CPA BIOMASS ALTERNATIVE FEEDSTOCKS FOR FUELS CHEMICALS

CPA BIOMASS: ALTERNATIVE FEEDSTOCKS FOR FUELS, CHEMICALS & POLYMERS Presented to AICh. E, Metro New York Section New York Institute of Technology, Gallery 61 Studio 16 West 61 st Street - 11 th Floor (61 st Street and Broadway), NYC May 17, 2010 Howard R. Blum & Lee Diestelow Chemicals & Plastics Advisory “CPA” Ambler, PA Contact: +1 -215 -802 -0052 CPA Chemicals & Plastics Advisory © 2010

Agenda § § § CPA Background Fuels Chemicals Polymers Conclusion Chemicals & Plastics Advisory

Background CPA Chemicals & Plastics Advisory © 2010 3

Biomass: defined as a renewable energy source, derived from plants and organisms that can be converted into fuel, chemicals and polymers § Biomass is not new – it has always been here - trees, grasses, other plants, and the sea § § § § CPA (e. g. algae) , and of course animals Ironically, fossil fuels come from very ancient biomass sources, but are not considered biomass because the contained carbon has been "out" of the carbon cycle for a long time - Therefore, fossil fuel emissions such as CO 2 or CO are “additive” to the overall content of today’s atmospheric carbon gases and considered by many as an environmental problem Examples of fuels derived from biomass: wood chips, methane, ethanol & bio-diesel Outside the fuels market, the global chemical industry, including polymers is estimated to exceed $3 Tril. in sales Chemicals enable many adjacent industries such as pharmaceuticals & healthcare, paints & coatings, adhesives, packaging, building products, soap & detergents and many more There are literally hundreds of biomass derived chemicals including bio-ethylene, various polyols, propanediol, surfactants and many types of specialties for personal care There also many types of biomass derived polymers, such as bio-polyethylene, polylactic acid (PLA), polyhydroxy alkanoate (PHA), epoxy resins, alkyd resins, regenerated cellulosics and many more Chemicals and polymers, combined with adjacent end use sectors represent a broad and fertile potential for biomass derivatives Chemicals & Plastics Advisory © 2010 4

Success of biomass conversion technologies for fuels, chemicals and polymers depends on competitive economics, legislation & public opinion § Economically attractive biomass conversion, and therefore successful monetization of biomass feedstock and its derivatives, are partly based on the competitive price point for using competitive fossil fuels and derivatives § Government legislation of laws and codes that promote biomass conversion will play a strong role in terms of numerous impact-points; e. g. - Tax incentives to produce biomass feedstocks and biofuels Carbon trading and carbon taxes Rules on environmental outputs; e. g. VOCs § The public’s interest to consume so-called “green” products has seen exceptional motivation since oil price escalation in mid-2008 and the general mistrust of the political system § Therefore, competitive technology and raw material sourcing will be key ingredients in achieving success in bio-derivatives CPA Chemicals & Plastics Advisory © 2010 5

Ultimately, routes to Biorenewability succeed if they enable economic paths to complete the Carbon-cycle

Fuels CPA Chemicals & Plastics Advisory © 2010 7

The US derives a little under 50% of its crude oil requirements from domestic

Fossil fuels are expected to continue to hold the majority position through 2022, although biomass feestocks will increase share Production Targets and Projected Fuel Demand CPA Chemicals & Plastics Advisory © 2010 9

The Energy Independence & Security Act (EISA) of 2007 set the EPA’s Renewable Fuels Standard RFS 2, which replaces the 2005 RFS 1 version RFS 2: Higher renewable fuel volumes by 2012 and beyond RFS 1 notes 7. 5 BG in 2012 CPA Chemicals & Plastics Advisory © 2010 10

RFS 2 requires additional & different sources / routes for Biomass to Fuel conversions, targets GHG reduction and adjusts cellulosic ETOH phase-in § Renewable Fuel Standard RFS 2 was set by EISA 2007 § The EPA Administers Transportation Bio-fuels; biofuel production requirements were recently revised (Feb 2010), adjusting cellulosic ethanol timeframe & clarifying biofuel sources § Biofuel production requirements: Implementation timeframe adjusted to reflect R&D reality - 9. 0 Bil. Gal. in 2008 & 12. 95 Bil. Gal. in 2010 - 36. 0 Bil. Gal. - 2022 (requires 21. 0 Bil. Gal. from cellulosic ethanol) § Four types of fuel described as CBAR (60% GHG reduction of lifecycle emissions by 2022 vs the RFS 1 commercial gasoline pool of 2005): - Type C Cellulosic Biofuels must show a 60% GHG reduction – (produce 16 BG) Type B Biomass-Based Diesel must show a 50% GHG reduction – (produce >1 BG TBD) Type A Advanced Biofuels must show at least a 50% GHG reduction – (produce 21 BG) Type R Renewable fuel (total) must show at least a 20% GHG reduction – 37 BG) § Existing ethanol production facilities are subject to grandfathering requirements that exempt them from the GHG performance requirements for a defined period of time § RFS 2 further supports: - Corn Ethanol, Advanced- Ethanol, other alcohols (butanol), multiple feed stocks- cellulose, ligno-cellulose, algae, and biodiesel CPA Chemicals & Plastics Advisory © 2010 GHG=Green House Gases 11

