Tag Archives: Enerkem

What Are the Major Alternative Fuels Interests of Oil Majors?

As the alternative fuels industry diversifies and scales up, financing is always the key to technology commercialization. While several sources of financing drive the whole industry forward, we investigate the trends of corporate financing from oil majors, based on a non-exhaustive database of over 1,000 deals and partnership engagements from 2000 through September 2014. With the focus on financial engagement, we only look into the private placement, equity stake, joint venture (JV), mergers and acquisitions (M&A), other than general partnerships. For example, we counted BP’s bioethanol JV plant with British Sugar, but we didn’t include BP’s research work with the Energy Biosciences Institute. We then drew a graph based on the investment counts (rather than invested companies) of the seven most activate oil majors in our database, namely, Shell, BP, Total, Valero, Chevron, Petrobras and Reliance. Particularly, repeated investment activities on the same company would be counted as multiple. We further sorted the investment by six core technology families – algae, biomass to sugar, catalysis, crop development, fermentation (and enzyme development), and pyrolysis/gasification.

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From our analysis of their activities in the alternative fuels industry, we find that:

  • BP leads the investment frequency in a variety of technology families. Particularly, it has a strong focus on the crop development by transgenics and breeding, with repeated investments made to Chromatin (client registration required) and Mendel Biotechnology (client registration required). It also continues investing on biomass to sugar technology including to handle cellulosic biomass, such as REAC Fuel (client registration required).
  • Shell is not a fan of crop development, but has a wide coverage on other technologies. For example, it invested on multiple rounds and formed a JV with Iogen (client registration required), but terminated the JV in 2012. Then the oil giant formed partnerships and JVs with Codexis (client registration required), Cosan, and Novozymes to continue its interests in cellulosic ethanol. Shell shifted its shares in Codexis to Raizen, its ethanol JV with Cosan and “formed the largest sugar and ethanol company in the world”. It also partnered with Virent (client registration required) on the biomass catalytic conversion to produce renewable gasoline, and Cellana (HR BioPetroleum) on algae biofuel. Moreover, Shell Foundation also funded Husk Power System (client registration required) on gasification development.
  • Total and Chevron are the most active corporate investors in the fermentation domain. Total did the private placement on the IPO of Gevo (client registration required) and formed a JV with Amyris (client registration required) with both focusing on corn and sugar cane feedstocks. Gevo is focusing on isobutanol fermentation and Amyris is doing the bioconversion to produce isoprenoids. On the other hand, Chevron invested in Codexis (client registration required) and LS9 (client registration required) with its concentration on the genetic engineering, while LS9 was acquired by Renewable Energy Group in early 2014 (client registration required). All invested companies by these two giants are diversifying their revenue streams with drop-in fuels, specialty chemicals, and/or drugs in downstream markets.
  • Velero has a strong focus on the drop-in fuel production either by bioconversion or catalysis. Valero owns 10 facilities in the U.S. with over 1,000 MGY corn ethanol capacity. However, it is also interested in cellulosic ethanol with its funding of Qteros, Mascoma Corporation (client registration required), and Enerkem (client registration required). Additionally, the focus on waste feedstock can be reflected by its investments in the ill-fated Terrabon (client registration required), which was focused on wet waste-to-gasoline.
  • Investments of oil majors in developing countries are more constrained by local resources and policy drivers. For example, Reliance is investing the algae technology developers such as Algae.Tec (client registration required), Aurora Algae (client registration required), and Algenol Biofuels. Petrobras is concerned with fuel production from sugar cane or bagasse, such as BTG-BTL (client registration required) and BIOecon, which combine the feedstock advantage and local policy driver. Other oil majors not listed in the graph, such as Chinese oil majors, Sinopec and PetroChina (CNPC), are shifting their focuses from food ethanol to cellulosic ethanol and coal-to-ethanol, which is responding to the call of the Chinese government to discourage the food ethanol industry (see the report “Fueling China’s Vehicle Market with Advanced and Coal-based Ethanol” — client registration required.)
  • Less active oil majors in this space include ExxonMobil and ConocoPhillips. They only made sporadic investments – such as Synthetic Genomics (client registration required) by ExxonMobil and ADM by ConocoPhilips. Additionally, ExxonMobil mobile recently teamed up with Iowa State University to research pyrolysis.

Terrabon files for bankruptcy, as strategic investors re-evaluate portfolios

Waste-to-fuels company Terrabon filed for Chapter 7 bankruptcy protection in September. Terrabon CEO Gary Luce said that the firm was “unable to obtain additional funding,” and approximately 60 employees were laid off. The company had a history of missing key milestones, and we flagged this nearly one year ago in our last profile of the company (client registration required.) Two years ago, the company was expecting a $25 million funding (client registration required) round in the first half of 2011.

