KiOR halts cellulosic fuels production at Columbus in Q1 to optimize production; need for R&D to boost yield and cut costs
In a conference call on Friday, KiOR President and CEO Fred Cannon said that the company will halt production of cellulosic gasoline, diesel and fuel oil at its plant in Columbus, Mississippi in order to implement a number of optimization projects it identified as necessary—based on its experience in 2013—to optimize production to enhance yield, throughput and operability and to minimize cost.
In December 2013, Cannon had said that KiOR would operate the Columbus plant “on a limited campaign basis only” to verify the impact of improvements. (Earlier post.) In the Friday call, he said that the company would only operate the Columbus facility during Q1 “only to the extent we want to test and prove optimization projects.” The current execution plan for 2014 is to focus exclusively on bringing the plant to its nameplate basis, and further to develop yield and process efficiency through R&D.
KiOR is a significant factor in the US Environmental Protection Agency’s (EPA’s) calculation of cellulosic fuel volumes for the Renewable Fuel Standard (RFS) program. With the final 2013 overall volumes and standards requiring 16.55 billion gallons of renewable fuels to be blended into the US fuel supply (a 9.74% blend), EPA projected 6 million gallons (0.004%) of cellulosic biofuels. Of that, EPA projected the bulk to come from the KiOR Columbus plant (5-6 million gallons of renewable gasoline and diesel).
|“We do not believe that it is prudent to fund the production of cellulosic fuels out of Columbus at a significant loss to prices…these losses are driven by the operating state—low volume cannot absorb the cost of production.”|
For the 2014 percentage standards, EPA proposed reducing the overall target to 15.21 billion gallons, with 17 million gallons of cellulosic biofuel. (Earlier post.) Of that 17 million, EPA expected 0-9 million gallons from KiOR.
During the call, Cannon said that KiOR had produced 894,000 gallons of total fuel product in 2013, with 385,000 gallons of that in the fourth quarter. The ratio between gasoline, diesel and fuel oil is 41% gasoline, 37% diesel, and 22% fuel oil.
The final results, however, fell short of what the company had projected in December: approximately 410,000 gallons of renewable fuel during the fourth quarter of 2013, which would have brought the full year production total from the facility to approximately 920,000 gallons.
|“We must drive yield toward and beyond 80 gallons per ton, while reducing product cost per gallon.”|
KiOR has developed a proprietary catalytic pyrolysis process to convert non-food biomass into drop-in fuels. The company’s technology platform combines its proprietary catalyst systems with a process based on existing Fluid Catalytic Cracking (FCC) technology, a standard process used for more than 60 years in petroleum refining. The efficiency of KiOR’s process—Biomass Fluid Catalytic Cracking (BFCC)—and the proven nature of catalytic cracking technologies is intended to provide cost advantages, including lower capital and operating costs, versus traditional biofuels producers, the company says.
During Q4 2013, KiOR ran its BFCC unit for approximately 65 days—about 70% of planned onstream time; the percentage in Q1 2013 was about 20%. Based on its 2013 experience, Kior is focusing 2014 execution on three goals:
To complete a series of specific optimization projects and upgrades it believes are essential for Columbus to reach expectations for operations and financial performance and to serve as basis for future.
We have proven that our technology can produce drop-in hydrocarbons from biomass at commercial scale. However, we have learned that additional work is required to bring Columbus from its current performance—250-300 tons per day [biomass throughput] with a yield in the low 30s in terms of gallons per ton to levels consistent with expectations.—Fred Cannon
Improvements will include some changes to the BFCC, hydrotreater and woodyard. Assuming the improvements are implemented on time, the company expects to be able to process about 500 bone dry tons of biomass per day by the end of 2014.
Further, assuming commercial supply of its next-generation catalyst in by the second quarter of 2014, as well as the installation of additional equipment to recover yield from process gases and water, KiOR expects a significant increase in yield by the first quarter of 2015.
To continue to drive R&D to increase yield and operational efficiency and to improve the economics.
To remain focused on managing cash burn to reduce the requirement for additional funding until the company can build its next commercial facility.
The company anticipates that the improvement project will require an investment of about $10 million over the course of 2014, and it is actively pursuing a number of ways to secure financing.
We expect to continue to invest in R&D technology teams for next-generation catalysts and process efficiency. We believe the further evolution of the technology will generate enhanced economics for both Columbus and our next commercial scale plant. We must drive yield toward and beyond 80 gallons per ton, while reducing product cost per gallon. We believe that the further investment in R&D and the results from that is the only way to achieve that goal. To that end, we expect to spend $22 million in support of R&D in 2014.—Fred Cannon
Exacerbating the basic economic problem of the plant is the impact of EPA’s proposed reduction of renewable fuel volumes for 2014. (Earlier post.) The proposal has severely depressed the RIN value, shrinking KiOR’s income from that source. (In addition to payment for the gasoline and diesel, KiOR can sell RINs.)
Although this rulemaking remains in the comment period…the mere announcement dropped the value of cellulosic RINS and significantly decreased the RIN value for each gallon.—Fred Cannon
KiOR does not intend to provided guidance on production during 2014; the company will evaluate whether or not to provide production guidance in the future.