27th APEC EGNRET October 10, 2006 Zhuhai, China

1. 27th APEC EGNRET October 10, 2006 Zhuhai, China Biofuel Successes and R&D Challenges in Japan Ken Johnson Advisor Hiroyuki Kato Deputy Director NEDO: New Energy and Industrial Technology Development Organization International Projects Management Division

2. Gasoline Consumption in Japan

3. Worldwide Gasoline Consumption (2003) （unit: 1,000kl per annum)

4. Distillate Fuel Oil (DFO) Consumption in Japan

5. Worldwide Distillate Fuel Oil (DFO) Consumption (2003) （unit: 1,000kl per annum)

6. New & Renewable Energy Utilization Targets (excluding hydroelectric generation) (Unit: MKOE: Million Kiloliter Oil Equivalent) 19.1 Biomass (incldg. 0.5mkl biofuel For transportation) 4.8 10.5 New energy sum total (MKOE) 9.2 Bioenergy 4.8 4.7 5.5 Wind Power 2.1 1.5 PV 2002 410 2.2% 2030 425 4.5% Year: Total Energy Consumption: N&RE Share:

7. BIOMASS:Oil Industry Efforts to Introduce Bioethanol • Japanese Government announced (January 18, 2006) implementation of “Utilization • of Biomass Fuels for Transportation,” as part of its “Kyoto Protocol Target Achievement • Plan,” under the following policies/conditions: • Members of the Petroleum Association of Japan shall be actively engaged in blending bioethanol fuel for transportation. Target  blend 20% of gasoline (bioethanol ETBE) by 2010. (Approximately 360,000KL/year = approximately 210,000KL/year crude oil equivalent) • Bioethanol introduction shall not: a) negatively impact air quality, or b) compromise safety or automobile performance. • Risk assessments necessary for mixing ETBE with gasoline must be conducted prior to bioethanol introduction, since ETBE is designated as one of the “TYPE Ⅱ Monitoring Chemical Substances” of “the Chemical Substances Control Law.”

8. 1. Tokachi, Hokkaido (Tokachi Zaidan, etc.) [METI / MOE] Bioethanol Demonstrative Projects in Japan 5. Ie island, Okinawa Pref. (Asahi Breweries, Ltd.) [METI / MOAFF / MOE / CAO] Ethanol manufacturing from sugarcane/ E3 (gasohol) demonstration Ethanol manufacturing from substandard wheat and maize/E3 (gasohol) demonstration 2. Shinjyo-city, Yamagata Pref. [MOAFF] Ethanol manufacturing from sorgum/ E3 (gasohol) demonstration 3. Sakai-city, Osaka (Taisei Corporation, Marubeni Corporation, Osaka municipal government) [MOE] Ethanol manufacturing from construction waste/ E3 (gasohol) demonstration 4. Kuse-cho, Okayama Pref. (Mitsui Engineering & Shipbuilding Co., Ltd.) [METI] Demonstrative manufacturing of ethanol from mill ends 6. Miyako-island, Okinawa Pref. (Ryuseki) [METI / MOAFF / MOE / CAO] Ethanol manufacturing from sugarcane/E3 (gasohol) demonstration

9. Biomass Utilization—Mitsui Engineering and Shipbuilding • Bioethanol Demonstration Plant • Cellulosic ethanol demonstration plant using wood-based feedstock (June 2005) • Feedstocks derived from wood chips and waste wood collected from forestry industry • Sugar mixed with yeast for fermentation • MES’ Zeolite membrane used to obtain absolute ethanol • Production capacity: 250kg of absolute ethanol/day • Capable of processing 2 tons of wood waste/day

10. Composition of Lignocellulosic Biomass Biomass Ethanol (Development) Pentose (xylose), a carbohydrate unfermentable by normal microorganisms, is present in biomass and causes low yields. Agricultural Products Lignocellulosic Biomass e.g. corn e.g. bagasse Ｃ５ (hemicellulose) 9% Others21% Others （lignin) 25% Ｃ６ （cellulose） 45% Ｃ５ （hemicellulose）30% Ｃ６ （starch） 70%

11. Key Technology: Recombinant Named “KO11” Biomass Ethanol (Development) Developed by Dr. Lonnie Ingram, University of Florida The E. coli bacterium recombinated by the transfer of specific genes to ferment previously unfermentable sugars into alcohol. ORIGIN: Less sensitive to fluctuations in operating conditions. FEATURE: Prof. Ingram USP 5,000,000 USP 5,821,093 PATENT:

12. New Technology Biomass Ethanol (Development) ･ This process can convert C5 sugars (from hemi-cellulose) to ethanol. ･ Conventional methods can convert only C6 sugars. ･ Using this technology, lignocellulosic biomass waste can be utilized as a feedstock for ethanol production. Conventional technology Fermentation of C6 sugars by yeast, etc. 40% yield increase New technology Fermentation of C6 sugars by yeast, etc. New microorganism* can convert C5 sugars to ethanol *recombinant E. coli "KO11"

13. Process Flow of New Technology Biomass Ethanol (Development) ･With the added benefit of KO11 bacteria, C5 sugars are converted into ethanol ･Lignin, and stillage from the process, are utilized as boiler fuel Feedstock Handling Processing Fermentation Distillation New technology Ethanol C5 Sugars KO11 C5 hydrolysis Bagasse C5 sugar recovery C6 Sugars Yeast C6 hydrolysis Lignin for boiler (Stillage) Conventional technology

