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Furfural Chemicals and Biofuels from Agriculture

A report for the Rural Industries Research and Development Corporation by Wondu Business and Technology Services November 2006 RIRDC Publication No 06/127 RIRDC Project No WBT-2A

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© 2006 Rural Industries Research and Development Corporation. All rights reserved. ISBN 1 74151 390 1 ISSN 1440-6845 Furfural chemicals and biofuels from Agriculture Publication No. 06/127 Project No. WBT-2A…….. The information contained in this publication is intended for general use to assist public knowledge and discussion and to help improve the development of sustainable industries. The information should not be relied upon for the purpose of a particular matter. Specialist and/or appropriate legal advice should be obtained before any action or decision is taken on the basis of any material in this document. The Commonwealth of Australia, Rural Industries Research and Development Corporation, the authors or contributors do not assume liability of any kind whatsoever resulting from any person's use or reliance upon the content of this document. This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the Publications Manager on phone 02 6272 3186.

Researcher Contact Details Wondu Business and Technology Services (Level 31, ABN AMRO Tower, 88 Phillip Street) Sydney, NSW, AUSTRALIA Phone: 61 2 93692735 Fax: 61 2 93692737 Email: [email protected] In submitting this report, the researcher has agreed to RIRDC publishing this material in its edited form.

RIRDC Contact Details Rural Industries Research and Development Corporation Level 2, 15 National Circuit BARTON ACT 2600 PO Box 4776 KINGSTON ACT 2604 Phone: 02 6272 4819 Fax: 02 6272 5877 Email: [email protected]. Web: http://www.rirdc.gov.au Disclaimer Following half a century of development of the chemical industry with hydrocarbons as the feedstock, there is now renewed interest in using carbohydrates as the feedstock, mainly because of concerns about emissions and declining levels of non-renewable resources. Much of the viability of biorefineries depends on the price and expected price of oil, gas and naptha, which are used as the feedstock in traditional chemical plants to produce substitute products. Predictions about when a carbohydrate economy might emerge, and in what form, are subject to high levels of uncertainty. Increased funding for research into ways of improving the efficiency of traditional chemical refineries adds to this uncertainty. This report aimed to present an accurate picture of the situation and outlook for furfural, its associated products and its underlying technologies and raw materials. We were constrained by access to reliable data about different furfural technologies, and we invariably rely on claims by the owners of patents and technologies. The report aims to present an accurate picture of the situation and outlook for furfural and associated products, but, in an industry in which there is considerable research into developing new biorefineries, it is important to recognise that data can quickly become outdated. We also used a number of publications from other research to improve our understanding of particular developments and while we took care to ensure the authenticity of the publications we are not responsible for their errors and omissions, if any. Published in 2006 Printed on environmentally friendly paper by Canprint

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Foreword The aim of this project was to examine the marketing potential for producing the chemical input, furfural, from Australian agricultural waste material, energy crops and hardwoods. Furfural is an intermediate product used by the chemical industry for making a range of chemical products. Furfural is one of the product possibilities from a biomass-based chemical refinery, which is viewed as having the potential to improve environmental performance and sustainability of chemical production. The study also examined new extraction technologies that may give higher furfural yields and lower processing costs. This technology could be able to use the relatively abundant supply of low-quality wood and waste from wood and other agricultural processing operations in Australia. While Australian rural industries are typically based on primary crop and animal products, there is an increasing market for co-products and, in some cases, the co-product can emerge as the main source of revenue. Growing incentives for greater use of renewable materials with fewer emissions in production and processing suggest an increasing role for agricultural materials being used in industrial products providing they are cost competitive. A key factor in cost competitiveness is full use of the material entering the processor and a full exploitation of the possibilities of adding value. Although furfural is essentially a commodity chemical it can also create increased demand at the farm gate for selected crops or to reduce processing costs. This report examines the market potential for furfural and it looks at some of the features of new processing technologies. It analyses data from the Australian and international markets and technologies that have been developed in eastern Europe to increase processing yields and reduce costs. This project was funded from RIRDC Core Funds, which are provided by the Australian Government The following report, an addition to RIRDC’s diverse range of over 1500 research publications, forms part of our Environment and Farm Management R&D program, which aims to support innovation in agriculture and the use of frontier technology to meet market demands for accredited sustainable production. Most of our publications are available for viewing, downloading or purchasing online through our website: • downloads at www.rirdc.gov.au/fullreports/index.html • purchases at www.rirdc.gov.au/eshop Peter O’Brien Managing Director Rural Industries Research and Development Corporation

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Acknowledgments In conducting the study, we received support from a number of staff at the Latvian State Institute for Wood Chemistry, including Professor Nicholay Vedernikov and Dr Janis Gravitis; Maris Puke; Dr Janis Zandersons; Dr Aivars Zhurinsh; and Irena Vedernikov. We also met with Dr Martin Patel and Manuela Crank who are managing the European Commission’s BREW project on the biotechnological production of bulk chemicals from renewable resources. Dr Branco Hermescec provide some comments on furfural technology and a fast pyrolysis technology that he is developing with the University of Melbourne. Paul Bennett edited the report and provided valuable advice on formatting and the general layout of content.

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Contents Foreword ................................................................................................................................................ iii

Acknowledgments .................................................................................................................................. iv

Contents................................................................................................................................................... v

Tables, Figures and Charts ..................................................................................................................... vi

Abbreviations and Glossary .................................................................................................................. vii

Executive Summary ............................................................................................................................... ix

1. Introduction ......................................................................................................................................... 1 1.1 Relevance and potential benefits ................................................................................................... 1 1.2 Objectives and scope of the study ................................................................................................. 2 1.3 Approach and method ................................................................................................................... 2 1.4 Outline of the report ...................................................................................................................... 2

2. Furfural Production Possibilities and Markets .................................................................................... 3 2.1 Furfural prices ............................................................................................................................... 6 2.2 The Australian market ................................................................................................................... 7 2.3 Phenol............................................................................................................................................ 7

3. Processing Technologies ..................................................................................................................... 9 3.1 Quaker Oats technology ................................................................................................................ 9 3.2 SupraYield................................................................................................................................... 10 3.3 Vedernikov’s single-step furfural solution.................................................................................. 10 3.4 University of Melbourne’s process for recovery of furfural and phenols ................................... 10

4. Raw Material Sources ....................................................................................................................... 13

5. Discussion of Results ........................................................................................................................ 15

6. Conclusions and Recommendations.................................................................................................. 20

Appendix ............................................................................................................................................... 21 A verbatim reproduction of ‘New technology for furfural and bioethanol production from low-quality foliage wood’, by Nikolay Vedernikov, Laboratory of Polysaccharides, Latvian State Institute of Wood Chemistry ............................................................................................................. 21 Abstract ............................................................................................................................................. 21 Introduction ....................................................................................................................................... 21 Experimental ..................................................................................................................................... 22 Results and discussion....................................................................................................................... 22 Conclusions ....................................................................................................................................... 23 References (for this appendix only) .................................................................................................. 26

References and further reading.............................................................................................................. 27

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Tables, Figures and Charts Table 2.1: Furfural and furfural derivatives markets 2001 (tonnes/year) 3 Chart 2.1: Furfural and selected derivative specialty chemical products 4 Figure 2.1: Furfural application scheme (reproduced, verbatim, from the newspaper Darba Partijas Avize, cited in Vedernikov 2000) 5 Table 2.2: Furfural and furfural derivatives production 2001 (tonnes/year) 6 Chart 2.2: Furfural and furfural alcohol imports, Australia, 1997–98 to 2002–03 ($A/tonne) 7 Chart 2.3: Furfural and furfural alcohol imports, Australia, 1997–98 to 2002–03 (tonnes) 8 Table 2.3: Phenol consumption, Australia, 2004 ($Am) 8 Figure 3.1: Furfural: formula: C5H4O2 9 Figure 3.2: Furfural pilot plant at the Latvian State Institute for Wood Chemistry 10 Table 3.1: Comparison of furfural processing technologies 11 Table 4.1: Pentosan content of plant and residue materials 13 Table 4.2: Australian raw materials for furfural: by plant origin 14 Chart 5.1: Chemical price points: by broad group and selected products: $A/tonne 16 Chart 5.2: required rates of return: furfural and biorefineries 18 Table A1: Changes in the constants of pentosan hydrolysis (k1) to furfural formation (k2) ratio in dependence on concentration of sulphuric acid 24 Table A2: Kinetical parameters of the furfural-obtaining process 24 Table A3: Activation parameters of the furfural-obtaining process 24 Figure A1: Synthetic materials from foliage wood, main directions 25 Figure A2: The principle scheme of manufacture of furfural, bioethanol and other products from foliage wood. 26

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Abbreviations and Glossary Acetic Acid Pungent liquid used widely in manufacturing plastics and pharmaceuticals. It gives

vinegar its characteristically sour taste and is used in wine making. Made by one of three processes: butane oxidation, acetaldehyde oxidation, or methanol carbonylation.

Acetone Simple ketone, highly flammable liquid used as an organic solvent and material for making plastics.

Aldehydes Class of highly reactive compounds (with any molecular structure of CHO) used in making resins, dyes and organic acids.

Benzene Flammable liquid hydrocarbon (C6H6), contained in the naptha produced by the distillation of coal.

