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BioLPG producers warn of feedstock availability challenges

18 October 2021 IHS Markit Energy Expert

The LPG industry's road to a carbon-neutral bioLPG (also known as bio-propane) future is strewn with feedstock quantity, quality, and cost challenges that do not favor a discounted byproduct in the shade of higher-value cuts of the crude barrel.

But industry participants in Europe believe some hurdles could be overcome with the use of eco-friendly substitutes and state support, according to executives participating in the recent European LPG e-Congress.

LPG is used in Europe as a transportation fuel in the farming sector and, increasingly, for road transportation as well, according to the industry trade group Liquid Gas Europe. In its 2020 annual report, the association said LPG also covers the heating needs of more than 20 million EU citizens and 700,000 businesses.

In the transport sector, LPG fuels more than 15 million vehicles at 47,000 stations. Demand increased 3% year over year in 2019 to 10.9 million metric tons.

New energy taxation rules have been proposed in Europe as part of the EU's "Fit for 55" program aimed at achieving a 55% reduction in GHG emissions by 2030 from a 2005 baseline. The new rules would treat LPG as transition fuel, with preferential rates for a decade.

"The industry can also play a significant role in meeting the European Green Deal's greatest pledge, by offering different pathways for the LPG industry towards carbon neutrality," the World Liquid Petroleum Gas Association said in a recent statement about the upcoming COP26 climate meeting.

That meeting will be held in Glasgow, Scotland, and the trade group noted that "for more than 80 years, LPG has been a key part of the [British] energy mix and going forward both conventional LPG and renewable LPG can support UK and devolved governments' commitments to decarbonize across a variety of sectors."

In addition, in Italy, LPG is the most widely used alternative fuel in the automotive sector, making clean mobility accessible and affordable for households today, it added.

Yet at the same time that LPG has potential roads for growth, the extension of carbon certificate trading to the road transportation and the heating sector will challenge conventional LPG suppliers, prodding them to explore sustainable options to decarbonize, said speakers at the conference.

Italian energy major Eni views feedstock constraints as a major obstacle to scaling up renewable LPG quantities via bio-refining, since non-food crops are being removed from Europe's biofuel pool.

Currently, an estimated 80% of the bloc's biofuels are made from imported crops such as rapeseed, which raises issues on the net carbon effect of growing crops for conversion to fuels and undermining land that could serve as carbon sinks. This leaves waste streams as the key feedstock for future exploitation, but those require pretreating to eliminate contaminants and preserve catalysts.

"[When] the feedstock is not very good, we spend a lot of money [and energy] on the biomass treatment unit," said Francesco Franchi, the head of Eni's 750,000-mt/year facility in Gela, Sicily, and former president of Liquid Gas Europe, the host of the e-Congress.

The bio-refinery converts vegetable oils and waste, such as used cooking oils or animal fat, into biofuels, producing diesel, naphtha, and pure renewable LPG (80% propane, 20% butane).

Feedstocks go through a two-stage hydrotreating process of deoxygenation and isomerization, with the hydrogen coming from the traditional steam methane reforming process. A smaller 360,000-mt/year plant in Venice produces a fossil-bioLPG mix.

Eni is continually on the lookout for feed alternatives. It is trialing resin oil plants in Tunisia requiring little water and not competing with the food chain, and it is investing in biomass treatment capability to widen the company's feed range, Franchi said.

Turning waste and fatbergs into synthetic liquid gas

LPG distributor SHV Energy sees a solution in renewable dimethyl ether (rDME), a synthetic liquid gas obtained through thermal conversion of waste, bio-based, and residue carbon.

"Propane is quite difficult to make right now in the quantities we need," the company's sustainable fuels director, Rebecca Groen, said. "For this reason, SHV looked at things which are very like propane but slightly different and may be easier to make right now. That's when we came across DME—a game-changing option for the LPG industry."

Having vowed a few years ago to source all LPG from non-fossil production by 2040, the privately owned company soon realized this would take multiple solutions, including hydrotreating vegetable oils (HVO) and co-processing in bio-refineries.

"There is no silver bullet," Groen said. "The most pragmatic way to do it right now is to look at what are the viable alternatives today ... what's actually available right now."

DME has been around for a long time, though its use as an energy source has been limited. Bringing DME into mainstream usage will require advances in processing, defining of fuel specifications, and regulation to support its adoption, Groen said.

SHV's "Circular Fuels" joint venture with start-up KEW Technology is developing facilities to convert municipal waste into rDME. Groen said this can be "a highly valuable product, which we can supply to our customers," while avoiding landfill or incineration. It solves "different problems from different angles," according to Groen, who also cited a collaboration with US marketer UGI in this field.

