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

1 Gasoline Consumption in Japan （ unit: 1,000kl) Year Volume 53, , , , ,37 258,821 59, , , ,6 98

2 Worldwide Gasoline Consumption (2003) Region/CountryVolume United States523, % Total Europe174, % Total C & S America61,5505.2% Japan60,5655.1% Total Middle East56,6214.7% China55,7614.7% Canada40,4553.4% Total Africa36,3813.0% Russia35,1092.9% Mexico34,4172.9% Australia19,6991.6% Indonesia15,8071.3% India10,8040.9% South Korea9,7050.8% Malaysia9,2800.8% Thailand7,6990.6% New Zealand3,1820.3% Others40,6393.4% World Total1,194, % （ unit: 1,000kl per annum)

3 Distillate Fuel Oil (DFO) Consumption in Japan （ unit: 1,000kl) Year Volu me 74, , , , , , , , , ,46 8

4 Worldwide Distillate Fuel Oil (DFO) Consumption (2003) Region/CountryVolume United States 223, % Total Europe 347, % Total C & S America 86, % Japan 67, % Total Middle East 76, % China 104, % Canada 29, % Total Africa 51, % Russia 28, % Mexico 17, % Australia 14, % Indonesia 24, % India 45, % Korea, South 24, % Malaysia 10, % Thailand 17, % New Zealand 2, % Others 57, % World Total 1,230, % （ unit: 1,000kl per annum)

5 New & Renewable Energy Utilization Targets New energy sum total (MKOE) Bi omass (incldg. 0.5mkl biofuel For transportation) Bioenergy PV % % Year: Total Energy Consumption: N&RE Share: (excluding hydroelectric generation) Wind Power 10.5 (Unit: MKOE: Million Kiloliter Oil Equivalent)

6 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: 1)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 (Approximately 360,000KL/year = approximately 210,000KL/year crude oil equivalent) 2)Bioethanol introduction shall not: a) negatively impact air quality, or b) compromise safety or automobile performance. 3)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.”

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

8 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

9 Pentose (xylose), a carbohydrate unfermentable by normal microorganisms, is present in biomass and causes low yields. e.g. bagassee.g. corn Lignocellulosic Biomass Agricultural Products Others 21% Ｃ ６ （ starch ） 70% Ｃ ５ (hemicellulose) 9% Others （ lignin) 25% Ｃ ６ （ cellulose ） 45% Ｃ ５ （ hemicellulose ） 30% Composition of Lignocellulosic Biomass Biomass Ethanol (Development)

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

11 New microorganism* can convert C 5 sugars to ethanol *recombinant E. coli "KO11" New technology New technology 40% yield increase Conventional technology ･ This process can convert C 5 sugars (from hemi-cellulose) to ethanol. ･ Conventional methods can convert only C 6 sugars. ･ Using this technology, lignocellulosic biomass waste can be utilized as a feedstock for ethanol production. Fermentation of C 6 sugars by yeast, etc. New Technology Biomass Ethanol (Development)

12 ･ With the added benefit of KO11 bacteria, C 5 sugars are converted into ethanol ･ Lignin, and stillage from the process, are utilized as boiler fuel ProcessingFermentationDistillationFeedstockHandling KO11 Ethanol Lignin for boiler (Stillage) C 5 Sugars Yeast C 6 Sugars C 5 hydrolysis BagasseBagasse C 6 hydrolysis C 5 sugar recovery Conventional technology New technology Process Flow of New Technology Biomass Ethanol (Development)

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

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

15 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 Growth RITE Bioprocess Rite bioprocess Reactor filled to high density with microbial cells No microbial growth High productivity ■ Corynebacterium Ethanol production without microbial growth ■ High production yield ■ Simple system

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

17 Research in Japan: Joint research between RITE & Honda Motor Co., Ltd. Ethanol production process flow: (Saccharificati on) (Separation) High temp. High pressure Cellulo se Enzy me Sug ar Micro- organis m Distillati on refining Ethanol Bioma ss RITE Process: Fermentation inhibitor does not affect ethanol production. Fermentation Inhibitor 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.

18 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 Research in Japan: Joint research between RITE & Honda Motor Co., Ltd. *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

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

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

21 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

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

23 Hydrotreating in an Oil Refinery Distillation

24 HydrocrackingCatalyst Naphtha Furnace Reactor Hydrogen Gas Liquid Kerosene Diesel Fuel Bottom Oil Palm Oil Hydrocracking of Palm Oil Biohydrocarbon

25 Product Yield of Hydrocracking of Palm Oil Reaction Pressure ： 10MPa Biohydrocarbon Reaction Temperature ( ℃ ) Product Yield （ wt% ）

26 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 Summary