Carbohydrate Group of compounds including sugars, starches and gums containing six (or multiples thereof) carbon atoms, united with a variable number of hydrogen and oxygen atoms, but with the latter two always in proportion as to form water.

Cellulose Polysaccharide, the main constituent of all plant tissues and fibre.

Diol Alcohols having two hydroxyl groups in each molecule

Feedstock An intermediate material suitable for processing and transformation into another. In the petrochemical industry one stages product becomes the feedstock for the next stage.

FF Furfural (C5H4O2), liquid aldehyde with penetrating odour, made from plant hulls and corncobs, used to make furan and a diverse range of derivatives.

FFA Furfural alcohol

Furan Colourless, toxic and flammable liquid used in synthesis of nylon.

Hydrocarbon A compound that contains only hydrogen and carbon, such as benzene, methane and their derivatives.

Hydrolysis Chemical reaction in which water reacts with a compound to produce other compounds. Typically involves the splitting of a bond and the addition of hydrogen cation and hydroxide anion from the water.

Hydroxyl Monovalent group (OH) in compounds such as bases and some acids and alcohols.

Ketone Large class of organic substances resembling aldehydes, obtained by distillation of certain salts or organic acids and consisting of carbonyl, united with two hydrocarbon radicals.

Monomer Compound that can be joined to form polymers.

Organic Compound

Any compound of carbon and another element, either from living or synthesised materials.

Pentosans Class of complex carbohydrates that yield pentoses on hydrolysis.

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Phenol Toxic, white, soluble, crystalline, acidic derivative of benzene, used in manufacturing solvents, disinfectants and antiseptics.

Polysaccharide Class of carbohydrates that contains chains of monosaccharide molecules.

Propylene Gaseous hydrocarbon (C3H6)(Chem.) from the ethylene group, produced by cracking petroleum

PTMEG Polytetramethylene ether glycol, a family of linear diols in which the hydroxyl groups are separated by repeating tetramethylene ether groups [HO (CH2 CH2 CH2 CH2-O-)nH]

Pyrolysis Transformation of a substance produced by the action of heat.

THF Tetrahydrofuran

THFA Tetrahydrofurfural alcohol

Toluene C6H5CH3, aromatic hydrocarbon, occurs naturally in crude oil and, less known, in the balsam-yielding tolu rainforest tree (Myrospermum Toluiferum), used to boost fuel, paints, and to make polyurethane and other products.

Xylan Gum from the woody tissue of pentosan that produces xylose on hydrolysis. For further definitions contact Websters Chemical Dictionary: http://www.webster-dictionary.org/definition/chemical.

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Executive Summary

What the report is about This research concentrates mainly on the market potential for furfural and phenolic compounds and examines some of the features of new processing technologies that offer cost advantages. It analyses data from the Australian and international markets and technologies that have been developed in Eastern Europe to increase processing yields and reduce costs.

Background Furfural (FF) is an intermediate commodity chemical used in synthesising a range of more specialised chemical products, starting mainly with furfural alcohol (FFA), which also has many derivatives. Furfural is used mainly in the production of resin, which is then used as a binding agent in foundry technologies. The second main use is as a selective solvent in petroleum production of lubricants. There are many other uses (adhesive, flavouring and as a precursor for many specialty chemicals (see figure 2.1)), but resins account for over 70 per cent of the market. Furfural is highly regarded for its thermosetting properties, physical strength and corrosion resistance. Furfural is important in terms of its presence, as a carbohydrate, in a chemical industry dominated by hydrocarbons. It seems to be one of the few renewable carbohydrate biomass products that can compete with hydrocarbon chemicals and without recourse to subsidies. Furfural is derived from the pentosan in the cellulose of plant tissues, the most prominent sources of which are corn/maize cobs, bagasse, paper-pulp residue, bamboo, kenaf, grain hulls, wheat and rice straw, nut shells, cottonseed and wood (soft and hardwood). Most furfural that is being produced today is derived from bagasse and corncobs. The best raw material prospects for Australia are bagasse, rice hulls and timber-processing residues. Bagasse, which is currently used mainly for energy in sugar mills, rice hulls and timber waste and sawlogs all have the volume available to provide feedstock for a small furfural plant of 5,000 tonnes/year.

Target audience RIRDC supports the development of new industries and furfural and the associated products derived from carbohydrates fits within the mission of the corporation. This study is seen to be of use to chemical companies, agricultural processors, other R&D corporations (such as those dealing with sugar, rice, agro-forestry and timber) and producers of agricultural products. It is also of use to other researchers working in this and related fields.

Objectives The scope of this report covers: • identifying and examining product applications that can be made from furfural, and the associated

local and export markets for them • describing furfural processing technologies • examining the raw material procurement options. The study does not extend to an economic/financial feasibility evaluation or to regional impacts. These concepts could be undertaken later.

Methods This is the report of a concept study, not a detailed feasibility study. The concept being evaluated is new furfural processing technology, which is claimed to enable higher yields and improved productivity from a given level of inputs. Data for the study has been collected from the new technology originators, the Latvian State Institute

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of Wood Chemistry, and other technology sources. Market data came from the Australian Bureau of Statistics, other statistical agencies and general providers of information about biomass-based chemical products, as well as the traditional petrochemical industry. The raw material sources are identified in the context of an Australian operation, but because furfural is an internationally traded commodity, chemical data on raw materials from other suppliers is also collected as a benchmark.

Results The viability of furfural is sensitive to the cost of raw materials and, because of this, materials that are already assembled as waste, with potential negative costs at processing sites, have a significant cost advantage over materials that involve cash costs. The use of agricultural materials to make industrial products like furfural would add competition to the current supply chains, which are dominated by food uses. This competition would improve farm-gate prices for agricultural materials. Agricultural materials also offer the potential to improve environmental performance in the chemical industry, which currently have a heavy reliance on non-renewable energy. In 2002–03, Australia imported about 500 tonnes of FF, valued at $1000/tonne, and 1100 tonnes of FFA valued at $1170/tonne. China, Thailand and South Africa are major suppliers. The world market for FF and FFA is around 300, 000 tonnes/year. World markets are not all free, and anti-dumping duties apply to imports from China into the USA and EU. These duties would probably not apply to imports from Australia into the USA. A minimum-sized furfural plant needs an output of at least 5,000 tonnes of furfural or derivatives, suggesting the need for exports from a plant based in Australia (which uses just 1600 tonnes of FF and FFA), or development of other derivative products. Phenol, which could be produced, along with furfural at the same plant, could be another option, with Australia consuming about 100 000 tonnes/year, most of which is imported. Phenol today, however, is a product of the major chemical companies, which have large, efficient-sized plants and low unit costs. There are also new technologies coming on stream, which will reduce costs and prices of phenol made from the traditional propylene and benzene feedstocks. Researchers need to factor-in the impact of new chemical industry technologies on future costs and prices of chemicals produced by the traditional hydrocarbon feedstock stream. A furfural plant with capacity of 5,000 tonnes/year would generate revenue of at least $5m/year, with potential to increase this to $10m depending on the extent to which further value adding takes place through development of products like phenol derivatives. The overall Australian market for phenol products is estimated to be more than $100m/year, with imports accounting for over 85 per cent. Biochemical production is attracting increasing interest as the price of oil approaches $US50/barrel. Research organizations in both North America and the EU are investigating new ways of making biochemicals from carbohydrates with a view to reducing dependence on fossil fuels. In addition, biochemical production offers the potential for impact mainly at the regional level. This is because a biochemical refinery would need to be located near the supply of carbohydrate materials to achieve the cost competitiveness necessary to operate in world markets.

Conclusions Furfural, along with many products and co-products of biorefineries, requires more detailed technical, environmental, economic and institutional analysis. From this study it is clear that economic outcomes surrounding furfural are subject to major assumptions about the cost and availability of raw materials, processing yields, unit prices for products sold, capital investment required for commercial operations, and economies of scale and use of capacity. A small, independent start-up biorefinery faces significant risks because of both its small size and lack of distribution network for sales. This structure would probably need to demonstrate a return on invested capital of more than 20 per cent to compensate

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investors for these and other risks, compared to 10 per cent if it were associated with an established, larger chemical company. This underlines the importance of strategic alliances in developing biorefineries. In their present state the technologies examined here lack detailed and robust links between technical and economic measures of performance and this limits the analysis necessary to enable selection and testing of different material inputs, different costs and product possibilities. It is generally agreed, however, that the chemical industry is vulnerable to environmental impacts and public perceptions about those impacts, as well as exposure to oil price increases. For this reason further research into products like furfural and other biorefinery co-products is likely to continue. To achieve useful results from further research into furfural and other biochemicals, it is important to have sufficient resources to systematically take a program of research through development, beyond laboratory scale results, then through a pilot plant to the commissioning of a small commercial plant. There is a lot of research into technical discovery at the theoretical and laboratory level, motivated in part by the benefits that might flow to the holders of the intellectual property. In reality, however, there are great risks in commissioning of plants and associated requirements for commercialisation. More attention is needed to deal with requirements of biochemicals along the whole supply chain, including measuring the environmental effects. International collaboration in research and development is essential, but inclusion of chemical industry partners is equally important if biorefineries are to move from a position of technical curiosity to even minimal commercial reality. The next step should be a detailed feasibility study into establishing a biorefinery, producing a range of chemical products, one of which would be furfural. This study should be undertaken in collaboration with one or more European and/or USA research institutes, and a chemical company with an interest in this area. The IP for making the furfural and related products such as phenol could be from the two technologies examined in this study, although this also needs to be kept under review as there are new discoveries being made with the considerable level of research going into this area.. It would also be useful to undertake this study with a pilot plant being established to enhance confidence in subsequent developments and commercialisation. In addition, end users of the materials made from biochemicals should be brought into the stakeholder network.