Terrabon was developing a multi-step process to convert wet waste into drop-in gasoline and jet fuel. The process features bacteria fermentation, pyrolysis, then a catalytic conversion into gasoline. In this multi-step process, yield loss was a significant factor, and Terrabon expected a yield of 70 gallons per ton of dry feedstock, much lower than fellow waste convertors like Enerkem (90 gallon/ton) and Fulcrum (120 gallon/ton). Terrabon, however, was targeting different feedstocks than most other waste convertors, focusing on wet waste. Terrabon focused on a mix of municipal solid waste (MSW), sludge, and biomass, and its feedstock was 30% solids, much lower than that of its competitors.

Among its investors, Waste Management and Valero decided not to give out the big dollars necessary to keep the company afloat and build its first commercial facility. Looking first at Valero’s portfolio, it becomes clear the rocky track record Valero has in this space. First and foremost, Valero is the third largest ethanol producer in the U.S. (client registration required) behind POET and ADM, though recently it idled a 110 MGY facility in Nebraska (client registration required.) Valero also invested in biofuel failure Qteros (client registration required), behind-schedule producers Enerkem and Mascoma, and cellulosic ethanol company ZeaChem. Beyond cellulosic ethanol, Valero is scaling up a renewable diesel facility in a joint venture called Diamond Green Diesel.

Terrabon’s other strategic investor, Waste Management, similarly has several waste-to-fuel companies in its portfolio (client registration required), including Enerkem, Fulcrum, and Agilyx. Most recently, WM invested in pretreatment company Renmatix, capping off its $75 million Series C. While the recent Renmatix investment (and investment in Genomatica before that) shows that WM isn’t pulling out of the fuels space altogether, we do expect to see strategic investors like WM continue to pare down portfolios. This doesn’t mean that strategic investment will go away, or even decrease, just that new companies and technologies may take the place of current investments. Oil giant Shell, for example, significantly downsized its relationships with Iogen and Codexis (client registration required) this year.

Corporate investment in this space boomed in 2007 and 2008, see the report “Hedging Bets with Flexibility in Alternative Fuels” (client registration required), and the partnering web expanded most rapidly in 2008 and 2009, see the report “Mapping Empires, Goldmines, and Landmines in the Alternative Fuels Network” (client registration required.) Over the past four to five years, strategics funded innovation at these start-ups, and now these producers need to perform commercially. Missing technical and project scale milestones won’t cut it anymore, and the corporate parents are kicking their kids out of the house, to sink or swim on their own. Expect to see more relationships falter in this space, but even more form as innovative companies continue to emerge, promising new sources of fuels and novel conversions, and new types of organizations partner their way into the alternative fuels arena.

The boom in bio-based materials and chemicals is really a boom in synthetic biology

Venture capitalists (VCs) invested $3.1 billion in bio-based chemicals and materials developers since 2004. As many of those start-ups reach megaton scales and launch IPOs, Lux Research analysts sought to find which technologies venture investors favored. This week’s graphic comes from their just published report (client registration required), in which analysts tracked 177 venture transactions involving 79 companies operating in five technology categories – biocomposites, bioprocessing, thermochemical processes, crop modification, and algae. In short, they found:

Bioprocessing developers brewed up $1.89 billion in 96 deals. Bioprocessing developers – especially synthetic biology companies – landed more than half the total venture capital invested since 2004. Encompassing technologies like fermentation, phage display, natural breeding and synthetic biology, all bioprocessing platforms employ some sort of organism as a “factory” for creating products as diverse as sweeteners and catalyst supports. Intrinsically flexible, these platforms enable the likes of Amyris, Codexis, LS9, and Solazyme to produce multiple products from multiple feedstocks, thus ensuring a relatively low-cost route to high-value compounds and providing a hedge against feedstock and product price volatility.

Thermochemical technologies raked in $577.0 million in 31 deals. Thermochemical processing encompasses technologies like gasification (Enerkem), catalysis (Avantium, Inventure), and acid hydrolysis (HCL Cleantech, BlueFire) that sometimes convert biomass to an intermediate like sugars or syngas, and sometimes go all the way to an end product. (e.g. Virent’s paraxylene is used in Pepsi’s famed 100% bio-based PET bottle

Crop modification companies harvested $371.7 million in 28 deals. IPOs are less common fates for crop modification companies which, as you may have guessed, modify crops to be more amenable and economical for use in bio-based materials and chemicals. Instead, companies in this category, like Athenix and FuturaGene, usually end up being acquired by the likes of Syngenta, Monsanto, DowAgro, or Bayer CropScience.