Biofuels will also come up against arguments tied to the energy balance § § § § The energy debate: how do we perceive the balance of energy? Energy Inputs > or = or < Energy Output (how to measure)? Inputs must be less than outputs to win the argument – use LCA (Life Cycle Analysis) includes: - Energy Input from all Sources- - Raw Material Production, Supply Chain, Processing - Water Consumption - Fertilizer ETOH – Easiest & most common – but not the best source Corn – Energy balance is open to debate, But USDA studies confirm viability of corn as a feed stock Non-food sources are cellulosics… - Rice straw - Corn Stover - Bagasse - Corn Fiber - Dedicated Energy Crops CPA Chemicals & Plastics Advisory © 2010 12

[e The energy densities of key liquid fuels varies considerably; Butanol is closest to gasoline and can be substituted 1: 1 up to 16% fuel concentration Major Liquid Fuels Fuel Energy density Air-fuel ratio Specific energy Heat of vaporization RON MON Gasoline & biogasoline 32 MJ/L 14. 6 2. 9 MJ/kg air 0. 36 MJ/kg 91– 99 81– 89 Butanol fuel 29. 2 MJ/L 11. 1 3. 2 MJ/kg air 0. 43 MJ/kg 96 78 Ethanol fuel 19. 6 MJ/L 9. 0 3. 0 MJ/kg air 0. 92 MJ/kg 107 89 16 MJ/L 6. 4 3. 1 MJ/kg air 1. 2 MJ/kg 106 92 Methanol DOE is working to establish two economic routes to cellulose-based biofuels & chemical feedstocks: thermochemical & enzymatic hydrolysis CPA Chemicals & Plastics Advisory © 2010 13

An example of a typical thermochemical route integrates pyrolysis with gasification. Proven commercial equipment exists for biofuels from ligno-cellulosics Thermochemical Rx Equipment & Biochem. Pyrolysis Thermochemical Reactor Biochemical Pyrolysis CPA Source: European Biofuels Technical Platform- Biofuel STP. EU Chemicals & Plastics Advisory © 2010 14

First generation biofuels are commercial; cost optimization and scalability issues are being addressed 1 st Generation Biofuels § Ethanol- Clean burning oxygenate, high octane gasoline replacement & extender - Commercial since 1970’s Brazil, US - New studies confirm favorable net energy balance 1. 67: 1 (neg. in 1990 s) - USDA- 2002, 2004 - 34% more energy released than put in - Corn ethanol is cost competitive with gasoline when crude is priced above $50/BBL; ($30/BBL sugar cane) - Has a 35% gain in the bushel/ lb fertilizer; yield per acre up 50% to 125 BU/Acre § Biodiesel- high cetane, sulfur free alternative for diesel and heating oil - Europe commercialized in 1990’s CPA 2 nd Generation Biofuels § R&D Efforts- - Increasing range of feedstocks (cellulosics; e. g. corn stover) - Reducing biomass to liquid costs - Two technology platforms o Biochemical path- cellulose to sugars followed by fermentation to alcohols (C 2, C 4) o Thermochemical path- gasification to syngas followed by synthesis to fuels - Commercial renewable diesel plants being built

Diesel Fuel Directly From Biomass (in one-step!) – looks promising § DOE’s Joint Bio. Energy Institute (JBEI) - engineered a strain of E-Coli for advanced biofuel from biomass - ‘Permitting’ concerns exist over use of GMO’s - an issue dependent on local regulations § E-coli produces fatty acids that are bound to carrier proteins; accumulation of bound fatty acids limits production of additional fatty acid § E-coli are efficient in the use of energy and don’t produce excess fatty acid. By breaking the bond with the carrier protein, additional fatty acid will be produced § This diverts fatty acid metabolism to produce fuels & chemicals from glucose § JBEI E-Coli strain of enzymatic bacteria produce hemicellulose (complex sugars - the major portion of biomass) § In the same step, the enzymes can ferment the hemicellulose § E-Coli that ferments both cellulose and hemicellulose eliminates the need for costly enzymes; greatly improves economics of Biofuels - maximizes conversion efficiency § Furthermore, the costs of recovering biodiesel are less than cost to distill ethanol CPA