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1. Introduction Furfural (FF) is a solvent produced from plant pentosans (xylan, arabinan and polyuronids), the complex carbohydrates contained in the cellulose of plant tissues. The product has attracted some interest because it helps in the feasibility of converting the relatively abundant supplies of lignocellulose feedstocks (that is, the materials used for transformation in processing) into ethanol and higher-valued co-product chemicals (Van Dyne, Blasé and Clements 1999). Ethanol has faced viability problems with fluctuations in oil prices and occasionally very low oil prices in particular. Furfural and its derivatives have attracted interest because they are higher-valued co-products that could make an ethanol plant viable. Common sources of pentosans are corn/maize cobs (the main source), bagasse, paper-pulp residue, bamboo, kenaf, grain hulls, wheat and rice straw, nut shells, cottonseed and wood (soft and hardwood). Industrial product supply chains tend to be more sensitive to price levels than food supply chains and therefore access to a reliable, low-cost supply of raw materials is often a requirement for viability, not simply the presence of raw materials with a technical property that is used to make a particular chemical product. Furfural is consumed by the chemical industry as an intermediate product in synthesising chemical products such as nylons, lubricants and solvents, adhesives, medicines, and plastics. It is produced mainly by acid hydrolysis of cellulose or hemicellulose materials using acid solutions (usually mineral acids) to break down the polysaccharides into sugars. A major use (perhaps 65 per cent or more of world consumption) is for urea furan resin synthesis, a binding material used in metallurgy, precision casts and dies. 1.1 Relevance and potential benefits The main advantage of furfural is that it is made from renewable resources. Furfural (from pentosans), along with ethanol (from cellulose) and phenol (from lignin) are the main commercial or semi-commercial outputs from the chemical processing of wood. Furfural has been produced for 75 years or more, so it is not new, although new and more efficient processing technologies are emerging that could create new product possibilities for a chemical industry that is increasingly concerned about its dependence on non-renewable feedstock and energy inputs. Australia is a net importer of chemicals, but it may have the capacity to supply the raw materials used by a furfural plant and at the same time create a market for low-quality wood and agricultural byproducts and waste. It may also be possible to integrate furfural with other chemical and ethanol plants. As it is with many biomass transformations, the overall cost competitiveness of the supply chain governs market penetration. Furfural is no exception. Furfural investment would be likely to have impact at a local or regional level where raw materials can be sourced at low cost, either at processing plants or direct from farms in, for example, an agro-forestry-biochemical structure. This research is consistent with two of RIRDC’s core business strategies: • fostering the development of new industries …; and • addressing strategic cross-sectional issues facing the rural sector.

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1.2 Objectives and scope of the study The scope of this report covers: • identifying and examining product applications that can be made from furfural, and the associated

local and export markets for them • describing furfural processing technologies • examining the raw material procurement options. The study does not extend to an economic/financial feasibility evaluation or to regional impacts. These concepts could be undertaken later. 1.3 Approach and method This is the report of a concept study, not a detailed feasibility study. The concept being evaluated is new furfural processing technology, which is claimed to enable higher yields and improved productivity from a given level of inputs. Improved yields and higher productivity can improve the cost competitiveness and market share of furfural as an intermediate chemical, that is to say the cost competitiveness of furfural and derivates versus those chemicals produced synthetically from oil and associated hydrocarbons. Processing options are complicated by a range of joint product possibilities that could flow from a biorefinery producing furfural and many other products, some of which have external effects such as costs and benefits not being absorbed by the producer or processor. This is a situation which requires the allocation of indirect and overhead costs to a range of products in order to obtain some insights into what costs and prices would be competitive. At present most furfural is produced in China, with low capital-cost batch technologies, and low-cost corncob materials, but the yields are very low (30–35 per cent) and energy use is high compared to new technology with yields of more than 55 per cent and lower use of energy. It is therefore important to have some understanding about how to compete with low-cost producers like China. A new entrant with the new technology and access to low-cost materials may be able to compete against both Chinese furfural and synthetic substitutes. Data for the study has been collected from the new technology originators, the Latvian State Institute of Wood Chemistry, and other technology sources. Market data came from the Australian Bureau of Statistics, other statistical agencies and general providers of information about biomass-based chemical products, as well as the traditional petrochemical industry. The raw material sources are identified in the context of an Australian operation, but because furfural is an internationally traded commodity, chemical data on raw materials from other suppliers is also collected as a benchmark. 1.4 Outline of the report Section 2 identifies the different products that can be made from furfural and the local and export markets for them. Section 3 describes furfural technologies. Section 4 examines raw material procurement options. A discussion of the general results of the study is given in section 5, including identification of areas for further research, and section 6 contains the conclusions and recommendations. More detailed information about the Latvia technology is contained in the appendix.

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2. Furfural Production Possibilities and Markets The consumption of furfural as an intermediate chemical is apparent in countries with significant chemical industries. The global market is estimated to have been around 250 000 tonnes in 2001 (Dalin Yebo Trading 2003). With annual growth of about two per cent per year, the market would be around 300 000 tonnes in 2004, perhaps more with the rising price of oil, which is driving up processing costs and substitute costs. Furfural is traded internationally in the form of furfural, furfural Alcohol (FFA), and polytetramethylene ether glycol (PTMEG). The main use of furfural is in the form of feedstock for FFA (accounting for 75 per cent of furfural sales), which, in turn, is used as an input for furan resins, which are used for foundry binders. Furfural is also used in lubricants and in tetrahydrofuran (THF). There are many specialty chemical products that can be produced from furfural (refer to figure 2.1, from Darba Partijas Avize Newspaper, cited in Vedernikov 2000, and chart 2.1 from Penn Specialty Chemicals). Germany (18 000 tonnes/year of FFA) and the USA are relatively large markets and account for about 30 per cent of FFA consumption, with Japan another 11 per cent or more. Western Europe and the USA account for about 20 per cent of furfural consumption.

Table 2.1: Furfural and furfural derivatives markets 2001 (tonnes/year) Country/Region of destination FF PTMEG FA

Europe 12 000 37 000 USA 8 000 20 000 20 000 Middle East 7 000 NA Japan 6 000 15 000 Taiwan 5 000 5 000 South America 5 000 10 000 China 5 000 6 000 Australia 550 1 300 South Africa 1 450 4 450 Others 50 000 31 000

Total 100 000 20 000 129 750 Source: Australian Bureau of Statistics; Dalin Yebo Trading China has emerged as the dominant supplier of furfural and in 2001 accounted for over 70 per cent of world supplies. There are about 200 furfural producers in China, with an average production of 1000 tonnes/year. Linzi Organic Chemical Inc. claims to be the largest producer of FFA in Asia with annual output of 15 000 tonnes. Xing Tai Chunlei Furfural Alcohol Ltd is also among the largest with annual capacity of 10 000 tonnes of FF and 10 000 tonnes of FFA. Tieling North Furfural Group Co. is made up of 33 furfural factories in north-east China, with the capacity to produce 50 000 tonnes/year of furfural. The Dominican Republic (through Central Romana Corporation) is also a large supplier and accounts for about 11 per cent of world supplies (see table 2.2). Penn Specialty Chemicals at Memphis in the USA was a major supplier of furfural for that market and also produces PTMEG and THF and a range of other specialty chemicals derived from these products. Current production of furfural from Penn Specialty Chemicals appears to be negligible. Penn Specialty Chemicals purchased the furfural plant from Great Lakes Chemical Corporation and Quaker Oats

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Chemicals in 1999 at a time when Great Lakes divested its furfural investments in both the USA and Belgium. In Germany, NC-Nature Chemicals in Hamburg is a major producer. In Spain the Furfural Espanol S.A. company has furfural capacity of about 5000 tonnes/year. In India, KRBL, India's leading rice exporter, has recently announced it will be producing 3000 tonnes/year of furfural from rice husks. India has been importing FFA from China to make high-value derivatives.