"There is a lot of noise about the potential of future availability of large volumes of green electricity or green hydrogen," she said. "Fantastic—if and when it is coming. It's not available right now, and it's not an option for all the people. ... It isn't a solution for everything."

For the present, she stressed the need for "pragmatic solutions based on what's available, what's currently [validated], or what could be encouraged and then build on that. ... [W]e don't have the luxury of time. We have to make things happen now, to make sure that we have the solutions in place for today but also for tomorrow."

The need to focus on deployable drop-in solutions without upfront investment for consumers was highlighted by Joy Alafia, the head of California's Western Propane Gas Association. "We cannot afford just to wait for technologies that will yield emissions reductions in 25 or 30 years from now, while we completely miss a generation today," she said.

Longer term, it will be a question of how to utilize different waste streams, such as cooking oil, grease, and fat poured down drains, which often forms unsightly "fatbergs" in sewers.

"I've visited the fatberg in the British Museum. It's hideous," the SHV director said. "It's there because we don't collect it everywhere and, no, we don't use it all to its highest value. So, there are a lot of things we can do."

Building on existing biofuels processes

LPG could be "riding off the back of an existing industry that is scaling up" biofuels, such as via the HVO route, suggested Maarten van Dijk, managing director of Dutch sustainable aviation fuel (SAF) supplier SkyNRG.

With Fit for 55's SAF blending mandate (2% by 2025, 63% by 2050), Brussels gave the aviation sector what it has been asking for: a stable policy to invest against and a clear signal to the market. "We see a large influx of players stepping up and saying: If this is the case, we need to start building production assets," he said.

To get there, the sector has to demonstrate technical readiness and market need.

Similarly, industry bodies Eurogas and Liquid Gas Europe are seeking specific volume targets for renewable and low-carbon gaseous fuels.

"We want to have targets. ... We think that targets are a good addition to the carbon price, which tell investors: this is what you should be investing in," Eurogas Secretary General James Watson said during another e-Congress session, calling the EU's latest legislative package "in need of a little bit of boost."

Within the Fit for 55 plan, advanced biofuels would be mandated to increase from at least a 0.2% market share in 2022 to 0.5% in 2025, and 2.2% in 2030. This would replace a previous 0.5% advanced biofuels target for 2020, which many member states did not meet.

But van Dijk stressed that binding targets are a two-edged sword, as suppliers have to be ready to meet demand. "Be careful what you wish for," he said.

"It won't be a free ride" for buyers or producers, the Dutch SAF expert warned.

In aviation, "everybody has been calling for a level playing field... [and] equal chances. Now they have a level playing field, which basically means the price of their fuel will quadruple. But in the end, if everything's equal and you compete on an equal level, then it's about the sustainable energy transition and there's nothing wrong with maybe some increased cost," van Dijk said.

When it comes to bioLPG, he said: "The intrinsic business case driver for us to say 'yes' or 'no' to propane production ... is simply a cost equation: either you burn it for internal heat, increasing your sustainability profile, [and] extra value for your main products ... Or you invest quite significant capex, and operational hassle as well, to get propane and butane up, and then, if that's worth it, a producer is more likely to take that step."

Regulators would have to encourage that additional step—to extract extra volumes instead of burning them in internal heat combustion.

"You don't have to solve all the feedstock issues yourself and the tech and the scale-up," van Dijk said. "Governments just need to show that little bit of extra value for propane ... and then producers ... will simply see it as a valuable product." They could opt to extract those smaller molecules "because there's an interesting market for it," he added.

"But it also means that the additional cost over your fossil product has to be borne by the main product off-taker, which is your industry. So, it's not a case of a byproduct that sells whatever the market can pay for it. No, it's about what does it cost to get this stuff into your market and build that capacity, and that's what regulatory frameworks will do for you," he said.

With the right regulatory support, the World Liquid Propane Gas Association believes that LPG and bioLPG will play an important role in decarbonizing energy. "Today, LPG is an essential source of low carbon energy for billions of people across the world. Served by an agile and resilient supply chain, it is able to effectively contribute towards achieving low-carbon targets while ensuring that no one is left behind in the global energy transition," it said.

LPG is seen as the primary short-term solution to the problem of indoor air pollution from heating and cooking in many parts of the developing world. India and Nigeria—the second- and seventh-ranked nations globally by population—are among the nations that have rolled out mass LPG distribution programs to combat air pollution and fuel poverty.

"The promise of renewable LPG, being developed as part of the global push to develop biogases such as biomethane and being distributed through an existing supply chain, offers a pathway to a zero-carbon economy," the association said.

--Based on original reporting by Inge Erhard, OPIS; edited by Kevin Adler, Net-Zero Business Daily.

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