Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
May 18, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3347 words
HEADLINE:
TESTIMONY May 18, 1999 WILLIAM NASSER SENATE ENVIRONMENT AND
PUBLIC WORKS EPA'S PROPOSED SULPHUR STANDARD
BODY:
TESTIMONY OF WILLIAM NASSER, CEO Energy
BioSystems Corporation The Woodlands, Texas Before the Senate Environment and
Public Works Subcommittee on Clean Air, Wetlands, Private Property & Nuclear
Safety May 18, 1999 Mr. Chairman and Members of the Panel, thank you for
inviting me to testify today. I have a brief oral statement and ask that my
written statement be included in the record. Energy BioSystems is a
biotechnology company whose aim is to address major environmental and industrial
issues through recent advances in microbiology, genetic engineering and
bioengineering. Most are aware of the significant advances in genetics and
bioengineering in the pharmaceutical industry and in agriculture. Our company
has positioned itself to be a leader in the third wave of the biotechnology
revolution into the chemical and energy industries. I am not here today to
validate, support or criticize the proposed EPA regulations of lowering
sulfur standards in gasoline and diesel fuel.
It is up to you in Congress to determine whether that standard is necessary, to
what level and on what timetable. I am here to talk about new alternatives to
achieving sulfur reductions in fuel being developed by our
company. There is current technology, hydrodesulfurization or HDS, which is now
used to reduce the sulfur content in fuels. Unfortunately, HDS
has many disadvantages including: 1) It is old technology, having been in
existence for over 40 years. 2) It is enormously energy intensive as it requires
high temperatures and pressure. 3) Because of its large appetite for energy, it
results in large greenhouse gas emissions. 4) It is enormously costly to install
and very costly to operate. I can understand the reluctance of the refining
industry, where margins are thin, to invest the billions of dollars to install
such old technology with so many adverse consequences. In fact, for smaller
refiners, prohibitive costs of installing and operating this technology may well
force them to close. I also find it ironic that the EPA's goal of decreasing
sulfur in fuels will result in a direct and adverse impact on
the Administration's goal of reducing greenhouse gas emissions. We at EBC have
developed a new process, which also promises to lower sulfur in
gasoline and diesel, but at half the cost and without the huge
increase in emissions inherent in current technology. Our process is called
biodesulfurization or BDS. Basically, we have identified a microorganism that is
naturally occurring in the soil that can be genetically enhanced to "eat"
sulfur out of gasoline and diesel fuels. The
organism can also be enhanced to "eat" sulfur out of coal and
crude oil, which current HDS technology cannot do. The benefits of this BDS
technology are several. The headline on a DOE fact sheet issued in January of
this year states that "Biodesulfurization will yield lower sulfur
gasoline at lower production costs." Our studies show that capital
costs for our technology will be half that of current technology and that the
operating costs for our technology will be some 20 percent lower. In addition to
cost savings, BDS will result in up to 80 percent less greenhouse gas emissions
over current technology. This is because our process operates at essentially
room temperature and pressure. HDS requires large increases in both to reduce
sulfur. Another benefit is that our process yields beneficial
and commercially viable byproducts. We can alter the enzymes to produce
surfactants from the sulfur, which currently sell for about 50
cents per pound and are used in detergents. Other byproduct applications may
include resins, polymers and other usable products. HDS produces either large
amounts of elemental sulfur or sulfuric acid, neither of which
is highly valued commercially, thereby presenting an added problem for refiners.