Chart 2.1: Furfural and selected derivative specialty chemical products

Source: Penn Specialty Chemicals, Memphis, USA

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Figure 2.1: Furfural application scheme (reproduced, verbatim, from the newspaper Darba Partijas Avize, cited in Vedernikov 2000)

Rubber (divinylethylene) Perfume FURFURAL Flavouring agents Sintane

Paints & varnishes

Products of organic

synthesis Plastics, resins, synthetic fibre Agriculture Medicine

Selective dissolvents

Sulphuric dyes for photography

Furanol Nylon (2 amino

enanthic acid) Herbicides Nitrofuran

Selective solvents

Dilute dyes

Dihydro pyrane Polymers of furanol Fungicides Furamone

Production and purification

of vegetable oil

Liquid for dyes’ washing away

Tetrahydropyran Phenol-furfural

resins Insecticides Peristone

Purification of Antracene

Dye stuffs

Pyridine Polymers of

furyacrylic acid Bactericides Otic ganglion blockage remedy

Purification of oil products

Synthetic drying oil

Pentane diols Pasting

compositions Disinfectant Tuberculosis remedies

Separation of fatty acids

Varnishing stuffs

Lubricating oils

Preservant 5-nitro-2-furaldehide

semicarbazone

Concentration of fatty acids

Mordants

Valerian lactone

Hydrogenated fats

Solvents for cellulose esters

Piperylene

Separation of different

molecular weight molecules

Spirit soluble varnishes

Butanol

Engine cleaning fluids

Furan

Isolation of butadiene from

cracking gases

Concentration of vitamin A

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Table 2.2: Furfural and furfural derivatives production 2001 (tonnes/year)

Country of origin Principal feedstock material

Production of FF & derivatives (t/year)

China Corncobs 200 000

India 10 000

Thailand Corncobs 8 500

Dominican Republic Bagasse 32 000

South Africa Bagasse 20 000

Spain Corncobs 6 000

Others (India, South America etc.) Corncobs/bagasse 15 000

Russia Corncobs 5 000

Total 296 500 Source: Dalin Yebo and study data 2.1 Furfural prices After significant price increases between 1965 and 1990, world prices for FF and FFA show a downward, though volatile, trend. Because oil (and its substitutes) is used in processing furfural and is the key material in synthetic substitutes and their derivatives, the price of furfural is strongly related to oil prices. The average value of furfural imports into Australia for the five-year period ended 2002–03 was $A850, 000, and for FFA it was $A1, 680, 000. In 2002–03 the price for FF was $1002/tonne, and for FFA it was $1080/tonne. The average unit value of imports of FF and FFA into Australia over recent years is shown in chart 2.2. China supplies over 60 per cent of Australian imports of FF and FFA. Thailand accounts for a further 20 per cent of imports of FFA, and South Africa for a further 30 per cent of imports of FF. There are significant barriers to trade in FF and FFA. Anti-dumping duties on imports from China have been applied by the EU for the last decade. In 1995 a dumping duty of 352 €/tonne was applied to imports of furfural originating from China. This is equivalent to a more than 50 per cent ad-valorem tariff rate. This was reviewed and continued in 1999 and again reviewed and continued in 2003 (Official Journal 2003). In 2004, in the USA, anti-dumping duties at the rate of 31.33 per cent were applied against imports of tetrahydrofurfural Alcohol (THFA) from China (Federal Register 2004). These duties increase the prices of FF and THFA in the EU and USA and, because of the importance of these countries in international trade and overall consumption, it reduces the size of the overall global furfural market. This, in turn, has the now familiar impact of reducing the competitiveness of non-US and non-EU suppliers in world markets. It also reduces the competitiveness of users of these products in the USA and EU. Moreover, it improves the competitiveness of synthetic substitutes for furfural that are not subject to tariff protection. China and India are likely to emerge as significant markets in their own right, with the growth in income in these markets leading to growing demand for industrial products.

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2.2 The Australian market The Australian market for furfural has fallen away with the reduced activity in the local chemical industry over the past decade. In the year ended June 2003 imports of furfural were estimated to be 503 tonnes compared to 920 in the year ended 1989. The market for FFA has held up a little better, although the trend is also down (chart 2.3). China has been the main supplier of furfural to Australia over the past six years, but over the past three years, South Africa has emerged as the main supplier. With FFA, China has also been the main supplier, but Thailand has also been a major supplier in some years and in 2000–01 it supplied almost 50 per cent of the imports.

Chart 2.2: Furfural and furfural alcohol imports, Australia, 1997–98 to 2002–03 ($A/tonne)

0200400600800

100012001400160018002000

1997-98 1998-99 1999-2000

2000-01 2001-02 2002-03 6-yearaverage

Furfural Furfural alcohol

2.3 Phenol Phenol is another product that could be produced alongside furfural in a biorefinery, or as a value-adding option (see later comments connected with Hermescec 1999). The global supply of phenol is expected to be around 7.5 million tonnes in 2004 (Takeno 2004). Phenols are similar to alcohols, but more soluble, more acidic and with higher boiling points. They are synthesised by either the hydrolysis of chlorobenzene or the oxidation of cumene in air to form hydroperoxide. The main reaction of phenol is its condensation with formaldehyde. The main product derivatives from phenol are bisphenol A (BPA) (for polycarbonate and epoxy resins), phenolic resins (for moulding binders and insulation wool), cyclohexane (for caprolactam), alkylphenols (for surfactants), and salicyclic acid (for pharmaceuticals) (www.chemicalLand21.com). More technical details about BPA, and a defence of claims about adverse health side effects can be found on http://www.bisphenol-a.org. BPA is used to make polycarbonate plastics (a substitute for glass) and epoxy resin (for coatings and liners in metal containers). Huntsman produces a range of phenolic resins at their chemical plant in Footscray, Victoria. Phenolic resins are used in wood products, in electrical, automotive, and thermal insulation products, and in building and construction. Cyclohexane is produced from benzene and used mainly to make nylon 6 and nylon 6,6. Furfural was previously the main material used to make nylon 6,6 but cheap oil substitutes resulted in its replacement. Alkylphenols and its derivative, alkylphenol ethoxylates, are used mainly to produce surfactants and cleaning compounds. They are used in pulp and paper, textiles, pesticides for agriculture, lubricating oils, metals and plastics. Nonylphenol is a major derivative of the alkylphenols group and accounts for 85 per cent of the alkylphenols product group (http://www.aperc.org). The phenol ester, phenyl salicylate or salol,, is used in medicine as an antiseptic or antipyretic (http://www.bartleby.com/65/sa/salicyli.html).

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Chart 2.3: Furfural and furfural alcohol imports, Australia, 1997–98 to 2002–03 (tonnes)

0

200

400

600

800

1000

1200

1400

1600

1800

1997-98 1998-99 1999-2000

2000-01 2001-02 2002-03

Furfural-Ex China Furfural-Ex RSAFurfural total Furfural alcohol ex ChinaFA ex Thai Furfural alcohol total

In 2002–03 the value of imports of FF and FFA into Australia was estimated to be $1.6m. Local production is negligible, as are exports, and therefore apparent consumption is also $1.6m. The overall Australian market for phenols is estimated to be around $116m in 2004, with imports accounting for over 85 per cent of the market, some of which is re-exported. The main domestic supplier is Huntsman with sales of around $20m/year.

Table 2.3: Phenol consumption, Australia, 2004 ($Am)

January February March Estimated total for year 2004

Imports 7 13 9 120

Production 2 2 2 24

Exports 2 2 3 28

Apparent Consumption

7 13 8 116

Source: Australian Bureau of Statistics, Cat. 5368.0, ‘International Trade in Goods and Services’. In the global market, production of phenol is expected to be around 7 million tonnes in 2004 (Takeno 2004). Shell Chemicals, Aristech, Phenolchemie, Enichem and Ertisa are major suppliers.

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3. Processing Technologies Furfural is a liquid aldehyde with its typical CHO structure (figure 3.1). It is produced from the dehydration of pentoses, typically produced after an initial hydrolysation stage, with acid catalysts (e.g. sulphuric or phosphoric acid) used to intensify the extraction process. Furfural has derivatives, including FFA (and its derivative furfuralamine), furoic acid, furanacrylic acid, furylidene ketones, furan, and tetrahydrofuran (Lichtenthaler 2002).

Figure 3.1: Furfural: formula: C5H4O2

Source: Department of Biochemistry and Molecular Biology, University College, London (http://www.biochem.ucl.ac.uk/bsm/pdbsum/1qxd/main.html) Both batch and continuous processing methods are used, but batch processing is mostly used nowadays. Previous manufacturers of the plant for the continuous process include Defibrator and Rosenlew (Sweden and Finland), Societa Italiana Furfurola (Italy), and Escher Wyss (Germany), but these manufacturers now have either stopped production or scaled back. Batch plants are available from China and possibly South Africa. The option to engage in further processing of the lignocellulose residue or use it as an energy source for the initial furfural process is available in both methods. In each of the methods there is different emphasis on the yield and recovery of co-products, raw material inputs and their prices, plant size and capital investment, and product quality. 3.1 Quaker Oats technology One of the earliest patents on furfural was that of Isenhour taken out in 1932 and assigned to The Quaker Oats Company (US Patent Office). This process involves a two-step process, in which the plant raw materials containing pentosans is mixed with dilute sulphuric acid, with hydrolysing of pentosans to pentoses (C5H10O5) taking place in the first step (Gravitis, Vedernikov et al. 2000). Byproducts are typically used for energy. The pentoses are then cyclohydrated to furfural in the second step, with recovery by steam distillation from a mixture of acid and undigested biomass. The foremost problem of this technology is that the first step is 50 times faster than the second step, leaving the dehydration reaction process as the limiting factor. Steam costs are very high. There are other problems, including producing valuable co-products such as bioethanol, and yield recovery limits of 55 per cent (often less than 35 per cent in practice) due to secondary reactions. Nevertheless,

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the technology has been shown to work and produces furfural for sale in world markets. Huaxia Technology, a subsidiary of Westpro Company in California, is using a variation of the Quaker Oats technology to produce furfural in China. 3.2 SupraYield SupraYield was developed from patented technology owned by Karl Zeitsch, a pioneer in furfural technology, and it has been taken up by a South African group. SupraYield claims higher yields (50-70 per cent furfural) and lower operating costs. This technology does not appear to be in commercial use, although Queensland sugar producers are evaluating a form of it. 3.3 Vedernikov’s single-step furfural solution Vedernikov has patented a single-step furfural process using concentrated sulphuric acid, which increases the rate of pentose hydration compared to the traditional method of hydrolysis of pentosans. This technology is described fully by Gravitis, Vedernikov, Zandersons, Kokorevics, Mochidzuki and Suzuki (1999) and a detailed description of the technology is contained in the appendix. The main attributes of Vedernikov’s technology are increased yield, from a theoretical 55 per cent maximum, to 75 per cent, and preservation of the cellulosic part of the raw material for further chemical processing into other products such as bioethanol. More recently, Vedernikov has said that the theoretical yield of furfural can be increased to 90 per cent when ethanol is produced from the residual cellulose. He also considers that furfural alone is a doubtful process (personal communication).

