October 26, 2023 [S&P Global]- On Oct. 20, Navigator CO2 Ventures announced that it had cancelled its long-planned Heartland Greenway pipeline project due to the “unpredictable nature of the regulatory and government processes.” This analysis, previously published as a Spotlight by S&P Global Commodity Insights’ Downstream Americas Consulting Group on Platts Connect, examines the impact of this decision on the US ethanol industry. To get real-time news, analysis, data and insights in one place, subscribe to Platts Connect.
Navigator CO2 Ventures shook up the US ethanol industry on Oct. 20 with news that it had cancelled its long-planned Heartland Greenway pipeline project. The project was designed to capture up to 15 million mt of CO2 annually from over 30 Midwest ethanol plants and transport it by pipeline to Illinois for sequestration. Industry titans POET and Valero had 26 facilities collectively on the proposed route. Navigator also had a memorandum of understanding to supply around 600,000 mt/year of CO2 to Infinium to produce eFuels. While these companies stand out among those most affected by the announcement, Navigator’s decision also has far-reaching implications for the agriculture, biofuels and refining industries.
News of the cancellation wasn’t terribly shocking to followers of the recent hearings in states along the proposed route. Over the past few months, Navigator and Summit Carbon Solutions (another major CO2 pipeline company) have struggled mightily to secure permits for their projects. In August, Summit lost a hearing for a route permit and a certificate of corridor compatibility before the North Dakota Public Service Commission. In September, both Summit and Navigator were denied construction permits by the South Dakota Public Utilities Commission. Further, Navigator asked to delay its proceedings before the Iowa Utilities Board and withdrew a permit application in Illinois. While Summit remains optimistic that it can win its pending hearing in Iowa and ultimately succeed in permitting their project, Navigator chose to cancel its project, citing “the unpredictable nature of the regulatory and government processes.”
As an aside, and to avoid confusion, losing a pipeline application hearing is not fatal to a project. A losing party can reapply after making necessary changes, often involving a re-route or additional compliance with safety, environmental, or other regulations. Therefore, Summit may go back to the Dakota authorities and try again, though harsh opposition from many property owners will likely remain. Summit intends to sequester its captured carbon in North Dakota, not Illinois like Navigator did.
Potential impact of Navigator decision on US ethanol
The US ethanol industry is grappling with the near certainty that on-road ethanol demand will decline in upcoming years due to an increase in electric vehicle market penetration and rising fuel efficiency standards. Increasing sales of higher-than-normal blends such as E15 and E85 will be helpful for the time being, but they are just delaying the inevitable drop in on-road ethanol use.
Many ethanol producers have been counting on reducing the carbon intensity of their fuel via carbon capture, utilization and sequestration, which would enable them to sell their product at a higher price in low carbon fuel standard markets such as California, Oregon, Washington and British Columbia. Likewise, there is plenty of excitement around new technologies being used to convert ethanol into sustainable aviation fuel from companies like LanzaJet and Honeywell. However, average ethanol CI scores must move lower, and many believe that CCUS is the most cost effective and obvious way to do so. As noted by a Valero spokesperson following Navigator’s announcement: “We still see carbon capture and storage as a strategic opportunity to reduce the carbon intensity of conventional ethanol, which would also qualify it as a feedstock for SAF. Without carbon capture and storage, conventional ethanol does not have a pathway into SAF under today’s policies.”
Carbon emissions can still be captured from ethanol plants, and the CO2 might be stored or transported in ways less economic than interstate pipelines. CO2 from ethanol plants has historically been shipped via truck and rail for use in medical facilities, for food processing and shipping, and for municipal water treatment systems. Decisions around whether ethanol CCUS projects will still be economically viable need to be evaluated on a case-by-case basis.
Using CO2 to produce eFuels is a new development, with companies such as HIF Global and Infinium setting up operations in Texas and 12 breaking ground on a commercial scale eJet facility in Washington. Neither Navigator nor Summit had plans to develop CO2 pipelines in either of those states. Setting up an eFuel facility in the heart of ethanol country is a business model that may be worth considering.
What, if anything, can or will the federal government do to intervene?
In July, President Joe Biden made a bold prediction regarding SAF in a speech in Auburn, Maine: “[M]ark my words — the next 20 years, farmers are going to be providing 95% of all the sustainable airline fuel.” Note the word “farmers.” Biden’s statement cannot happen — using currently available technology — without low CI corn-based ethanol being used for SAF. In light of the latest development with Navigator, will the Biden administration do anything to intervene? Right now, the US Department of Treasury is close to issuing guidance pertaining to which life-cycle model will be used to measure emissions under the Inflation Reduction Act. Will it be inclined to lean toward the more favorable Greenhouse Gases, Regulated Emissions, and Energy Use in Transportation (GREET) model or the more stringent Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) model?
Navigator’s announcement is a signpost, but the business model to capture high-concentration CO2 from rural ethanol plants is not at a crisis stage yet. Following Navigator’s press release, Summit took a hospitable approach to those left stranded: “Summit Carbon Solutions welcomes and is well positioned to add additional plants and communities to our project footprint. We remain as committed to our project as the day we announced it.” Other CO2 pipeline projects receive less press attention but are still pending (e.g., Wolf Carbon Solutions and the Trailblazer Conversion Project), and some ethanol facilities already have CCUS capabilities.
The US ethanol industry is resilient and is expected to continue to move forward. Without carbon capture, US ethanol production at the average CI score still qualifies for federal renewable identification numbers, state LCFS credits, and can be used for exports, industrial applications, etc. But the road to net zero just got a little bumpier.
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