March 12, 2010

Forest fuel for the futureBiorefinery would convert wood from Maine forests into ethanol, heating oil.

TUX TURKEL

— By

Staff Writer

After a false start, Maine appears to be back in the race to build a plant that can produce heating oil and motor fuels from trees.

The global credit crunch and plummeting petroleum prices have set back ambitious plans around the country to use the cellulose in wood, grass and crop waste to make ethanol on a commercial scale. Maine's hopes of being a player in this cellulosic ethanol arena seemingly were dashed last year when Red Shield Environmental LLC, an investment group that bought a shuttered paper mill in Old Town, went bankrupt. The group had been working with University of Maine researchers on technology to use pulp from the mill to create a liquid fuel.

Now the biorefinery proposal is back on track. At a news conference last week, a private equity firm that bought the mill at auction last November announced it has reopened the pulp operation. Meanwhile, a team at the university's Forest Bioproducts Research Initiative is working to finalize designs by year's end for the project, which could cost more than $60 million to build. The mill's new operator, doing business as Old Town Fuel and Fiber, is renegotiating a $30 million federal grant that will cover roughly half the development cost.

Short term, the pulp mill restart will put 160 people to work during the recession. Looking out a few years, the facility could become the first demonstration plant in New England to make fuel oil and industrial chemicals from wood, a plentiful, renewable resource in the region. It also would be the country's first cellulosic ethanol plant located at a pulp mill, tapping a new revenue stream for the state's struggling paper industry.

The plant would be important for Maine, on several levels.

Eight of 10 homes use petroleum-based oil for heat, and virtually all transportation relies on petroleum. None of it's produced in Maine.

At the same time, 90 percent of Maine is covered with trees, a higher share than any state. Scattered through this forest landscape are 11 pulp mills that already are set up to move and process wood. These factors can position the state to start producing home-grown biofuels and reducing the region's dependence on imported petroleum.

''I think Maine is going to be one of the leaders,'' said Dick Arnold, Old Town's president.

Arnold flew to Colorado last week to meet with federal energy department officials handling the $30 million grant. That money was awarded last year to Red Shield, prior to its collapse. Old Town now must renegotiate the award. The university also is set to receive $4.8 million from the Maine Technology Institute.

The proprietary technology developed at the University of Maine uses fermentation to extract sugars ahead of the wood pulping process that can be converted to ethanol, as well as an organic acid used to make plastics. If these commodities can be produced on a commercial scale at existing mills, they could help diversify the state's energy mix and provide new income to support Maine's forest products industry. The state's aging mills are under pressure from overseas competitors, notably China.

''This can be the lifeblood to keep those jobs and the economy going,'' Arnold said.

Arnold's outlook extends past the recession and today's stunning and unexpected reversal of energy markets.

Record high gasoline prices and the nation's dependence on imported oil set off a scramble three years ago to develop home-grown alternatives.

First out of the gate, boosted by government subsidies, were more than 100 plants that make ethanol from corn. Many are located in the Midwest. They've already pumped out billions of gallons to feed a congressional mandate that refiners blend increasing amounts of ethanol in gasoline.

Today, with gasoline prices low and financing hard to find, new projects are being scrapped and some existing plants are shutting down. But few analysts expect oil prices to remain low. A new study by Sandia National Laboratories estimated that cellulosic ethanol could replace 30 percent of gasoline by 2030. The study assumes oil stays above $90 a barrel -- more than double today's depressed price -- but well below extreme projections.

Maine's potential to develop bioproducts businesses was outlined last year in a report done for the Forest Bioproducts Research Initiative by the Margaret Chase Smith Policy Center. It indicated that while the cost of converting mills to biorefineries was substantial, the investment would almost always be worthwhile by creating a value-added product from pulp.

It's also possible to make other fuels, including natural gas, from the process, according to Kate Dickerson, a research associate who wrote the report. Dickerson is writing a follow-up report for the university for release this spring.

The biorefinery planned in Old Town is considered a demonstration project, capable of producing 1.5 million gallons a year. That's a small fraction of what's considered commercial output, but it would confirm the technology and raise Maine's profile as a pioneer in cellulosic ethanol production.

Congress mandated the production of 21 billion gallons of cellulosic ethanol from biomass -- wood, crop waste and grass -- by 2022. But compared to corn-based production, cellulosic has gotten off to a slow start. The same forces that have battered corn ethanol plants have compounded the setbacks, but some projects are moving ahead.

A $90 million demonstration plant is up and running in Louisiana, funded in part by oil giant BP PLC. The British energy company also announced plans this month to invest in the world's largest cellulosic ethanol plant, to be built in Florida. In Georgia, construction is under way on a 20 million-gallon-a-year plant that will use wood from area forests and mills. And in Oregon, construction is expected to start this year on a demonstration biorefinery that will use wood from tree farms as a feedstock.

One of the investors in the plant, Mohr Davidson Ventures of Menlo Park, Calif., says ethanol from wood will become more attractive in the future. Wood is less costly to grow than corn, and contributes less overall to the carbon emissions associated with climate change.

On top of that, the country burns more than 200 billion gallons a year in transportation fuels, so no one technology or region is going to gain a monopoly. The winners, said Erik Straser, a partner at Mohr Davidson, will have the lowest costs, highest quality and greatest availability.

''These clean-tech markets are the deepest ones on the planet,'' Straser said.

In Maine, the challenge now is to get the biorefinery built and prove that the process developed by the university can yield the anticipated gallons.

''We've lost some time, because of the change of ownership,'' said Hemant Pendse, managing director of forest bioproducts research.

But researchers have used the delay to do additional science design work on the biorefinery, Pendse said. The project actually is in a better position now, he said, because of the financial strength of the mill's new owner, Patriarch Partners LLC, a global investment firm that focuses on investing in distressed businesses. The firm manages funds with $6 billion of equity and secured loans in sectors ranging from aerospace to automotive and consumer products.

''I'm not worried about access to capital,'' Pendse said. ''We are back on track, with a committed owner. These people, if they want to do something, they can afford it.''

Staff writer Tux Turkel can be contacted at 791-6462 or

tturkel@pressherald.com

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