Figure 3.2: Furfural pilot plant at the Latvian State Institute for Wood Chemistry

3.4 University of Melbourne’s process for recovery of furfural and phenols The University of Melbourne’s patent (held jointly with B. Hermescec) for recovering low molecular weight phenols, furfural, furfural alcohol and cellulose-rich residues involves less chemical input than the other technologies. Although similar intent exists in terms of producing chemicals and energy from renewable raw materials, this process is driven thermochemically under oxidative conditions. The

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fluidised bed pyrolysis reactor used here has smaller feedstock particle sizes and claims relatively low energy requirements. The process seems to make full use of all residues. The main outputs are furfural alcohol and phenols. This technology appears, however, to be at a very early stage, little beyond research and facing investment in product development and a pilot plant for testing before it goes any further. A summary of some key differences between technologies is shown in table 3.1. These estimates are very broad guidelines and should be treated with extreme caution as they are often from pilot plant operations or small laboratory-scale experiments or just straight ‘guesstimates’. Huaxia is a more reliable estimate because they are actually in production. Vedernikov has undertaken a quite comprehensive costing and has the benefit of a pilot plant experience (figure 3.1). Vedernikov’s technology is also understood to be applied commercially in a Russian plant producing 8000 tonnes/year of furfural, though we were unable to verify this. Both SupraYield and University of Melbourne/Hermescec are at a concept stage.

Table 3.1: Comparison of furfural processing technologies

Variable Huaxia Technology SupraYield Vedernikov Technology

University of Melbourne & Hermescec

State of development Commercialised Laboratory Pilot & at least semi-commercial

Laboratory

Capacity (tonnes/year of total product)

4 500 5 900 6 900 6 500

Assumed capacity utilisation (%)

100 100 100 100

Materials used (tonnes of dry mass)

10 000 10 000 10 000 10 000

Pentosan content of dry mass *

22 22 22 22

Total product recovery (% of dry biomass)

45 59 69 65%

Product focus Furfural Furfural Furfural Phenols

Yield of furfural (% of theoretical)

35 +50 +75 NA

Furfural production (tonnes)

770 1 100 1 650 NA

Power (kWh/tonne of furfural)

400 NA 650 NA

Sulphuric acid (t/t of furfural)

**0.55 NA ***0.22 0

Emissions NA NA NA NA

Capital investment ($/tonne of product sales) ****

405 150 850 234

Co-products Methyl alcohol, acetone, acetic

acid, levulinic acid

NA Acetic acid, ethanol Furfural, cellulose

* Depends on raw material and its pentosan and moisture content

** Dilute sulphuric acid

*** Concentrated (93%) sulphuric acid

**** Cannot be compared because of different measurement methods and different products

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Comparing the different furfural processing technologies is constrained by lack of detailed results from the providers, except for that of Vedernikov who has published his results widely and openly. The owners of patents are often unable to answer important questions about their technology, perhaps because of confidentiality or a desire to not expose technologies to detailed scrutiny by competitors. In this context the Latvian technology has an edge over competing technologies, which make claims for higher yields without publishing technical details supporting those claims, and in testing the technology, which Vedernokov has been able to do at the Latvian pilot plant.

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4. Raw Material Sources Furfural is derived from plant and residual materials containing pentosans. Table 4.1 shows the pentosan content of several plant and residual plant materials.

Table 4.1: Pentosan content of plant and residue materials Plant material Pentosa

n %

Almond husks 30

Bagasse 25

Barley straw 25

Birchwood logs 22

Birchwood residues after felling 25

Corn/maize cobs 35

Cottonseed hulls 28

Eucalyptus wood 20

Eucalyptus wood residues after felling Na

Flax shivers 23

Hazelnut shells 23

Oat hulls 29

Peanut shells 3

Pinewood 8

Rice hulls 17

Rye straw 30

Sunflower husks 25

Sunflower stalks Na

Wheat straw 24 Source: International Furan Technology, and Latvian State Institute of Wood Chemistry Bagasse and corncobs are the two most common materials used in furfural processing plants, and together they account for more than 98 per cent of all furfural produced, with corncobs dominating the material supply in China, the largest producer. The potential yields of pentosan depend on the extraction technology used. This can range from 25-75 per cent or more. Huaxia Furfural Technologies claim to be achieving the following yields: corncobs 10–12 per cent, rice hulls 5–7 per cent, bagasse 8–11 per cent, and wood 4–8 per cent, which translates to about 30 per cent of the theoretical potential for these products. The other key feature of the currently available furfural is that it is derived almost entirely from residues, that is, bagasse from sugarcane processing and corncobs from processing. This means there are no expensive direct costs in procuring raw materials, which is already assembled at central points in relatively large volumes. In Australia the raw materials that have relatively high pentosan content and that may be available in central locations and at reasonable volume include bagasse, rice hulls and wood-processing residues. Eucalyptus plantation wood could also be competitive provided it is already assembled at a central site and in sufficient volume. Table 4.2 shows some of the resources that could be used for furfural production in Australia. While maize is listed here as a source of input for furfural, it is an unlikely

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commercial candidate because, unlike China, most maize in Australia is harvested by machine for the grain, and there is little centralised collection of cobs.

Table 4.2: Australian raw materials for furfural: by plant origin

Plant origin Output Pentosan % Pentosan theoretical

quantity

Rice (t) 1 200 000

Rice hulls (%) 20 17

Rice hulls quantity (t) 240 000 40 800

Sugarcane 40 000 000

Bagasse (%) 25 24

Bagasse quantity (t) 10 000 000 2 400 000

Maize *450 000

Cobs (%) 25 35

Cobs quantity (t) 112 500 39 375

Timber (million m3 of hardwood) 16

Sawlogs (%) 25 20

Pulp (%) 38 20

Residuals (%) 37 20

Share of timber products for furfural

Sawlogs (%) 2

Pulp (%) 2

Residuals (%) 5

Timber for furfural

Sawlogs (M m3) 80 000 16 000

Pulp (t) 121 600 24 320

Residuals (t) 296 000 59 200 *Most of Australia’s maize crop is mechanically harvested and cobs are left behind as residue. Collection of this residue would involve significant cash costs, as well as a reduction in soil quality, caused by removing organic matter.

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5. Discussion of Results To improve our understanding of the main differences between Vedernikov’s technology and the traditional Quaker Oats two-step process, we invited Dr Branco Hermescec to comment on the results. This section describes, first, Dr Hermescec’ assessment (quoted verbatim).

The Vedernikov technology is viewed as still being at the experimental stage, though it appears innovative and if sufficient investment of capital, expertise and engineering is applied, a promising technological development is possible. However, the paper does not go far enough on the processing of solid residues at the end of the processing stage. Granulated lignin in the context of the overall utilisation is a low-valued fuel product. Further processing of lignin could yield substantial quantities of low molecular weight phenols, such as vanilan, guaiocol and syringol.

There also may be some irregularities with the base calculations in regard to the mass balances, with 1000 kg of raw material yielding 690 kg of various products. The mass estimated for CO2 is probably too low as the fermentation process should yield alcohol and CO2 in about the same amounts. (This suggests the alcohol yield may be overstated).

Costs of the Vedernikov technology would need to be completely reviewed for another time period (originals for 1999) and another country (originally applied to Latvia) where labour, capital, land, environmental regulations and other operating costs would be quite different.

High returns are also ascribed for thermal energy, a byproduct of the manufacturing process. In practice, however, most energy from the process would be used in situ for heating the reactor, preheating of materials and drying processes. The feedstock is likely to contain high levels of water. Therefore, fuel (that is, thermal energy), should not be presented as a negative cost in the budget.

