Biotech breathes life into ethanol R&D

Oil prices are again pushing $US30 a barrel, glaciers are melting, and cuckoos are announcing spring in Europe's woodlands some 16 days earlier than they did half a century ago. And not for the first time since the OPEC-engineered oil supply crisis of the mid-1970s, an Australian government is talking up the need to develop a local fuel ethanol industry.

If Prof Peter Rogers and other Australian ethanol researchers are experiencing a certain déjà vu, it's because political enthusiasm and public funding for research into sustainable biofuel production has proved unsustainable for the past 25 years.

Rogers, professor of biotechnology at the University of NSW, has spent 20 years developing new systems for producing ethanol from sugar, starch and crop residues. His funding has waxed and waned in counterpoint to the flow of OPEC oil, and his group's patents on new fermentation technologies have expired without being commercialised. It could drive an ethanol researcher to drink.

But this time, Rogers believes, a confluence of international and local pressures will see a larger, more viable ethanol industry emerge in Australia.

The outlook is bleak for the Australian sugar industry, with farmers being squeezed by rising costs and falling international prices. The September 12 announcement of a new Federal subsidy of 38c per litre for locally produced ethanol, should provide some respite for an industry that faces a major restructure, and for farmers who urgently need to find alternative sources of income.

The Howard government is copping flak at home and overseas for refusing to sign the Kyoto Protocol to reduce Australia's greenhouse gas emissions, the highest per capita in the world.

The global outlook is for the hottest century since civilisation began 10,000 years ago, and ethanol is a greenhouse-neutral fuel -- its carbon dioxide emissions are drawn down by next year's crops, so as a first approximation, it makes no net contribution to greenhouse emissions.

Rogers says ethanol burns cleaner than petrol because it contains oxygen, resulting in less carbon monoxide and nitrous and sulphur oxide emissions -- although aldehydes from burned ethanol do produce a slight smell in exhaust gases. Despite a lower calorific value per litre than petrol, ethanol has a higher octane rating, which produces greater fuel efficiency in high-performance engines. In a 10 per cent blend with petrol, it increases octane ratings by up to two points.

Unlike industrial ethanol, fuel ethanol must be anhydrous -- free of water -- to be blended with petrol, but Rogers says the technology for producing anhydrous ethanol is well developed. Rogers says another attraction of increased ethanol production is that it would also fuel regional development, by bringing a new manufacturing industry and jobs to economically depressed agricultural regions.

Yeasty brew

Australia currently produces 100 to 150 million litres of ethanol a year with some of this used for industrial solvents. The biggest fuel ethanol producer, ManildraStarch, produces between 50 and 80 million litres of ethanol per year from its plant at Shoalhaven, on the NSW south coast. Manildra uses brewer's yeast, Saccharomyces cerevisiae, to ferment an effluent containing a low-concentration wheat starch, the residue of a process for recovering high-value gluten protein and flour from wheat.

The US produces now around four billion litres of ethanol a year, most from yeast-fermented corn starch. Brazil's enormous ethanol industry, which produces more than 10 billion litres a year, also uses yeast to ferment sugarcane juice and molasses, with a small contribution from the starch-rich root crop, cassava. Like the US, Australia is projecting a four- to five-fold increase in production in over the next 10 years, with a medium-term target of 350 million litres by 2010, at a cost of around $1.8 billion.

"This could be quite a significant future industry," says Rogers. But at $50 per tonne for molasses, it's not economic in the long term to use only molasses or, for that matter, low-grade wheat as raw materials for Australian ethanol production. To match the 30-40c/litre production price of petrol, Rogers says ethanol must be produced additionally from bulk waste materials costing less than $20-25/tonne.

Rogers says the bagasse -- the crushed cane wastes from sugar mills -- and the stalks and residues from cereal crops like sorghum and maize could keep the ethanol plants going when the sugar cane juice, molasses or wheat are not seasonally available.

Like the US, Australia is investigating new fermentation technology that can produce ethanol from woody, lignocellulosic crops and wastes from agriculture and forestry. Site and transport costs are crucial to plant economics for any of these crops -- Rogers says the wastes must come from within a 50km radius of ethanol plants.