A final benefit of our technology is its flexibility. It can be inserted at
various stages of the refining process. In addition, it can be used in
conjunction with HDS technology. Large refiners with HDS operations presently in
use can tap our technology to complement its current operations to reach ultra
slow sulfur levels. Our pilot projects already have
demonstrated the ability of our technology to reach sulfur
levels of 75 parts per million. We believe that we can easily achieve a 30 ppm
and commercial viability within the next three years, contingent upon the level
of investment we receive. In fact, we are confident that we can reach a
sulfur level of zero using BDS. While our technology is
extremely promising, Mr. Chairman, there remain hurdles. The primary hurdle
being investment in research and development. With oil prices low, refining
margins practically nonexistent, and small capitalization stocks battered, we
face an enormous difficulty in raising capital to complete our technology. To
date, we have spent some $68 million on our technology; about $65 million of
that coming from private investors. We have been the recipients of a small
amount of funding from the DOE. In conclusion Mr. Chairman, this proposed rule
will require enormous investment. Because of the short amount of time in which
to reach the rule's targets, I am concerned that the rule will "lock" industry
into an old technology that will be expensive, waste energy and result in vast
increases in greenhouse gas emissions. We believe that the rule and the federal
government should help to fully develop alternative technologies such as
biodesulfurization. Not only will refiners be the beneficiaries, but so will the
environment and fuel consumers. Again, thank you Mr. Chairman for inviting me to
testify and I will be happy to answer any questions from the Panel. ENERGY
BIOSYSTEMS May 18, 1999 OVERVIEW OF THE COMPANY Energy BioSystems Corporation
("ENBC" or "the Company") is a development-stage publicly traded biotechnology
company located in The Woodlands north of Houston, Texas. Since its
incorporation in 1989, ENBC has been engaged in the research, development, and
testing of a variety of genetically engineered microbes for use in the petroleum
refining industry, a technology collectively known as "biorefining". To date,
the majority of the Company's efforts have focused on the development of a
biologically based method of selectively removing sulfur from
petroleum distillates such as diesel fuel and gasoline as well
as from raw crude oil. ENBC has termed this process "biodesulfurization", or
"BDS". The Company's most advanced biocatalyst technology also adds further
value by converting the sulfur removed from the distillates to
potentially valuable commodity chemicals. Having proven the viability of the BDS
process using small-scale pilot plants, the Company is now working to complete
the development and commercialization of its proprietary technology. In
addition, the Company intends to explore the use of microorganisms in a variety
of other fields, including heavy metals removal, nitrogen removal, crude oil
upgrading, and coal desulfurization. At present, Energy BioSystems employs 37
individuals and leases approximately 25,000 square feet of office and laboratory
space. The Company conducted its initial public offering in March of 1993. THE
MARKET PROBLEMS The presence of sulfur in raw crude oil is one
of the most pervasive problems facing the refining industry today. The
sulfur is troublesome for a number of different reasons. First
of all, sulfur is a constituent element of
sulfur oxides (SOx). Sulfur oxides are end
products of the burning of fossil fuels and have been specifically identified as
one of the principal causes of "acid rain". Sulfur oxides are
also believed to reduce the efficiency of the catalytic converters in
automobiles, leading to increased tailpipe emissions of both oxides of nitrogen
(NOX) and carbon dioxide (CO2). NOX and CO2 are thought by many to be the
primary causes of urban "smog" as well as "greenhouse gas" accumulation. To the
U.S. refiner these problems are a stiff challenge due to the fact that the
average sulfur content of crude oil fed to U.S. refineries is
steadily increasing at the same time that proposed sulfur
limits are dramatically decreasing. This higher sulfur content
extends to all of the distillates of raw crude oil, including
gasoline, diesel fuel, and heating oil. The Company has elected
to focus on the diesel fuel and gasoline markets for its
initial applications of its BDS technology. Due to the widespread belief that
the most likely route to more fuel- efficient vehicles is through the use of new
diesel engine technology, a large proportion of ENBC's development efforts have
been targeted on diesel fuel. In order to take full advantage of the benefits of
this advanced engine technology, sulfur must first be removed
from the diesel fuel. The reported actual average sulfur
content currently in both gasoline and diesel fuel in the U.S.