At face value there is little likelihood of the proposed manufacturing plant based on Vedernikov’s technology achieving financial viability because: • the plant size of 5000 tonnes of furfural and 8000 tonnes of ethanol appears to be too small to achieve

cost economies against larger plants • the lignin component remains under-utilised • engineering tasks could be complex and commissioning procedures would be risky and expensive …

Responding to these questions Vedernikov accepts that furfural by itself is not viable without very low-cost feedstock and that higher-value chemicals need to be produced, and more use made of the residual lignin (15 per cent of the dry matter in corncobs) to make, for example, phenols and cellulose (31 per cent of the dry matter in corncobs) and ethanol. There are several key factors that can significantly influence the viability of a furfural processing plant:

1. Raw material access, volume and cost McArthur and Frolich (1996) in a study of biomass pyrolysis processes to produce furfural, formic acid and levulinic acid found, like Himmelblau (1995), that the cost of biomass materials had a significant impact on returns, and that woodchips would have to be free of cost to achieve viability, unless the products and yields are high, and high unit values are ascribed to sales. There also needs to be access to a reliable and continuous stream of raw materials. It is the access to a reliable and continuous stream of oil, gas and naptha that provides the traditional petrochemical industry with its long-standing cost advantage.

2. High yields and relatively high average unit values for the output The underlying yields of the biomass and the actual recovery levels in processing have major effects on viability. One of the reasons for the relatively high projected IRR from the technology of Melbourne University and Hermescec is the recovery of saleable high-valued products, which are projected to translate to 0.325 tonnes/tonne of wet hardwood sawdust used. It is estimated that 80 per cent of the dry weight of the sawdust biomass can be converted to phenols, cellulose and

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furfural. This recovery rate, however, appears to have been achieved in the laboratory only. Also the prices for phenol products may be overstated. Current phenol prices are around $US700/tonne, which is 25 per cent less than that assumed for this technology. Moreover, the phenol market is dominated by some very large companies like Shell Chemicals, which exploit the economies of scale in processing and distribution. The prices for chemicals reflect market demand and the underlying variable and fixed costs of processing and distribution. In the long term prices reflect total costs. The Institution of Chemical Engineers identify four broad groups of chemicals that have different processing and distribution costs, giving a hierarchy of total costs and ultimately a hierarchy of prices: • basic chemicals and minerals, supplied by pipe or bulk cargo, with prices around $275/tonne

(including crude oil and naptha) • common intermediate chemicals, with prices around $800/tonne (this group includes products like

furfural, acetic acid, benzene, phenol) • monomers or less common intermediates, with prices around $2400/tonne (this group includes

products like acrylic acid, dichlorobenzene) • specialty chemicals, with prices around $4500/tonne (this group includes styrene and silica gel). Selection of the group of chemicals on which to focus is one of the most important strategic decisions in establishing a biorefinery. Management must consider, among other things, the level of current and future competition, access to materials and quality of the product.

Chart 5.1: Chemical price points: by broad group and selected products: $A/tonne

Common intermediates

Furfural alcohol Phenol

Specialty chemicals

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Basicchemicals

Furfural Acetic acid Monomers

* Note: These prices are volatile. For example, FFA in July 2004 is trading for closer to $1500/tonne. Lichtenthaler (2002) observes that furfural appears to be the only unsaturated large-volume organic chemical that is able to compete with low-cost fossil-fuel-based materials.

3. Capital investment and returns required The capital investment required for any of these technologies is uncertain and could undermine returns to investors. Commissioning costs, especially for unproven technologies, are likely to be high and the

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threat of environmental constraints is another source of uncertainty. These risks would mean that investors would expect higher returns than would be available from other, less risky investments. Many assessments of the advisability of setting up a biorefinery fail to consider the likely returns an investor would expect for an investment in a biorefinery, which has features of both the chemical and biotechnology sectors. In addition, there is often the added complexity of the investment being a start-up operation, without commercial links to markets and raw materials. This adds to the risk. The cost of capital for any business can be estimated from the weighted average cost of equity and debt capital (Brealey and Myers 1981): Cost of capital = cost of equity (E/D+E) + after-tax cost of debt (D/D+E) (1) Where E = the value of equity funds, and D = the value of debts to be used. Debt is usually cheaper to access than equity, as long as the lenders are willing to lend for the investment. This usually presents a problem for start-up companies, and biorefineries are no exception. The typical biotechnology company listed in the USA has a market debt : equity per cent of just four per cent compared to the chemicals group of around 30 per cent (Stern 2004). It is probably reasonable to say that if the investor in the biorefinery were a business like Shell Chemicals, the debt : equity ratio would be closer to the chemicals group as a whole, but if it were a start-up company, the ratio would be closer to four per cent. That is, for large companies like Shell, there is a better chance of obtaining a loan than there would be for a small company, which might actually have to fund everything from relatively high cost equity. The cost of equity comprises the risk-free rate, plus a premium for risk: Cost of equity = risk free rate + beta (risk premium) (2) The long-term government bond rate is used for the risk-free rate (currently 5.9 per cent in Australia) and the typical risk premium over the long term is 5.5 per cent. Beta is derived from a regression of monthly returns on stocks or stock groups against a composite of stocks. The beta for biotechnology stocks in the USA is 1.2; for basic chemicals it is 0.88; for diversified chemicals it is 0.83; and for specialty chemicals it is 0.8. The after-tax cost of debt = pre-tax cost of debt (1-tax rate). The pre-tax cost of debt requires a risk premium to be added, and this would be around 12 per cent for a small company starting up in Australia. From the above, the estimated cost of capital for a biorefinery entering a commercial stage would be around 13 per cent. Cost of equity = 5.9 + (1.2)(5.5) = 12.5 Cost of debt = 12%(1-0.3) = 8.4 Cost of capital = cost of equity (E/D+E) + after-tax cost of debt (D/D+E) = 12.5(0.96) + 8.4(0.04) = 12.4%. This is the estimated cost of capital (12.4%) for a biorefinery that has proved itself through to, say, a commercialised plant stage and has an effective structure that investors would have reasonable confidence in. If the biorefinery were owned by a larger chemical company, the debt is likely to be higher, the betas lower and the overall cost of capital closer to 10 per cent. For a small start-up, without any external backing, the cost of capital for the biorefinery is likely to be above 20 per cent.

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The required rates of return also decrease as risk is reduced with progress through the research, development and commercialisation stages. At the research stage the probability of a particular research project reaching commercialisation is less than five per cent; at the development stage it could be 20 per cent; and at the pilot stage it could be 50 per cent. After the pilot stage there are still significant risks in commissioning and organisation. At the research stage it would not be unusual for investors to require a return of 50 per cent; at the development stage 40 per cent; and at the pilot stage 30 per cent. These differences in required rates of return have a major impact on viability. It is also very clear that an investment is more likely to proceed if a large chemical or biotechnology company becomes part of the project.

Chart 5.2: required rates of return: furfural and biorefineries

05

101520253035404550

ROI [%]

Research Pilot plant Subsidiary oflarge

chemicalplant

4. Economies of scale, new technology and use of capacity There are economies of scale in furfural production and biorefineries generally. One of the first facts to consider with biorefineries is that the more they develop their product range the more likely they are to come into competition with the traditional chemical companies. Shell Chemicals, for example, is building a new phenol-acetone production plant in Singapore with annual capacity of 330 000-440 000 tonnes/year (Takeno 2004). Economies of scale will enable this plant to be among the lowest-cost producers of phenol in the world. Moreover, the plant embodies new technology that will reduce variable costs (which include propylene and benzene) of producing phenol by more than 50 per cent. These extraordinary improvements in technology pose enormous threats for biorefineries waiting to see the price of oil rise to make them competitive. The traditional economies of scale in manufacturing have not been tested with biorefineries, mainly because of feedstock limitations. According to the standard scaling law, when a plant doubles in size its cost increases by a factor of (2/1)0.6, which is about 52 per cent. Of course, the plant has to be able to operate at full capacity to achieve the cost advantage. More generally, as processing technologies improve and raw material feedstocks become more reliable and integrated with processing, it seems reasonable to expect economies of scale to assert themselves on the structure of biorefining in the same way they have governed the structure of the traditional chemical industry. The new cellulose-based ethanol plant at Iogen in Canada (a subsidiary/associate of Shell) is being built to produce 170 million litres of ethanol/year from 1500 tonnes/day of wheat, oats and barley straw. Biorefineries

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of this scale will almost certainly emerge with major positions in the biochemical market, as well as being more significant competitors to the traditional chemical market.

5. Aesthetics, product differentiation and the end market for products from a biorefinery It’s a long way from waste and agricultural materials through furfural and pentosans to end products that might include plastics, cleaners, glues, inks etc. In the end, it is the end-product user who drives demand and chemical demand is derived from it. For this reason it would be useful in any future research work to establish contact with the end-user product groups: resins, paints, flavouring agents, pharmaceuticals etc. (refer to figure 2.1).

