Biofuels Production
Buy This Industry Report
Get more in-depth industry information with a First Research industry report containing business challenges, trends, executive insight, call prep questions, and so much more!
Increase Appointments
Engage Prospects
Build Your Confidence
Industry Overview
The biofuels industry in the US is dominated by ethanol production, which includes about 275 companies with combined annual revenue of nearly $19 billion. Major ethanol producers include Archer Daniels Midland, Cargill, BP, and Chevron.
Competitive Landscape
Demand is driven by federal legislation and regulations that establish a government-mandated market for biofuels. The profitability of biofuel production facilities depends on prices of gasoline and diesel, which fluctuate based on world petroleum demand and domestic refinery utilization. Economies of scale in ethanol production are limited due to the transportation costs associated with gathering feedstocks (corn and other biomasses) and transporting the ethanol to blending sites. As a result, large companies operate multiple production facilities. Small companies can compete effectively by developing business relations with distributors and by delivering consistently. The industry is capital-intensive: average annual revenue per employee in ethanol production facilities is about $2 million per year.
Biofuels is a young industry that has grown rapidly. New entrants join the field constantly and new technology breakthroughs are frequent. Federal and state government subsidies and loan guarantees keep barriers to entry relatively low.
Products, Operations & Technology
The major products of the biofuels industry are ethanol and biodiesel. Ethanol makes up more than 90 percent of current US biofuels production of about 11 billion gallons per year, meaning that about 10 billion gallons of ethanol is produced annually. About 700 million gallons of biodiesel is produced annually. US ethanol production grew by more than 200 percent between 2003 and 2008; during the same period biodiesel production grew by more than 3,000 percent.
Ethanol production requires corn or other high-starch grains, water, chemicals, enzymes and yeast, and denaturants such as unleaded gasoline. In the dry milling process (used for about 80 percent of production), corn or other high-starch grains are first ground into meal and then mixed with water and enzymes to form a mash. The mash is processed at a high temperature in cookers to liquefy the mixture and reduce bacteria levels prior to fermentation. Next, the mash is cooled and secondary enzymes added to convert the starches into glucose sugars. Yeast and ammonia are added to the mash and the mixture is passed through several fermenters, completing the process of converting the sugar to ethanol and carbon dioxide.
After fermentation, the fermented mash, which is about 10 percent alcohol, is transferred to distillation, where the ethanol is separated from the residual solids. The ethanol is concentrated to 190 proof using conventional distillation methods, and then dehydrated to approximately 200 proof (100 percent alcohol). The resulting ethanol is then blended with about 5 percent denaturant, usually gasoline, to prevent human consumption, and is then ready for shipment to a blending site. The residual solids are processed and sold as high-protein animal feed.
In the wet milling process (used for about 20 percent of ethanol production), the grain is first steeped in a dilute sulphuric acid to facilitate separation of the grain into its component parts. The mixture is then ground, the germ separated, and enzymes added to convert the starches to glucose. After fermentation and distillation of the ethanol, the remaining mash is recombined with fiber and sold as corn gluten, an animal feed.
Development is underway to enable commercial scale production of cellulosic ethanol, ethanol made from cellulose found in wood and agricultural wastes. Cellulose materials are dissolved using acids and special engineered enzymes and bacteria to convert the residual starches and sugars into glucose. The ability to use cellulose materials as feed stocks will reduce dependence on food crops for ethanol production. Processes to produce cellulosic ethanol have been proven in the lab, but not in commercial production. Current ethanol facilities can be upgraded to produce cellulosic ethanol once the production process becomes commercially viable.
Ethanol cannot be transported through pipelines because it's highly corrosive and readily absorbs water; therefore, transporting it from the production facility to the blending facility is a challenge. Most bulk transportation is by rail in specially equipped tanker cars. While many refineries are located in coastal areas, transporting ethanol by water (barge or tanker) presents a number of problems that make heavy use impractical.
Biodiesel is a clean-burning alternative fuel derived from vegetable oils or animal fats. Biodiesel contains no petroleum, but can be blended with petroleum diesel to create a biodiesel blend. Diesel engines require no major modifications to burn either biodiesel blends such as B20 (a 20 percent biodiesel, 80 percent petroleum diesel blend) or B100 (100 percent biodiesel). Biodiesel production is fairly simple and requires no elaborate equipment: fat or oil is mixed with methyl alcohol and a catalyst such as sodium or potassium hydroxide, and heated to produce glycerin and biodiesel (methyl ester). The glycerin is then separated from the biodiesel, purified, and sold as a separate product.
The average ethanol production facility makes about 60 million gallons per year. The average commercial-scale biodiesel plant produces about 4 million gallons per year. The industry is composed of mostly small producers that operate a single facility. Archer Daniels Midland, the largest producer, has several production facilities.