Biotech is key

He says new developments in biotechnology are the key to producing ethanol cheaply from lignocellulosic wastes and the US Department of Energy is predicting 'break-even' with petrol production costs by 2010.

Over the past decade, Rogers' team has been collaborating with a group at the National Renewable Energy Laboratory (NREL) in Golden, Colorado, to develop a continuous fermentation system that employs the NREL-patented, genetically engineered strain of the bacterium Zymomonas mobilis that has been developed to brew ethanol from lignocellulosic residues.

From the early 1990s, when oil prices rose again, until four years ago, the University of NSW team's work was supported by research grants from Australia's National Energy Research and Development Corporation (ERDC) and the NSW Department of Minerals and Energy. Then oil prices fell, the ERDC Program was closed, and the Rogers' team successfully sought grants from the US Department of Energy to continue its collaboration with the NREL group on the Zymomonas-based system.

Mexican distillers have long used Z. mobilis to ferment cactus juice for pulque and tequila. It also produces many tropical palm wines. Like brewer's yeast, Z. mobilis is a specialist fermenter of simple hexose plant sugars like glucose, fructose and sucrose, as well as plant starches that have been treated with amylase enzymes.

Together with NREL, Rogers' team has taught Z. mobilis some new metabolic tricks, by taking advantage of the genes that allow it to ferment the pentose sugars that are the building blocks for plant biopolymers like hemicellulose. Their continuous fermentation system based on Z. mobilis efficiently ferments the glucose and xylose from bagasse, along with sawdust from sawmills, and thinnings and prunings from the forestry industry softened with high pressure steam, pulverised by explosive decompression and treated with enzymes. The lignocellulosics in sugarcane, maize and sorghum stalks and forestry residues yield a cocktail comprising about 50 per cent glucose (a hexose sugar), 35 per cent xylose (a pentose sugar) and 15 per cent lignin.

"To ferment this mix efficiently, you need a recombinant microbe that can ferment both hexose and pentose sugars, which has been achieved with genetically engineered Zymomonas," Rogers says.

Which microbe?

"In the past decade, there has been a lot of research on the best microbe for producing ethanol. There are three options -- one is to add new genes to traditional brewer's yeast, secondly a group in Florida is modifying the bacterium Escherichia coli, and the third is to engineer Zymomonas -- and Australia is one of the key players this latter field."

In all thee strategies, the genes are cloned between the soil-dwelling microbe E.coli, into ethanol-producing microbes like yeast and Zymomonas; Zymomonas, has donated genes for E. coli to produce ethanol, and E-coli has been the source of yeast to allow yeasts to use pentose sugars for produceing ethanol. Rogers believes that yeast-based fermentation systems are likely to dominate the ethanol industry when molasses and corn or wheat are used. The industry is "very traditional" and is familiar with brewer's yeast -- the microbe of choice for making bread and brewing beer for at least 6000 years. But with lignocellulosics, it's an open question. "There are several horses in the race," he says.

The problem with E. coli is that some strains are pathogenic, and although the Florida group is using the safely-neutered K-12 strain widely used to produce biopharmaceuticals, Rogers suspects public perceptions of the risk of the large-scale use a potential human and animal pathogen will work against the system and the requisite biological containment would be costly.

"We think, on the basis of our data, that Zymomonas is technically the best option, but in the long term, the industry will go with the microbe that people are most comfortable with." Zymomonas is more efficient than yeast; it works rapidly, and produces alcohol concentrations up to 16 per cent by volume. But it offers some bonuses: "The kicker with Zymomonas is that you can build higher-value products around it -- you could produce ethanol at around 30-40c per litre from lignocellulosics and also make by-products that may be worth $5 to $10 a kilogram.

"The South Koreans, for example, are using these small-scale fermentation systems to produce high-value sugars like xylitol, which prevents dental caries and polysaccharides like levan for food ingredients and drug delivery systems. "US and Canadian companies are building higher value products such as enzymes and amino acids around their ethanol operations.