Bacterial and Algae Based Bio-Fuels Could be Revolutionary Major Players in Algae based Biofuels 2 nd Generation § 15 start ups demonstrate viability § Backing is coming from major energy producers like Shell, BP and Chevron Bio-butanol § Butamax: Du. Pont & BP JV demonstration § Conventional feedstocks include corn and sugarcane - But will move into cellulosics (grasses and corn stalks) and even algae lipid feedstock Algae to: Methanol, Ethanol, Butanol & Biodiesel CPA Chemicals & Plastics Advisory © 2010 17

Conclusions Corn starch § While under considerable § § CPA scrutiny, Corn starch routes to ETOH appear to have a positive energy balance using current data Scalability and demand vs. food supply use remain an issue; (public’s perception) Targets are being met Ligno-cellulosics § Advances in Enzyme technology are improving economics §Supply Chain Logistics and material handling techniques are being improved & proven §Commercial material preparation methods are being adapted for new processes Chemicals & Plastics Advisory © 2010 Algae and Bacterial derived Fuels §Demonstrated technologies can produce biodiesel and bioethanol §Scale up and efficiency gains are required for sustainable businesses 18

Chemicals CPA Chemicals & Plastics Advisory © 2010 19

The NREL and DOE have proposed a very complex biobased product flow Source: NREL

The NREL and DOE have speculated on the top pathways to twelve building block chemicals produced from biomass extracted sugars § The 12 building block chemicals are produced from sugars via biological or chemical § conversions, and subsequently converted to a number of high-value bio-based chemicals or materials The building block chemicals are molecules with multiple functional groups that possess the potential to be transformed into new families of useful molecules, including: • • • CPA 1, 4 succinic, fumaric and malic acids 2, 5 furan dicarboxylic acid 3 hydroxy propionic acid aspartic acid glucaric acid glutamic acid itaconic acid levulinic acid 3 -hydroxybutyrolactone glycerol sorbitol Xylitol / arabinitol Chemicals & Plastics Advisory © 2010 21

Various pathways exist for creating the building blocks • The top building blocks and their derivatives can be converted in a two-part pathway: - 1 st part is the transformation of sugars to the building blocks - 2 nd part is the conversion of the building blocks to secondary chemicals or families of derivatives • Biological conversion account for the majority of routes from plant feedstocks to building blocks, but going from the building blocks to derivatives uses chemical conversion routes • The challenges and complexity of conversion pathways means that R&D still needs to improve the production economics CPA Chemicals & Plastics Advisory © 2010 Source: NREL / DOE 22

3 -Hydroxypropionic acid & succinic acid are good example of building block conversion to various intermediates The acrylics chain & Polyesters, Polyurethanes BDO & its derivatives, THF & Pyrrolidone CPA Chemicals & Plastics Advisory © 2010 Source: NREL / DOE 23

Polymers CPA Chemicals & Plastics Advisory © 2010 24

Polymer development timeline § Ironically, biopolymers are more than 100 years old and led much of the early § commercial success for petrochemical analogues Today we see co-mingling of bio and synthetic polymers in many applications Polymer Timeline; Biopolymers – The First Polymers Natural Rubber (Goodyear) 1839 Cellulose Nitrate; films & billiard balls 1862 Parkesine; molded cellulose CPA 1863 Viscose Rayon; regen. cellulose fibers 1872 1894 Polyvinylchloride (PVC) Bakelite; phenolformaldehyde resin 1908 1909 Cellophane film (viscose based) Chemicals & Plastics Advisory © 2010 Petrochem Polymers 100 YEARS >>> 2009 Biopolymers Re-emerge 25

Global polymer demand (all polymers) is very large indeed § Global polymer value approaches $600 million § Over the last ten years, Asia has become the leader in global polymer share of demand § Thermoplastics represent more than 65% of all global polymer demand Bio-building blocks or Biopolymers or biomaterials ? Regional Polymer Demand Share, 2008 Estimate Bio su ? ble e ior B a ew n Asia Pacific 35% ina ble N. America 25% ? ROW 15% las iop B ? cs ti Europe 25% sta Bi od eg ra da ble ? World Consumption of All Polymers, 2008 250 million MT (550 billion lb. ) CPA Chemicals & Plastics Advisory © 2010 26

