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Biofuels Market and Technology Overview

1st Biofuels International Conference

Guadalajara, Jalisco, Mexico

May 7, 2008

Brad Chadwell

BUSINESS SENSITIVE2

• Generates $4 billion annually in global R&D

• Oversees 20,000 employees in 130 locations worldwide

Who We Are

• Global enterprise– Applying science and

technology to real-world problems

– Managing machinery of scientific discovery and innovation

– Creating commercial value by bringing new technologies to international marketplace

• Non-profit, charitable trust formed by Will of Gordon Battelle in 1925

BUSINESS SENSITIVE2

12 International Locations

BUSINESS SENSITIVE3

Long termInexhaustible fusionpower

Capturing and sequestering CO2

Cleaner coal plants and engines

Biotech and materials processes for efficient industry

Smart, efficient electricity grid

High-yield,robust biofuel crops

Oil shale extraction

technology

Net-zeroenergyhouses

Sustainablenuclear reactors

and fuels

Closingthe

nuclearfuel cycle

Efficient vehicles and engines

Near term

The $890m energy R&D portfolio Battelle manages is first in the nation in breadth and depth in energy science and technology

Abundant, affordable

energysupplies

More efficient

energy use

Protectionof the

environment

Nano materials foraffordable solar

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Biofuels in the News

• Green Energy Sings the Blues: Credit Crunch Hits Clean Tech, Too Wall Street JournalGlobal venture capital and private equity investments in clean energy were down significantly in the first quarter; U.S. ethanol investments tumbled from $1.7 billion in 1Q last year to just $311 million this year

• Ethanol Profits May Still be Hindered by Overcapacity, Corn Prices, Despite Government-Mandated Use Associated PressEthanol profits remain near record lows and industry plans to increase capacity will likely continue to outpace mandated use.

• Shocked, Shocked: Biofuels Are Bad, Saudis Say Wall Street JournalThe list of those opposed to biofuels continues to grow, including British Prime Minister Gordon Brown, who blamed biofuels for food shortages in a letter to fellow G-8 members

• Studies Say Clearing Land for Biofuels Will Aid Warming Washington PostClearing land to produce biofuels such as ethanol will do more to exacerbate global warming than using gasoline or other fossil fuels, two recent scientific studies have shown. The studies were written by a team of researchers from Princeton, Woods Hole and Iowa State as well as a team from Nature Conservancy and the University of Minnesota

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U.S. Energy Secretary Defends Biofuels

“The bottom line is this: concerns about the sustainability and environmental impact of biofuels are not misplaced, but they are absolutely not a reason to ignore the tremendous promise of biofuels. They are an argument for developing them in a way that makes sense for our environment, for our food supply, for our agricultural community and for our nation's economic health.”

– U.S. Energy Secretary Samuel Bodman, April 18, 2008

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Energy and Fuel Costs Continue to Rise

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Energy Security Has Become a Watchword

• EIA forecasts that by 2030 U.S. will be importing 2/3 of its oil and nearly 25% of its natural gas Source: EIA, Annual Energy Outlook 2007, December 2006

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“Conventional” Feedstocks Encountering Difficulties• After peaking in mid-2006,

ethanol margins have slowly eroded

• Food vs. Fuel debates

• EISA Renewable Fuel Standard (RFS) mandate “saturated” with corn ethanol– As of January 2008, the US had

total, on-line ethanol production capacity of 7.5B gallons with another 5.8B under construction

– This would put total capacity in the next few years ahead of RFS mandate

“US ethanol development is dead until 2009, says exec after 15-bank tour”

– Reuters 3/26/2008

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U.S. Showing National Commitment to Biofuels Goals• “Cost-competitive cellulosic ethanol”

– Cost-competitive in the blend market by 2012

• “20 in 10” (from the 2007 State of the Union address)– Reduce U.S. gasoline* use by 20% by 2017 through…

- 5% reduction from enhanced efficiency standards (CAFÉ)

- 15% reduction from new Alternative Fuels Standard at 35 billion gallons/year (consistent with the current RFS)

• EISA (Energy Independence & Security Act)– 36 billion gallons renewable fuel by 2022

- 21 billion gallons advanced biofuels

• 30 x 30 (followed from the 2006 SOU)– Longer-term biofuels goal

– Ramp up the production of biofuels to 60 billion gallons

– Displace 30% of U.S. gasoline consumption* (based on 2004 use) by 2030 Source: J. Spaeth, DOE, “Overview of U.S. Energy Policies,” Feb 13, 2008

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Similar Requirements Across the Globe

Source: Renewable Fuels Association, January 2008

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Mexico’s Law for the Promotion and Development of Biofuels (LPDB) Extends Beyond Corn

• Biofuels defined as “fuels obtained from biomass derived from organic material in the following activities: agriculture, cattle activities, forestry activities, aquaculture, algaeculture, fisheries products, households, commercial, industrial, from microorganism, enzymes, and derivatives of the foregoing that are produced by technological sustainable processes that comply with the specifications and quality norms issued by the competent authorities.”