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6. Conclusions and Recommendations Furfural, along with many products and co-products of biorefineries, requires detailed technical, environmental, economic and institutional analysis. From this brief examination of furfural it is clear that the economic outcomes are subject to major assumptions about the cost and availability of raw materials, processing yields, unit prices for products sold, capital investment required for commercial operations, and economies of scale and use of capacity. Finding the funds for proving a new technology adds to the complexity and challenge of the task, especially with small start-up businesses. The presence of large, traditional chemical companies that make substitutes from oil and gas, and the volatility of oil markets adds to the risks of biorefineries. It is generally agreed, however, that environmental impacts and public perceptions of them have placed the chemical industry in a vulnerable state, and to this must be added their exposure to upward volatility in oil prices. Lichtenthaler and Peters (2004) observe that the end of cheap oil, on which the chemical industry is now firmly based, is in sight, by 2040 at the latest. For this reason further research into products like furfural and other biorefinery co-products is likely to continue. To achieve useful outcomes from further research into furfural and other biochemicals it is important to mobilise resources that can take investigation through a comprehensive feasibility study to a stage of development, beyond laboratory results, through a pilot plant to a mini-commercial plant. International collaboration in research and development activities is essential, and obvious for small countries like Australia, which does not have a large chemical industry. It also makes sense for other larger countries and groups of countries that have an interest in a sustainable chemical industry. Collaboration with large chemical companies takes on added importance because of their size and access to distribution channels. The most readily available and potentially low-cost raw materials for furfural production in Australia are bagasse, rice hulls and wood-processing residues. While a number of other pentosan-containing plant materials are available in Australia the cost of collecting them for processing is likely to be too much for the biorefinery, unless some environmental benefit can be attached. There is considerable research and development underway in North America and Europe into ways of converting agricultural waste into biochemicals and it is important and cost effective to participate in this activity. One option to consider would be the establishment of pilot biorefinery plants in a group of countries wanting to share and benchmark the results of their research, but also with a view to moving to a more commercial phase in developing and commercialising a range of biochemicals. There are important structural, economic and environmental factors that need to be considered in developing biorefineries. They face more than just technical problems if commercial production is to eventuate. Biochemicals have significant potential for impact at a regional level where cost advantages exist from close proximity to materials. Skilled labour would be needed to operate these plants and sourcing this would be an integral part of a final business plan. As a next step it is recommended that a more detailed feasibility study be undertaken into establishing a biorefinery in Australia, with a diverse range of chemical products. This study should be undertaken in collaboration with one or more European and/or USA research institutes and a chemical company with an interest in this area. It would also be useful to undertake this study with a pilot plant being established to enhance confidence in subsequent developments and commercialisation.

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Appendix A verbatim reproduction of ‘New technology for furfural and bioethanol production from low-quality foliage wood’, by Nikolay Vedernikov, Laboratory of Polysaccharides, Latvian State Institute of Wood Chemistry Dzerbenes 27, LV-1006, Riga, LATVIA Email: [email protected] Fax: +371-7310135 Abstract In the near future foliage wood may be as a real alternative to oil as raw material for production of chemicals and motor fuel. A new approach to solve this problem consisting of differential catalysis of hydrolysis and dehydration reactions has been found. The aimed change of the mechanism of the process has permitted to solve two problems simultaneously: to make increase the furfural yield from 55 per cent up to 75 per cent from theoretical and to diminish 5 times degree of the cellulose destruction. On the basis of theoretical studies a new technology including two-step hydrolysis of foliage wood and other pentosan containing raw material has been elaborated. Since 1997 for the first time in the world’s industrial practice this technology yielding furfural and fermentable sugars further processed into bioethanol has been realised in Russia with capacity 4.300 t/a of furfural and 8.800 t/a of bioethanol. The degree of raw material utilization has grown 3 times, the total yield of furfural and fermentable sugars 4 times when compared to the only furfural production. Introduction The oil is the main chemical raw material now, but following the forecast of leading geologists (Science, 1998) the oil obtaining already in 10 years will rapidly decrease and its price would increase, correspondingly. Therefore, following forecast of USA specialists, almost 30 per cent of all the production of organic chemistry already in 25 years would be produced from biomass, and it would be more than 100 million tons per year. The plant biomass formed in the process of photosynthesis in amounts of 2·1011 tons per year exceeds 20 times the summary output of all non-renewable organical raw materials (coal, oil and gas). The low-quality foliage wood and agricultural wastes prove as cheapest and most available from all the photosynthesised biomass for chemical processing. Using 3 main intermediates — furfural, ethanol, and phenol obtained from corresponding wood components (pentosans, cellulose, and lignin), 95 per cent of all synthetic materials actually obtained from oil could be produced. Forests in Latvia cover 43 per cent of all the state territory. There is big amount of low-quality foliage wood (aspen, alder) and also wood wastes having no economically effective application. The furfural and bioethanol production proves as perspective trend of application of such a wood. Already now furfural is produced in more than 100 plants in 19 countries, and the total production amount is 300 000 t per year. Ethanol is produced from wood in 18 plants (120 000 t per year), and scientists in USA, Canada, Sweden, and other developed countries work to elaborate new technologies to obtain this product from biomass. But, simultaneous obtaining of these two products till nowadays was considered as theoretically impossible because of near values of kinetical parameters of furfural formation and cellulose

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destruction. This results in the 40–50 per cent cellulose destruction during the furfural-obtaining process and the residue of the raw material may be therefore used only as fuel and fertilizers. The other problem, which has not been solved during 77 years of the industrial furfural production, was a comparatively low yield of furfural not exceeding 55 per cent from theoretical. The mechanism of the process was to be changed in order to solve both problems simultaneously. It was done on the basis of a new non-traditional approach — theory of differentiated catalysis of the hydrolysis and dehydration reactions done simultaneously in one apparatus. Experimental The experimental researches in an original pilot plant with reactor of 10 l volume and 2 m height have been done. This pilot plant allows modelling of the industrial process changing the main parameters in a large interval. Special methods to detect main kinetical parameters relating not laboratory, but industrial conditions have been elaborated. It gave possibility to optimise the technology applying the kinetical parameters obtained. Results and discussion According to the new theory (1), hydrolysis of pentosans and dehydration of pentoses in one-step furfural production from plant raw material in the presence of small amounts of concentrated catalyst solutions are accelerated differentially by acetic and sulphuric acid (or other strong catalysts). Due to the marked chemosorption heat, molecules of sulphuric acid sorbed on the surface of the particles are bound tightly to the polysaccharides by chemosorption bonds, and they do not penetrate into the particles. The strength of the chemosorption bonds between the molecules of sulphuric acid and polysaccharides increases with increase in initial acid concentration. It is slight for dilute solutions. As small amounts of sulphuric acid are used (2–4 per cent of material mass), it covers less than one per cent of the entire surface of particles. Acetic acid, formed through treatment of wood with steam and uniformly distributed in the particles, catalyzes hydrolysis of pentosans to monosaccharides. Further conversion of pentoses into furfural directly in the cell wall does not occur because acetic acid is too weak as catalyst for dehydration at low temperature. Pentoses formed diffuse to the surface of the particles where their dehydration to furfural occurs under influence of sulphuric acid. Experimental research was done with application of the new research methods on specially designed laboratory-scale and pilot plants enabling a dynamic study and modelling separate steps and the process as a whole. A new method was applied to study kinetics of the furfural formation excluding side reactions and secondary conversions to a maximum. This allowed the revealing of previously unknown regularities and estimation of the influence basic factors and parameters have upon the rate of furfural formation and its yield. Kinetical studies have proved that a higher concentration of sulphuric acid makes increase the rate of the pentose dehydration more markedly in comparison to hydrolysis of pentosans. For example, obtaining furfural from corncobs, the ratio of the constants of these reaction rates decreases more than seven times with the increase in concentration of sulphuric acid from 10 up to 90 per cent (table A1). This allows a decrease of the surplus pentoses in the reaction system, reduces the possibility of side reactions, and enhances the selectivity of the process. It is the most interesting that the constant of the pentosan hydrolysis (k1) does no practically depend on concentration of sulphuric acid, but that of the furfural formation (k2) increases eight times. Neither the newly discovered regularities nor experimental data can be explained on the basis of conventional theory, since the volumetric relation of catalyst solution against that of raw material

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decreases about 20 times reaching 1:500. According to the theory of differentiated catalysis this condition enhances a reduction in the furfural loss due to the side reactions and secondary conversions. The fundamental regularities were first discovered in the furfural formation from birchwood (tables 2, 3) and other pentosan-containing raw materials in the presence of small amounts of concentrated catalyst solutions. Certain kinetical properties and activation parameters of the process were determined, effective catalyst concentration values were calculated, and regularities of its conversion within process were defined according to the conditions of the process. A quantitative evaluation of the degree of influence of moisture, the type of raw material, amount and concentration of catalyst, temperature and duration of processing, the rate of steam and other factors upon the furfural yield were compared. Regression equations enabling an optimization of process were obtained. As result of this research the furfural yield increased from 55 per cent up to 70–80 per cent from theoretical. The application of small amounts of concentrated sulphuric acid also prevents the destruction of cellulose to be used in the further processing. Thus it was shown that contrary to the conventional theory, a higher concentration of the catalyst solution and a reduced volume of it to the raw material, significantly reduced the cellulose destruction. The amount of cellulose destroyed is approximately five times less. Further, the degree of polymerization, the cristallinity index and the molecular homogeneity of cellulose tend to grow. Beside the furfural formation process the kinetics of polysaccharide hydrolysis were studied enabling a choice of an optimum technological variant according to the raw material and the type of processing, including two-step hydrolysis. The research has resulted in a new technology for the furfural obtaining from foliage wood and other pentosan-containing plant raw materials in the presence of small amounts of concentrated acid and salt solutions as catalysts. The test of this method in pilot and industrial conditions have confirmed the newly discovered regularities and proved the process to be easily modelled, even if the reactor volume is to grow several thousand times (from 10 to 60 m³). The novel technology (2) has provided a possibility to solve two technical problems simultaneously: to increase the furfural yield for 20–25 per cent and to preserve the cellulosic part of the raw material for a further chemical processing. As a result, for the first time in the world’s industrial practice, the problem of complete utilization of foliage wood polysaccharide complex yielding furfural and fermentable sugars to be used subsequently for the production of bioethanol and other microbial synthesis products has been solved. To realise this process an original construction of two-shaft helix-shaped blade mixer of a continuous action and air disperser have been developed. When modelling the mixing processes of raw material with catalyst, diffusion model parameters of hydrodynamic structure of the material internal flows, depending on the length and equivalent diameter of the mixer have been determined. The optimum layout diagram of blades on the mixer shafts, their configuration, shaft distance as well as the number of their revolutions, have been experimentally determined. The optimum combination of these parameters has provided the uniform distribution of the catalyst in the raw material mass. The equipment of various capacities for the raw material mixing with catalyst solutions is being currently manufactured. Conclusions For the first time in the world’s industrial practice, the new technology allows to obtain furfural from pentosans and fermentable sugars from cellulose in one two-step process. Since 1997 this new