Biopolymers cover all of the major polymer families § § Biopolymer demand is a fraction of total polymer demand Highest demand biopolymers include starch-based, cellulosics, polyesters and polyurethanes It is interesting to note that thermoplastics are perceived more ‘green’ than thermosets due to their inherent melt-processable recyclability. Biopolymer thermoplastics will therefore provide a unique blend of biorenewability and recyclability, especially for consumer needs. But, this only works if active recycling exists Biopolymer Global Demand, 2007 -2008 Estimate • Starch blends • PLA • Cellulosics - e. g. viscose & regen. • Alkyds (vegetable oil based) • Bio-polyols (urethanes) • PDO-based - e. g. PTT, other polyesters • PHA Key Commercial Products 80% Developing Markets 25% • Epoxy resins • Bio-polyethylene • Bio-PVC • Bio-nylons (11 and 610) • PDO-based • Poly-succinates • Bio-elastomers & rubber • PPC (CO 2 based) -e. g. pp-carbonate World Consumption of Biopolymers, 2007 -08 600 Thousand MT (1. 3 billion lb. ) CPA Chemicals & Plastics Advisory © 2010 27

Biopolymer economic viability relies on the competitive cost/pricing of crude oil, which will no doubt increase in cost over time § Cost of fossil-fuels is likely the most impacting on future competitive acceptance of biopolymers § Monomer feedstock costs for the incumbent petrochemical derived polymers, are generally the § most impacting cost element in the overall manufacturing process Therefore, the competitive price-point for biopolymers is very much influenced by the cost relationship of the incumbent fossil-fuel derived polymers Biopolymer Economic Viability vs. Crude oil Pricing Polyethylene Epoxies Economic Viability Poly-succinates Polyhydroxy alkanoates Polylactic acid We are here today PDO-polyesters Bio-polyols (urethanes) Starch-Blends $40 + $75 > $100 Crude Price ($/bbl) CPA Chemicals & Plastics Advisory © 2010 28

Biopolymer producers are both typical chemical companies and specifically biopolymer focused § There are many new biopolymer suppliers and technologies that have created a broad portfolio of § CPA grades suitable for both commodity and performance end uses Many producers provide a much stronger asset base than existed in previous years – a ‘critical mass’ large enough to self-perpetuate as long as demand maintains Chemicals & Plastics Advisory © 2010 29

Biorenewability & Bio-degradability - two different aspects for bio polymers – both equally important in achieving market success Product Biorenewability - Illustrative Degree of Bio-Degradability (%) 100 0 CPA Polylactic Acid (PLA) Nature. Works Poly-Hydroxy Alkanoate (PHA) Metabolix (Telles) others Cargill Ecovia Compound of Ecoflex & PLA Cargill Ecoflex Modified Aliphatic Polyester Bio-Degradable Starch Compounds Bio-Epoxy/Composites Dow: Glycerin to ECH Polymer / Natural Fibers Compounds & Composites Non-starch Bio -Degradable Compounds Du. Pont Sorona Bio-PDO to PTT, PU, PTMEG Fibers/Elastomers Bio-Succinates Polymer Derivatives Naphtha or Gas to C 2 & C 3 olefins to PE & PP Resins Glycerin from Bio-Diesel Soy & Castor Oils: For Polyols-UPR & PU Novomer CO 2 Biopolycarbonate Dow & Braskem Bio-PE from Sugar cane 100% Bio Provided by courtesy of Kline & Company Degree of Bio-Renewability vs. Fossil Fuel (%) Chemicals & Plastics Advisory © 2010 100 % Fossil 30

Conclusion CPA Chemicals & Plastics Advisory © 2010 31

Conclusions § In conclusion, the issue of whether biorenewable processes and products can succeed can be § § § § CPA viewed as: “not if, but when”? We continue to undergo an extended period of energy transition and economic uncertainty Uncertainties also continue to surround the future of fossil fuels vs. alternative approaches and the resulting energy costs - Although we know another oil shortage is coming, we don’t know when We however do know that a sufficient critical mass has been built in many chemical sectors that will drive new technologies and new approaches in achieving biorenewable solutions The resulting new industry dynamics is causing a shift in the competitive position of many producers and in many cases a shift towards biorenewable systems But, capitalizing on these opportunities and creating greater value will not be easy Longer term however, fossil fuel costs will escalate to economically critical levels and regulations will drive greater use of biorenewables Just as the petrochemical industry has found success from added-value business models and integrating production economics, biorenewables will likely adapt analogous models This concept of an integrated approach extends to technology and processes, beginning with enabling “white biotechnology” such as enzymes & microorganisms and integrated through fuels, to chemical building blocks and monomers to the biopolymers Chemicals & Plastics Advisory © 2010 32

Conclusion, fossil fuels will remain the key feedstock for some time, BUT… biorenewables will increasingly be integrated into all chemical pathways Biomass Bio-renewables Synthesis Gas Coal NGL‘s Energy Generation Olefins Oil Typical Chemical Products Acetylene Aromatics CPA Chemicals & Plastics Advisory © 2010 33