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Biomass Potential Exceeds One Billion Dry Tons Per Year

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Research Is Underway…

Source: NW Biomass Business Case (PNNL)

Lignocellulosic Biomass Conversion Strategies

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…And Supported by US DOE Funding

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Opportunities to Advance Technology Abound

Lignocellulosicbiomass

Sugar/starchcrops

Oil plants

Gasification

Anaerobicdigestion

Flash pyrolysis

Hydrothermalliquefaction

Hydrolysis

Milling andhydrolysis

Pressing orextraction

Syngas

Biogas

Bio-oil

Sugar

Vegetable oil

Water gas shift+ separation

Catalyticsynthesis

Purification

Hydrotreatingand refining

Fermentation

Esterification

Hydrogen

Mixed Alcohols

FT Diesel

SNG(CH4)

Biodiesel/ Syn Crude

Ethanol

Biodiesel(alkyl esters)

Glycerin

AlcoholsOrganic Acids

Catalytic Synthesis

Bio oil (vegetable oil)

CatalyticSynthesis

Bio synthesis

Monomers / Chemicals

Polyols

CatalyticSynthesis

Monomers / Chemicals

Alcohols Organic Acids

CatalyticSynthesis Bio-lubes

Bioprocessing

Direct Bioconversion

Monomers / Chemicals

Methanol CatalyticSynthesis Hydrocarbons

Near Term (scale up beginning in 3-5 years)

Mid Term (scale up beginning in 5-10 years)

Mature or Extensive Development Underway

Catalytic Synthesis

Longer Term (scale up beginning in 10+ years)

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Diverse Feedstocks, Including Algae, Should Be Considered• “The high cost of algae

production remains an obstacle” – NREL 1998

• Raceway ponds are producing high value nutraceuticals (spirulina) today

• Photobioreactors (PBRs) currently limited to inoculum production (due to high capital costs)

Left: Commercial Photobioreactor in Germany

Below: Raceway Ponds (Earthrise Farms, California, USA)

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Commercialization “Valley of Death” Remains

Source: Ethanol Statistics, March 2008 • Volume 1 • Issue 1

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Battelle Energy Technology Provides a Market Facing Asset to Complement Lab S&T Assets

Commercial Energy ClientsLaboratory S&T Assets

Battelle Energy TechnologyBattelle Energy Technology

Client Alliances / NeedsClient Alliances / Needs

S&T Solutions / ProductsS&T Solutions / Products

Systems EngineeringSystems Engineering Program ManagementProgram Management Technology DevelopmentTechnology Development Product DevelopmentProduct Development IP Platform DevelopmentIP Platform Development

Expanding Opportunities for Societal and Commercial Impact from Energy Innovation

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• Basic plant science• Fuels research

Battelle’s Bioenergy/BioproductBusiness Will Build on Lab Capabilities

• Feedstock handling and processing expertise

• End-to-end process modeling

• Specialized enzymes

• End-to-end process modeling• Enzymes• Fermentation processes• Cellulosic Energy Center

• Pyrolysis and thermal-chemical processes

• Catalysis• End-to-end process modeling

• Basic plant science• Biomass transportation• Bio-energy feedstocks • Bioenergy Science Center

• Advanced imaging• Fuels chemistry

• Computational modeling• Chemical process engineering• Chemical synthesis and application formulation

• Additional value can be brought to the market through integration of Battelle/National Lab capabilities

• A systems-engineering orientation will identify technology gaps/needs while providing value to others

• Opportunities exist for technology maturation/scale up for both Battelle/Lab technologies and for technologies from other sources

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Battelle Is Integrating Labs’ Bioenergy Capabilities for Field to Fuel Solutions

Basic Biology

Research

Systems Biology

Feedstock Assembly

ConversionProcesses

Better crops and organisms to process them

Efficient harvesting and transportation

Effective processes to produce fuels

Foundational understanding

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PETRONAS Renewable Energy Laboratory (REL)

• Battelle has entered a relationship with PETRONAS to scope, design, and develop a renewable energy laboratory (REL) in Malaysia

• R&D agenda for the new lab– Initially focused on biomass conversion to biofuels,

biochemicals, and biopolymers

– Future R&D activities to address solar power, hydrogen generation and storage, fuel cells, ocean and other areas

• REL predominately will be an applied R&D laboratory, with outreach for “basic” research to Battelle and others

• The new laboratory will:– Showcase state-of-the-art energy efficiency design and

operations

– Be modeled after leading laboratories around the world

– Provide a suite of new products and technologies, initially aligned with existing PETRONAS business units

New Malaysian Renewable Energy Laboratory

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Biofuels Hold Tremendous Promise for Diversifying the Energy Base

• The need continues to grow

• The significant investments being made require strategic focus and sound scientific basis

• Technical challenges remain, but can be overcome

Advanced biofuels offer tremendous promise for helping our nation to bring about a new, cleaner, more secure and

affordable energy future.” – U.S. Energy Secretary Samuel Bodman, January 30, 2008