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economically feasible process has been successfully applied in Russia with capacity 4.300 t/a of furfural and 8.800 t/a of bioethanol production from foliage wood. The degree of raw material utilization has grown three times, the total yield of furfural and fermentable sugars four times when compared to the only furfural production. The solution of the problem of simultaneous obtaining of furfural and bioethanol would permit in the near future to use the low-quality foliage wood and agricultural wastes as alternative to oil as chemical raw material and motor fuel.

Table A1: Changes in the constants of pentosan hydrolysis (k1) to furfural formation (k2) ratio in dependence on concentration of sulphuric acid

Concentration of H2SO4, % k1·102, min-1 k2·102, min-1 k1/k2

10

20

30

60

90

14.58

15.76

16.50

15.84

16.17

0.251

0.816

1.024

1.450

1.954

58.1

19.3

16.1

10.9

8.3

Table A2: Kinetical parameters of the furfural-obtaining process

Concentration of H2SO4, % k·103, min–1 a (T) Ea, kJ·mol–1

10

20

30

60

90

3.29

4.29

5.42

9.89

21.59

2.367

2.370

2.297

2.178

2.072

123.4

123.6

119.1

111.5

104.3

Table A3: Activation parameters of the furfural-obtaining process

Concentration of H2SO4, % A·10–12, min–1 ΔH#, kJ·mol–1 ΔS#, J·mol–1 ·K–1

10

20

30

60

90

7.22

9.91

3.47

0.71

0.20

119.9

120.1

115.6

108.0

100.8

–43.9

–41.3

–50.0

–63.2

–73.7

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Figure A1: Synthetic materials from foliage wood, main directions

WOOD

25% 40% 25%

Pentosans Cellulose Lignin

>100 plants in 19 countries 18 plants in 2 countries

no production

300 thousand tons per year 1200 thousand tons per year

FURFURAL ETHANOL PHENOL

95 per cent of all now-produced synthetic materials may be obtained from these three products

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Figure A2: The principle scheme of manufacture of furfural, bioethanol and other products from foliage wood.

Foliage wood 1000 kg*

Acetic acid 42 kg

Depolymerization and deacetylation of pentosans, dehydration of pentoses

Furfural 92 kg

Ligno-cellulose

Depolymerization of cellulose

Fermentable sugars

(302 kg)

Bioethanol 172 litres

Lignin Bioethanol production

Carbon dioxide 70 kg

Granulation Fuel granules 320 kg*

*calculated on dry material

References (for this appendix only) Vedernikov, N., ‘The obtaining of furfural’, In: Hemicelluloses. Zinatne, Riga, Latvia, 209–222, 1991 Vedernikov, N. et al. Method for Obtaining Furfural and Fermentable Sugars, Russian Patent 1365674, 1994

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References and further reading ABARE 2001, ‘Australia’s forest and timber opportunities: resource and opportunity’, www.abare.gov.au Alternative Resources Inc. 1999, Review of the Acid Hydrolysis Process for Producing Ethanol, ARI, MA, USA. Australian Bureau of Statistics 2004, International Trade in Goods and Services, Cat. 5368 Boerrigter H., Deurwaarder E. P., Bergman P. C. A., Paasen S. V. B., & van Ree, R. 2004, ‘Thermal bio-refinery: highly efficient integrated production of renewable chemicals, (transportation) fuels, and products from biomass’, paper presented at the 2nd World Conference and Technology Exhibition on Biomass for Energy, Industry and Climate Protection, Rome, 10–14 May. Brealey R. & Myers S., 1981, Principles of Corporate Finance, McGraw-Hill Book Company. Chemicals Cost Guide 2002, Martin Pitt, www.sheffield.ac.uk Dalin Yebo Trading 2004, http://www.dalinyebo.co.za/ Enecon Pty Ltd 2002, Wood for Alcohol Fuels: Status of technology and cost-benefit analysis of farm forestry for bioenergy, RIRDC publication no. 02/141 European Union 1999, ‘Imposing a definitive anti-dumping duty on imports of furfuraldehyde originating in the People’s Republic of China’, Official Journal of the European Communities, 22 December. Federal Register 2004, Notice of Preliminary Determination of Sales at Less than Fair Value: Tetrahydrofurfuryl alcohol from the People’s Republic of China, Department of Commerce, International Trade Administration, USA. Gravitis, J. 2004, Biomass Conversion Trend Towards Biorefineries in Europe and World-Wide, Latvian State Institute of Wood Chemistry, Riga. Gravitis, J. & Suzuki, M. 1999, ‘Biomass refinery: A way to produce value-added products and base for agricultural zero emissions systems’, proceedings of the International Conference on Agricultural Engineering, Beijing. Gravitis, J., Vedernikov, N., Zandersons, J,. Kokerevics, A., Mochidzuki, K., Sakoda, A. & Suzuki, M. 2000, Chemicals and Biofuels from Hardwoods, Fuel Crops and Agricultural Wastes, report for the United Nations University Headquarters, Tokyo, provided by Gravitis & Vedernikov to Wondu Business and Technology Services. Hermescec, B. 1999, Process for the Recovery of Low Molecular Weight Phenols, Furfural, Furfuralalcohol and/or Cellulose or Cellulose-Rich Residues, international patent application no. PCT/AU99/01045 Hermescec, B. 2004, Report on Furfural Production from Biomass, report prepared for Wondu Business and Technology Services, Sydney. Himmelblau, A.,1995, ‘Phenol-formaldehyde resin substitutes from biomass tars’, proceedings of the second Biomass Conference of the Americas, pp 1141–1150

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Huntsman Chemicals 2004, ‘Phenol, acetone and cumene hydroperoxide’, http://www.huntsman.com Hyundai Heavy Industries 2003, ‘Furan resin for propeller casting’, New Horizons (webzine), http://webzine.hhi.co.kr/english/200311/engine.htm Iogen Corporation 2004, Corporate Information, http://www.iogen.ca Lichtenthaler, F., 2002, ‘Unsaturated O- and N-heterocycles from carbohydrate feedstocks’, Accounts of Chemical Research, vol. 35, no. 9. Lichtenthaler, F. W., and Peters, S. 2004, Carbohydrates as Green Raw Materials for the Chemical Industry, Elsevier SAS McArthur, K.A., and Frolich, M. 1996, Financial Feasibility Analysis of Alternative Potential Biomass-Based Products, University of Nevada, USA. Official Journal of the European Communities, 18 December 2003, ‘Notice of initiation of an expiry review of the antidumping measures applicable to imports of furfuraldehyde originating in China’. Shukla T. 2004, Global Corn and Starch Conversion Business, T.Shukla Consulting Services, Mumbai. SRI Consulting 1998, Chemical Economics Handbook, SRI Consulting, cited in personal communication from N. Vedernikov. Stern N. Y. 2004, Beta Data List and Variables Used in Data Set, New York University Takeno K. 2004, ‘Phenol and acetone market outlook and investment update in Asia’, Presentation by the President of Shell Chemicals to the Centre for Management Technology Forum, Bangkok, 12 February. United States Patent Office 1936, Method for the Production of Furoic Acid, no. 2 041 184, application no. 608 417, Lloyd L. Isenhour, Chicago, assignor to The Quaker Oats Company. Van Dyne, D. L., Blasé, M. G., and Clements, D. L. 1999, ‘A Strategy for returning agriculture and rural America to long-term full employment using biomass refineries’, in Janick, J. 1999, ‘Perspectives on new crops and new uses’, ASHS Press, Alexandria, VA. Vedernikov, N. 2000, Production of Furfural and Ethanol from Deciduous Wood, Latvia State Institute of Wood Chemistry, Riga. Vedernikov, N., Kruma, I,. Zandesron, J., Zhurinsh, A., Tardenaka A., Spince B., & Chirkova J. 2003, ‘Production of furfural and carbon materials from deciduous tree wood wastes’, paper for the Seventh European Workshop on Lignocellulosics and Pulp, Latvian State Institute of Wood Chemistry. Westpro Chemicals 2004, ‘Huaxia furfural technology’, http://www.westprochem.com/


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