENT
( IN THE PRODUCTION OF THE VEHICLE AND OF FUEL)
Considering that an ethanol driven vehicle
consumes, on average, 2.600 litres of ethanol per
year ( one million litres of ethanol, per year,
generates 38 direct jobs )for gasoline, spends
20 less fuel ( one million litres of gasoline,
per year, generates 0,6 direct jobs) C
gasoline contains 25 ethanol.
Source Copersucar/Unica/ANFAVEA/PETROBRAS
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63

• The Ethanol application as vehicular fuel in
  Brazil.
• Brazilian Automotive Industry Association -
  ANFAVEA
• Energy Environment Commission
• Henry Joseph Jr.

64
Brazil FFV Market Share of Light Vehicle Sales
.from 4 in early 2003 to 67 in Sept. 2005
65
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3. Brazilian Domestic Production of Vehicles
Passenger Cars, Light Commercials, Trucks and
Buses
2003
Brazil 10th World Production 1.828.000 vehicles
/ year
67
Vehicle Modifications
Carburetor The material of the carburetor body or
carburetor cover cannot be aluminum or exposed
Zamak if it is, must be substituted, protect
with surface treatment or anodize Any component
in polyamide 6.6 (Nylon) that has contact with
the fuel must be substituted by other material or
protected The material of buoy, nozzle, metering
jet, floating axle, seals, gaskets and o-rings
must be appropriated.
Fuel Tank If the vehicle fuel tank is metallic,
the internal surface of tank must be protected
(coated) Any component in polyamide 6.6 (Nylon)
that has contact with the fuel must be
substituted by other material or
protected. Higher fuel tank capacity, due to the
higher fuel consumption.
Engine The engine compression ratio should be
higher Camshaft with new cam profile and new
phase New surface material of valves (intake and
exhaust) and valve seats.
Intake Manifold With new profile and less
internal rugosity, to increase the air flow Must
provide higher intake air temperature.
Catalytic Converter It is possible to change the
kind and amount of noble metal present in the
loading and wash-coating of catalyst
converter The catalyst converter must be placed
closer to the exhaust manifold, in order to speed
up the working temperature achievement
(light-off).
Electronic Fuel Injection Substitution of fuel
injector material by stainless steel New fuel
injector design to improve the fuel spray New
calibration of air-fuel ratio control and new
Lambda Sensor working range Any component in
polyamide 6.6 (Nylon) that has contact with the
fuel must be substituted by other material or
protected.
Exhaust Pipe The internal surface of pipe must be
protected (coated) The exhaust design must be
compatible with higher amount vapor.
Fuel Pump The internal surface of pump body and
winding must be protected and the connectors
sealed Any component in polyamide 6.6 (Nylon)
that has contact with the fuel must be
substituted by other material or protected. The
pump working pressure must be increased.
Fuel Pressure Device The internal surface of the
fuel pressure device must be protected Any
component in polyamide 6.6 (Nylon) that has
contact with the fuel must be substituted by
other material or protected. The fuel pressure
must be increased.
Motor Oil New additive package.
Cold Start System Auxiliary gasoline assisted
start system, with temperature sensor, gasoline
reservoir, extra fuel injector and fuel pump The
vehicle battery must have higher capacity.
Fuel Filter The internal surface of the filter
must be protected The adhesive of the filter
element must be appropriated The filter element
porosity must be adjusted.
Ignition System New calibration of advance
control Colder heat rating spark plugs.
Evaporative Emission System Due to the lower fuel
vapor pressure, it is not necessary evaporative
emission control.
(Otto Engines)
68
8. Relative Performance of Ethanol Engines
69
10. Comparative Raw Exhaust Emission
70
15. Comparative Aldehyde Emission
71
16. Comparative Evaporative Emission
72
11. The Fossil Fuels
73
12. The Renewable Fuels
Photosyntesis
CO2
74
Comparative Vehicle Prices (Brazil)

• Ford EcoSport XL
• 1.6L 8V gasoline - 14.859,00
• 1.6L 8V Flex Fuel - 15.231,00
• Volkswagen Gol 2d
• 1.0L 8V Special gasoline - 7.496,00
• 1.0L 8V Special alcohol - 7.649,00
• 1.0L 8V City Total Flex - 8.035,00
• Renault Scénic Privilège 4d
• 2.0L 16V gasoline - 22.597,00
• 1.6L 16V Hi-Flex - 21.540,00

( 1,00 R 2,933)
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http//www.transportation.anl.gov
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Wholesale Prices
Source http//www.eia.doe.gov/pub/oil_gas/petrole
um/data_publications/petroleum_marketing_monthly/c
urrent/pdf/pmmall.pdf
93
Projected World Oil Prices (EIA)
Source EIA Reports
94
US Domestic Oil Consumption Supply
Source EIA Reports
95
Prices of Selected Petroleum Products
Source http//www.eia.doe.gov/pub/oil_gas/petrole
um/data_publications/petroleum_marketing_monthly/c
urrent/pdf/pmmall.pdf
96
Tutorial

• http//www.eere.energy.gov/biomass/understanding_b
  iomass.html