Last week, BP announced its $30 million investment in Fulcrum BioEnergy. In addition to an equity stake in the company, BP secured an offtake agreement of 500 million gallons over 10 years, and Air BP will become a distributor and supplier of Fulcrum’s biojet fuel in North America. This is just one of numerous announcements from Fulcrum, as its momentum has remained strong and kept it in the headlines over the past 18 months (client registration required for both). Fulcrum has put in place all the strategic pieces along its entire value chain, securing a strong foundation as it competes with many of its peers vying for position in the biojet fuel market. Below, we visualize Fulcrum’s strategic partnerships as it prepares its 10 million gallons per year (MGY) Sierra Biofuels Facility planned for operation in 2018.
While Fulcrum’s progress so far is significant, questions remain regarding the technical scale-up of its integrated process. It remains unlikely Fulcrum will go down the same path as the now-defunct Solena Fuels GreenSky Project, but the failure of the British Airways -sponsored project should still be considered a sign of caution of what could potentially go wrong (client registration required). One of the differentiators of Fulcrum compared to other companies pursuing Fischer-Tropsch (FT) is that it has operated a three-barrel-per-day pilot facility in North Carolina, through its technology providers ThermoChem Recovery International (TRI) and Emerging Fuels Technology (EFT). The operational data and process validations from its pilot facility will play a key role in mitigating scale-up issues at Sierra Biofuels.
Lastly, the cost-competitiveness of Fulcrum remains to be seen as conventional jet fuel prices hover around $55 per barrel to $58 per barrel today. The fixed cost feedstock supply with Waste Management and Waste Connections, Inc. will help Fulcrum mitigate price volatility for over 20 years. But the capital-intensive nature of Fischer-Tropsch will drive up the minimum biojet fuel selling price to an estimated $140 per barrel to $160 per barrel (client registration required). Here is where Fulcrum’s relationship with Tesoro may prove pertinent for cost parity. Of the announced 300 MGY capacity by 2022, only approximately 95 MGY is accounted for in offtake agreements for biojet fuel. Given Fulcrum’s and Tesoro’s joint application in California Air Resources Board (CARB) Low-Carbon Fuel Standard (LCFS) for renewable diesel, we suspect that the remaining capacity will be comprised of the drop-in fuel (client registration required). In that case, renewable diesel would generate Renewable Identification Number (RIN) credits through the U.S. Renewable Fuel Standard (RFS) and additional LCFS credits in California. From this, Fulcrum could generate nearly $80 per barrel worth of incentives and credits to help offset the high production cost, bringing the minimum biojet fuel selling price closer to conventional jet fuel.
Readers should closely monitor the progress made by Fulcrum leading up to 2018. The success of scale-up for its Sierra Biofuels facility will have a domino effect on the remaining proposed seven facilities it intends to bring online by 2022. We are not labeling Fulcrum a success story just yet, but it definitely has the potential through its shrewd partnerships and continued momentum.
By: Yuan-Sheng Yu