Algae developers saw $190.5 million in 13 deals. Notably, that figure only encompasses start-ups developing algae strains, cultivation systems, and processing equipment for creating industrial chemicals. Representative developers include Bio Architecture Lab, a macroalgae developer, and Israel’s Rosetta Green, which had raised $1.5 million in venture funds, but more recently brought in almost $6 million in an IPO on the Tel Aviv TASE. Excluded from this category are companies primarily developing fuels (which we cover in our Alternative Fuels Intelligence service), and companies like Solazyme and Green Pacific Biologicals that use algae for fermentation (and, thus, are categorized in bioprocessing, above).

Biocomposites developers brought in $108.9 million in a mere nine transactions. This category includes bioplastic blends, some starch plastics, and bio-based foams, from the likes of Cereplast, EcoSynthetix, Ecovative Design, and Entropy Resins. Because of the relatively simple nature of these technologies, VCs often don’t see them as investment opportunities – forcing companies like SoyWorks and Biop Biopolymer to find other sources of funding.

Source: Lux Research report “Seeding Investment in the Next Crop of Bio-Based Materials and Chemicals.”

EPA’s 2011 blending mandates signal a wake-up call for cellulosic biofuels

Earlier this week, the U.S. Environmental Protection Agency (EPA) announced its proposed RFS2 renewable fuel blending mandates for 2011, a surprisingly pragmatic piece of regulatory action. The RFS2 is an expanded version of the Renewable Fuel Standard (RFS1) program modified by the Energy Independence and Security Act (EISA) of 2007, and it requires the EPA to set renewable fuel standards each November for the following year. 

While there is generally good news for biodiesel, the RFS2 is a veritable reality check for cellulosic biofuels cheerleaders.

Here are the blending mandates the recent regulatory action proposes: for cellulosic biofuel (0.015%), biomass-based diesel (0.68%), advanced biofuel (0.77%), and total renewable fuels (7.95%). All proposed mandates apply to any gasoline and diesel produced or imported in year 2011. In setting these targets, the EPA reaffirmed the scheduled advanced biofuels mandate of 1.35 billion gallons, as well as the 800-million-gallon blending mandate for biodiesel.

However, for the second year in a row, it had to dramatically slash the cellulosic biofuel mandate from RFS1 targets, this time from 250 million gallons to a 6-million-gallon to 25-million-gallon range. As a result, and because the EPA didn’t slash the overall mandate, blenders will now have to look elsewhere for 124 million to 144 million gallons of qualifying advanced biofuels to make up the portion of the advanced biofuels mandate not met by the cellulosic biofuel or biodiesel targets. Options include importing sugarcane ethanol, finding additional biofuel production, or buying appropriate Renewable Identification Number (RINs) credits to make up the difference. Clients should monitor companies like Dynamic Fuels (a joint-venture of Tyson Foods and Syntroleum Corporation), LS9, and INEOS to see if they can step up to the plate and provide this additional capacity.

The reception to this regulatory action has been mixed. While organizations like the Renewable Fuels Association (RFA) took offense with the downward correction of the cellulosic biofuel mandate, seeing in it the potential to further hamper investment, others thought the EPA was optimistic to anticipate 25 million gallons of cellulosic biofuel supply. However, everyone agrees that the EPA didn’t really have a choice but to stay true to market realities.

In determining the applicable standards, it is required by law to conduct an in-depth evaluation of how much qualifying biofuel can be made available in the following year. If the projected available volume is less than the required volume specified in the statute, it must lower the required volume to match the projected amount. In short, the EPA must match its mandates to available production capacity.

Cellulosic biofuels were done in by the sluggish pace of commercialization of developers like Range Fuels, Gevo, Iogen, Enerkem, and others who have all frequently missed milestones for maturity and commercial penetration. If the latest projections are to be believed, this capacity picture is unlikely to alter significantly for the next three years to four years, in which time competing technologies could blaze critical inroads into the market and make the outlook for cellulosic biofuels even more bleak. This news should come as a definite cause for concern for investors in and champions of cellulosic biofuels, whose only respite might be new loan guarantee programs from the U.S. Departments of Energy and Agriculture that are specifically engineered for cellulosic biofuels.

Meanwhile, as cellulosic biofuels grapple with this sobering reality, there are positives in the overall story for advanced biofuels in general. The EPA believes the overall mandate of 1.35 billion gallons of advanced biofuels in 2011 is enforceable, and we certainly agree. What is bad news for cellulosic biofuels might be good news for developers of other types of technology options like biodiesel or renewable diesel. Clients active in this domain should engage companies like Amyris, Solazyme, or Benefuel.