-----

Resources



Market News

 October 04, 2016
Airline Low-Carbon Future Needs Fuel Nobody Makes in Volume

 The airline industry's plan to ease its impact on global warming hinges on fuels made from vegetable oil, corn and household garbage. The hitch: nobody has ever been able to produce the stuff in the volumes needed.

JetBlue Airways Corp., United Continental Holdings Inc. and Richard Branson's Virgin Group Ltd. have begun blending eco-friendly substitutes into traditional jet fuel made from kerosene. Even with that backing, there's still only a handful of producers of the fuels. They lack the capacity to crank out the billions of gallons needed to supply the global aviation fleet, and the pace of investment is slowing.

Even so, airlines are staking their low-carbon future on renewable fuels. The aviation industry, responsible for more than 2 percent of greenhouse gases, is being pushed to act this week by delegates from 190 nations, who are debating a United Nations accord in Montreal that would cap emissions from international flights. Ultimately, that means burning less fossil fuel. With electric planes still experimental, airlines and aerospace companies say biofuels are their best bet.

"There is a tremendous amount of determination to make biofuel work because we just don't have any alternative," Julie Felgar, Boeing Co.'s managing director of environmental strategy and integration, said in an interview.

The biofuel industry currently has enough factories to produce as much as 100 million gallons (378 million liters) of jet fuel annually, said Claire Curry, an analyst at Bloomberg New Energy Finance. That barely registers next to the more than 83 billion gallons airlines consume each year.

Investments in biofuel, meanwhile, are at a record low, with $322 million in backing globally during the first six months of 2016, according to BNEF. That's off 64 percent from the first half of 2015 and down 98 percent from a decade ago, when ethanol production for automobiles took off.

"This is still a pipe dream," Curry said. "No one has figured out how to make these fuels at scale yet. The technologies are really complicated. They often don't work. And the plants can cost half a billion dollars to build."

Advocates for renewable jet fuel say the industry will develop after the UN accord takes effect and drives up demand, just as ethanol production boomed in the U.S. after lawmakers passed the Renewable Fuel Standard in 2005. Patrick Gruber, chief executive officer of Gevo Inc., said its jet fuel works, and scaling up is "cookie cutting."

"We know how to do this," Gruber said. "We just have to make more production lines."

His company is based in Englewood, Colorado, and makes renewable fuel from corn and other crops. It's backed by the French oil company Total SA and has sales agreements with Alaska Air Group Inc. and Deutsche Lufthansa AG.

Yet it's not always easy to scale up biofuel manufacturing, a complex process involving tiny microbes. In 2012, a contamination problem temporarily derailed Gevo's efforts to increase output of its primary jet fuel ingredient, isobutanol, at its refinery in Luverne, Minnesota. Gruber said the issues are "well behind us."

Major oil companies have also struggled to develop cost-effective transportation biofuels. "The smartest minds in my company and others haven't yet cracked the code on pairing the right feedstock conversion technology and logistics in an economic and scalable package," Chevron Corp. CEO John Watson said in a 2014 speech.

The aviation industry supports the pending UN accord and has set ambitious environmental goals of its own. Those include improving average fuel efficiency by 1.5 percent a year through 2020 and reducing emissions to half of 2005 levels by 2050. Jet fuel is among airlines' biggest expenses, and squeezing every last mile from a gallon is crucial to the bottom line.

'Creating Demand'

"Airlines are stepping up and creating demand,'' Sophia Mendelsohn, JetBlue's head of sustainability, said in an interview. "It is hard for me to envision a long-term situation where the biofuel industry does not mature and develop.''

Airlines began testing biofuels in 2008 and have since used them on more than 1,500 passenger flights. JetBlue agreed in September to buy more than 33 million gallons of blended fuel annually, using renewable fuel from S.G. Preston Co. In March, United Continental announced a three-year deal to buy 15 million gallons of biofuel from AltAir Paramount for flights out of Los Angeles.

Not all deals have worked out. In 2014, British Airways Plc announced a $550 million agreement with Solena Fuels for a factory in London to convert municipal trash into jet fuel beginning in 2017. The airline agreed to buy about 30 millions gallons a year at market price. At the time, oil was $109 a barrel.
Within a year, it was below $50 a barrel, and Solena dropped the project.
"We couldn't compete with oil that cheap," Solena CEO Robert Do said in an interview.

The products offered by Solena, Gevo and others are almost chemically identical to kerosene. They're considered renewable because their carbon comes from plants that can be re-grown to refresh supplies. Fuels made from petroleum, by contrast, are exhausted when they are burned, releasing carbon into the air.

Environmental Concerns

Still, environmental concerns remain. It takes energy to produce biofuel, and emissions from that process may offset gains from using less fossil fuels in the sky. As the industry expands, advocates worry that growing corn and sugar cane for airlines will affect forests, food supplies and water.

"All of these issues need to be monitored and taken into account," said James Beard, who focuses on energy and climate at the World Wildlife Fund.

Airlines aren't depending on biofuels alone to cut emissions. They're also working on more aerodynamic planes, cutting cargo weight, improving air-traffic control procedures and enlisting other technological and operations measures. But in the end, they will also need to wean themselves off petroleum-based fuel.

"You can only push fuel efficiency so far," said Nancy Young, vice president of environmental affairs for the trade group Airlines for America. "It is a matter of physics."