is about 340-350 parts per million (ppm). In order to meet this standard, the
petroleum refining industry currently uses large operating plants for
desulfurization. Using conventional technology, these plants are very costly,
due to their need to operate at very high temperatures and pressures. The single
most expensive production component is hydrogen gas, which is injected at high
pressure into the reactor, thus, giving the process its name:
"hydrodesulfurization", or "HDS". Despite these limitations, the industry is,
nevertheless, able to meet the current regulatory standards at an acceptable
cost using existing HDS technology, successfully producing approximately 31
billion gallons of highway diesel fuel and 124 billion gallons of
gasoline per year in the United States alone. It is notable
that the new proposed, more stringent environmental quality standards for the
U.S. (already adopted by the governments of several other industrialized
nations) will force the maximum allowable sulfur level of these
fuels to be significantly reduced in the coming years. Specifically, the
European Union has set a sulfur content standard of no more
than 350 ppm that will be in effect by the year 2000 and a standard of 50 ppm
for the year 2005. The United States and the industrialized nations of the Far
East are following the European Union's example. Overall these increasingly
restrictive sulfur-content regulations for
gasoline and, especially, for diesel fuel cannot be met with
existing HDS capacity. Consequently, in order to achieve the 30 ppm standard
using existing technology, the worldwide refining industry will have no choice
but to invest an estimated $50 billion in new capital equipment over the next
five years. It is important to note that this capital investment will have to be
made regardless of the prevailing level of crude oil prices on the open market
or the short-term profitability to the refiner. Therefore, the questions
essentially become: What is the cheapest and most efficient way to meet these
new benchmarks? Is there a real probability that a new technology will provide
refiners with a decent opportunity for long term profitability while offering
substantial environmental benefits? In addition to its refining limitations,
current hydrodesulfurization technology is very energy- intensive, thus creating
high emissions, and produces elemental sulfur as its principal
by-product. This represents a tremendous waste of raw material that could
potentially be put to profitable use. For these reasons, the Company feels that
any new technology which could allow the refining industry to meet the new
regulatory standards at a significantly reduced cost while simultaneously
producing a commercially marketable co-product should generate a great deal of
enthusiasm among oil company executives. THE ENERGY BIOSYSTEMS SOLUTION The
Company believes that it has developed an effective solution to these problems
using a naturally-occurring, benign species of bacteria that was originally
isolated from soil. In Energy BioSystems' biodesulfurization ("BDS") process, a
genetically engineered variant of the Rhodococcus ery hropolis strain of
bacteria is used with water and the fuel to be treated. The bacterium first
internalize the sulfur containing hydrocarbon molecule and then
employs an enzymatic reaction to cleanly cleave a sulfur-carbon
bond in the molecule. The oxidized sulfur- bearing molecule is
then released by the bacterium into the water medium. The Company believes that
when employed en masse, this bacterium can be used to effectively remove
sulfur from fuels on a commercially viable scale. In 1992, the
relevant genes from the bacterium were identified, sequenced, and successfully
cloned. As a result, the Company has received numerous patents on the specific
genetic sequence of the modified bacterium as well as other separate
"method-of-use" patents covering the biodesulfurization process itself. In
total, the Company possesses 47 issued patents and has 81 additional patents
pending. The oldest of these patents is not scheduled to expire until the year
2010, providing excellent proprietary protection to the Company for the
foreseeable future. The Rhodococcus bacterium is a benign species and poses no
threat to humans, animals, or plant life in the event of an industrial accident.
It is easily sustainable by means of an inexpensive nutrient solution and
reproduces itself under process conditions. Moreover, the bacterium is able to
process large quantities of fuel before its effectiveness begins to wane.
Finally, it is easily killed by a simple application of heat and/or chemicals.