14. Overview of Pilot Plant (1) Biomass Ethanol (Pilot Plant) Location: TSK R&D CENTER Chiba, Japan Capacity: 4T/D of raw materials Raw materials: waste construction wood : bagasse Construction: August 2003

15. - Global leader in biofuel research - RITE and Honda collaborate on ‘Cellulosic fuel ethanol production’ using the RITE-Bioprocess

16. High productivity Growth RITE Bioprocess Conventional bioprocesses Production accompanied by microbial growth ■Large reactor space needed because microorganisms need space to grow ■Production (reaction) time depends on microbial growth No growth No production Rite bioprocess Reactor filled to high density with microbial cells No microbial growth ■ Corynebacterium Ethanol production without microbial growth ■ High production yield ■ Simple system

17. Process requirements for Commercial scale production Ligno- cellulose RITE Bioprocess Ethanol Requirements* RITE Bioprocess Ethanol productivity: more than 1 g/L・h Ethanol concentration: more than 4% Ethanol production from C5 sugars Tolerance for lignocellulose-derived-inhibitors >20 g/L・h Over 7% Yes Virtually no inhibition *Dien BS et al. Appl Microbiol Biotechnol (2003) 63: 258-266

18. Ethanol production process flow: (Separation) (Saccharification) Cellulose Sugar Biomass High temp. High pressure Micro- organism Distillation refining Ethanol Enzyme Fermentation Inhibitor RITE Process: Fermentation inhibitor does not affect ethanol production. Research in Japan:Joint research between RITE & Honda Motor Co., Ltd. In conventional processes, fermentation inhibitor, a by-product of cellulose separation process, prevents microbial growth, thus prevents Ethanol production. Rite microorganism can produce ethanol without microbial growth, so the inhibitor does not affect ethanol production in RITE process.

19. Research in Japan:Joint research between RITE & Honda Motor Co., Ltd. Existing technology: Fermentation inhibitor, a by-product of cellulose separation process, prevents microorganisms from converting sugar into alcohol. RITE & Honda Process: ・Utilization of “RITE” microorganism ・Rite microorganism largely reduces adverse effect of inhibitor ・Further development: a system in which the four processes* are integrated in one plant *Cellulosic fuel ethanol production process: 1）Pre-treatment: separation of cellulose from soft biomass resources. 2）Saccharification of cellulose, etc. 3）Converting process by microorganisms: sugar  alcohol 4） Post conversion treatment: alcohol refining

20. Hydrocracking of Palm Oil(Nippon Oil – Toyota Collaborative Study)

21. Diesel Fuel Production from Palm Oil Diesel Fuel (Conventional) Direct Blend Diesel Fuel (Conventional) FAME* Esterification *fatty acid methyl ester Palm Palm Oil Third Option Bio-hydrocarbon Hydrotreating, Cracking

22. Qualities of Diesel Fuels from Palm Oil ○：Same as Conventional Diesel △：A little bit worse than Conventional Diesel ×：Worse than Conv. Diesel *Impurities: Water, Metal, Sediment

23. Enhancement of Palm Oil Quality Structure (Image) Palm Crude Oil Palm High Viscosity, Distillation = Unsuitable for Diesel Fuel Solution Challenge Hydrotreating FAME Target: Double-bond　⇒　Single-bond Enhancement of stability Results: Viscosity/Distillation: Same as conventional diesel and double-bond eliminated. Viscosity/Distillation：Same as conventional diesel However, Double-bond still remains = Stability Concern 3b

24. LPG LPG Alkylation Alkylate Isomerate Light Naphtha Isomer Naphtha Gasoline Hydro Heavy Reformate Desulfurization Reformer Naphtha Hydro Kerosene Kerosene Desulfurization Hydro Gas Oil Diesel Desulfurization Cracked Gas Oil Cracked Gasoline Fuel Hydro Hydro Cracking Desulfurization Catalytic Residue Vacuum Gas Oil Cracked Cracking Gas Oil Hydro Cracked Residue Vacuum Desulfurization Distillation Vacuum Residue Fuel Oil Hydro Desulfurization Hydrotreating in an Oil Refinery Distillation

25. Hydrocracking of Palm Oil Biohydrocarbon Naphtha Gas Kerosene Palm Oil Hydrocracking Catalyst Diesel Fuel Furnace Reactor Hydrogen Bottom Oil Liquid

26. 100 ） wt% 80 （ 60 Product Yield 40 20 0 240 250 260 280 320 360 Reaction Temperature (℃) Product Yield of Hydrocracking of Palm Oil Biohydrocarbon Reaction Pressure：10MPa

27. Summary 1. Direct blending of palm oil to diesel fuel may cause a quality problem. 2. Hydro-treatment of palm oil can produce high quality diesel fuel “Biohydrocarbon.” 3. Biohydrocarbon better quality, lower cost than FAME. 4. Solution of the following issues will be required to commercialize the technology. ① Enhancement of hydrocarbon yield （Enhancement of energy recovery） ----Optimizing reactor conditions, catalyst ② Improvement of cold flow properties ----application of GTL-isomerization technology