"We had a look at producing the amino acid lysine a few years ago, as Australia imports about $20-25m each year for the animal and poultry feed industries, but big producers were already established in the field."

Rogers says that with an established ethanol industry it may be possible to revisit some of these higher-value fermentation products as the basic equipment and infrastructure offer many synergies. Enzymes from other sources such as thermophiles might even help improve the economics of ethanol production, says Rogers, and temperature-tolerant microorganisms could allow fermentation temperatures to be increased from today's range of 30-350C to 400C-plus with reduced cooling costs. This could be a significant saving in tropical regions of Australia.

"Australia shouldn't just fixate on ethanol," says Rogers. It is important to develop a research base to also look at the much wider range of associated and higher-value fermentation products. This R&D should be closely associated with the industrial groups involved in ethanol production and look towards the longer term economic viability of the industry when government subsidies may no longer be available.

He says a focus on the use of year-round, cheaper lignocellulosic feedstocks, in association with sugar and starch-based crops, as well as the development of higher value fermentation products, is likely to be the best way to achieve this end.

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Going with the grain

Brisbane-based Multiplex subsidiary Australian BioFuels isn't waiting for ethanol technology's new wooded vintage to mature -- lignocellulosic feedstocks are for the future.

For now, it's going with the grain.

Australian BioFuels MD Trevor Bourne says the company believes lignocellulosic fermentation technology is five to 10 years away from commercialisation; by then, his company plans be the dominant player in the Australian ethanol industry.

It will use proven feedstocks like grain -- mainly wheat, with some rice and sweet sorghum -- and molasses, to produce 300 to 250 megalitres of ethanol a year. Australian ethanol production is currently around 120,000 litres per year, but most goes to industrial use, not into car fuel tanks.

Bourne says Australian BioFuels is talking with Prof Peter Rogers at the University of NSW about his Zymomonas technology for continuous fermentation of lignocellulosic crop and forestry wastes. "We're looking for an R&D partner, but our national business plan is based on current commercial fermentation technologies."

He says the company will issue a prospectus for its expansion plans next month. The company will build ethanol production plants at strategic locations around Australia, in close proximity to the source of its feedstocks, and to transport. It takes 3 or 4 kilograms of grain to make a kilogram of ethanol, so it's cheaper to transport ethanol than grain.

"The first one will be at Mossman, in far north Queensland, and it will become the business model for all our plants," says Bourne. "It will be 50:50 owned by us and local growers, so we provide a return to the region. Our second will be at Coleambally, in southern NSW, and there will be one in Perth, and two others, in NSW and Queensland."

Bourne said the company had considered the long-term prospects for the Coleambally plant, which is in Australia's major rice-growing region. With the cost of water rising, many growers were moving from rice to irrigated wheat, which produces much higher yields than broadacre, rain-grown wheat.

"Because wheat is a winter crop, it also uses less water, so the returns to growers are even higher," said Bourne.

Economies of scale

Asked about the cost of the company's expansion, Bourne said, "The rule of thumb is $1 million per megalitre of ethanol, although there are some economies of scale.

"We believe the future of the ethanol industry is very bright, but the Federal government has to do several things to secure its success."

Bourne says the 38c/litre subsidy the government announced last week is scheduled to continue for only 12 months, and its main purpose was to interdict imports of cheap Brazilian ethanol that would have escaped excise duty, and stifled development of the local ethanol industry.

Bourne says the government must continue the subsidy beyond 12 months, and possibly for as long as 10 years, to encourage local investment in the ethanol industry.

The subsidy also needs to be accompanied by a Federally mandated requirement that all Australian petrol contain at least 10 per cent ethanol, with a 7.5 kilopascal waiver in the RVP standard applying to petrol.

The RVP standard is a measure of the volatility of petrol; Bourne says that hydrocarbon fumes from evaporating petrol are an atmospheric pollutant. Adding ethanol increases petrol's volatility, but the adjusted standard would recognize that ethanol vapour is a less serious pollutant than pure petrol vapour.

-- Graeme O'Neill