The actual BDS process consists of simply adding refined fuel to a slurry
composed of water, nutrients, and bacteria, intimately contacting the mixture
for a time, and then using standard process manufacturing methods to separate
the bacteria, water and dissolved organo-sulfur products from
the newly-desulfurized diesel fuel. It is important to note that unlike current
hydrodesulfurization plants, the BDS process operates at basically both ambient
temperature and standard atmospheric pressure, offering significant cost and
safety advantages. The BDS process also yields a sulfur-based
chemical product that is potentially suited to a wide variety of industrial
applications. For one, this product has can be used as the base molecule for the
synthesis of surfactants that are suitable for use in detergents. These model
surfactants appear to have properties comparable to LAS, a commercial surfactant
with a $2 billion worldwide market. Other potential applications of the BDS
product are in the areas of adhesives, resins, and polymers. The Company
believes that these products will have significant commercial value and will
further reduce the net costs of using the BDS system relative to conventional
hydrodesulfurization technology. In summary, Energy BioSystems' BDS technology
offers the following four benefits: 1) Cost effectiveness - The BDS system is
designed to operate at essentially ambient temperature and pressure, thereby
removing the need for the expensive thick-walled reactors and other plant
systems now required for hydrodesulfurization. Additionally, BDS does not
require the addition of hydrogen, the single most expensive component of the
overall operating cost of hydrodesulfurization. 2) Reduced greenhouse gas
emissions and energy consumption - As compared to HDS, the Company believes that
its BDS system will operate with up to 80 percent less energy consumption and
carbon dioxide emissions in achieving the dramatic new low
sulfur levels proposed. 3) Ease of integration and svuerav with
existing refinery operations - The Company believes that the BDS system can be
integrated with the existing physical plants of refining companies without
significant difficulty. In larger more complex refineries BDS systems will most
likely be used in combination with existing HDS facilities, although in small
refineries BDS is likely to be the only viable option. Furthermore, in certain
highly energy intensive refinery applications such as coking, BDS offers a
refiner a very real opportunity for improved profitability and environmental
improvement. It should be noted that the sulfur compounds that
are the most difficult to remove using HDS are the same compounds that are most
readily removed using BDS. Therefore, when used in conjunction with an HDS
system, BDS can provide the refiner with a synergy that results in a minimized
total cost of desulfurization. 4) Generation of a sulfur-based
byproduct readily converted to profitable uses - The Company believes that its
biologically- based method of sulfur extraction can be easily
modified to produce a marketable product that can be readily adapted to a
variety of commercial uses, thereby adding significant value and lowering
overall costs. COMMERCIALIZATION STATUS Energy BioSystems has validated its BDS
technology by constructing and operating a five- barrel-per-day pilot plant.
Using the knowledge gained from the operation of that pilot unit, other smaller
pilot plants were built and are operated. The Company is now working with Petro
Star, Inc. to proceed with the design of a 5 000 barrel-per-day BDS facility to
be constructed at their Valdez, Alaska refinery. Petro Star is a subsidiary of
the Arctic Slope Regional Corporation and is ENBC's first commercial licensee.
Based upon ENBC's recent technical progress, the company expects detailed
engineering to start in late 1999, and that the facility will commence full
operations in the second half of the year 2001. The construction of this
facility is a key step towards the Company's ultimate goal of being able to
desulfurize diesel fuel at a rate of 40 000 barrels per day (a level which would
meet the needs of the industry's largest players) as well as the eventual
expansion of BDS technology into the processing of raw crude oil,
gasoline, and other distillates. While the production
technology is being scaled up, the Company intends to complete work on the
development of the BDS process itself. Further improvements in the performance
of the biocatalyst in the reaction system are necessary to successfully
commercialize ENBC's technology. Currently, the BDS process is capable of
meeting the 30 ppm target for diesel fuel when the feedstock has a
sulfur content of 200 ppm or below. In order to gain widespread
commercial acceptance, the process must be improved to accept feedstocks with
sulfur levels of up to 500 ppm. Improvements in the rate of
desulfurization will also be required to bring the overall costs of the process
down to competitive levels. Finally, ENBC is now producing samples of the
organo-sulfur end products of BDS for evaluation by potential
alliance partners for manufacturing and marketing them on a commercial scale.
The petroleum industry is the single largest industry in the world and is
responsible for the refining of over 23 billion barrels of crude oil annually.
The Company believes that its technology will be most attractive to refiners
that currently lack sufficient HDS capacity to meet both existing and
anticipated demand (such as Petro Star). Successful demonstration of the
technology with these customers is expected to lead to the sale of BDS systems
to larger, more sophisticated refiners who can take advantage of the synergies
between BDS and HDS. CORPORATE ALLIANCES In order to accelerate the commercial
development of its core BDS technology, the Company has entered into a number of
technology development alliances with established companies. Specifically, ENBC
has agreements in place with TOTAL Raffinage Distribution S.A. of France
(development of the BDS process for diesel fuel streams), with Koch Refining
Company (development of the BDS process for certain gasoline
streams), and with the Exploration & Production Division of Texaco, Inc.
(the development of the BDS process for crude oil). In addition, the Company has
an agreement with Kellogg, Brown & Root for the basic engineering services
required for the installation of BDS systems at commercial sites.
LOAD-DATE: May 19, 1999