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Gusher! KiOR starts production of US cellulosic biofuels at scale

Jim Lane
Lucas Gusher
The Lucas gusher at Spindletop Hill, South of Beaumont, TX. Jan 1, 1901.

  500 ton per day wood biomass to biocrude plant commences oil production – the long wait for cellulosic biofuels at scale is over.

“With a roar like a hundred express trains racing across the countryside, the well blew out, spewing oil in all directions.”

Well, the startup of biocrude production at KiOR, Inc.’s (KIOR)Columbus plant arrived with less drama than the above-described gusher at Spindletop in 1901. And James Dean was nowhere to be found, in a rain of oil that spread across the flickering screen in Giant.

But the news from Columbus, Mississippi, that cellulosic biocrude production has started up, on schedule, on budget, and at scale — it’s a shocker for the skeptics, not to mention any short-sellers for KiOR.

Cellulosic biofuels, at scale, at parity, — “five years away” for so long that the phrase was assigned to a dustbin also containing President Hoover’s 1932 statement that “prosperity is just around the corner” — has arrived in the United States, via a new generation of catalytic technologies developed by KiOR.

At its Columbus-based 500 ton per day plant, KiOR is processing renewable oil that is on-spec for hydrotreating into gasoline and diesel. With scale-up, total cost per gallon drops to $5.95 by 2013, $3.73 per gallon in 2014, and the magic sub-$3.00 figure in 2015 when it is expected to reach $2.62 per gallon at full-scale.

Reaction from KiORlogo[2].png

“I am pleased to announce that we have commenced operations at the Columbus facility and have produced a high quality oil that is in line with our specifications for upgrading into cellulosic gasoline and diesel,” said Fred Cannon, KiOR’s President and Chief Executive Officer. “More importantly, we believe the high quality of the oil from the Columbus facility validates KiOR’s proprietary biomass fluid catalytic cracking, or BFCC, technology at commercial scale. The facility’s performance to date not only meets our expectations based on our experience at our pilot and demonstration scale facilities, but also gives me confidence that we remain on track to upgrade our oil in order to ship America’s first truly sustainable cellulosic gasoline and diesel for American vehicles.”

“Furthermore, our research and development efforts continue to make progress increasing our yields and reducing our capital intensity. Our work continues on our next generation catalyst platform, which we believe can produce a yield of 72 gallons per bone dry ton of biomass when implemented at our full scale commercial facility in Natchez. Moreover, we believe that this catalyst platform will reduce the amount of coke made in our process by up to 25 percent, which would enhance the capital efficiency of our commercial facilities by giving us the ability to process up to 25 percent more feedstock without significant additional capital,” Cannon concluded.

Analysts react

Rob Stone at Cowen & Company writes: “Yield from the next generation catalyst is expected to be 72 gallons/ton, up from 67 gallons in the prior generation (L-T target is 90+). The related throughput improvement (from reduced coke production) is up to 25%, better than the 20% announced last quarter. This translates into higher production compared to fixed capital and overhead costs. While expected production for Q4 was not in the press release, we believe the fact that oil production has started, along with new catalyst data, greatly reduces the risk profile. We see 50% upside vs. the market in 12 months.”

”The loss per share was 26c vs. St. 25c on higher operating expenses. We don’t believe this is material for the stock,” Stone added.

Over at Raymond James, energy analyst Pavel Molchanov wrote, “Production at Columbus – the first such milestone for any commercial-scale cellulosic biofuel production plant in the U.S. – is a big step not just for KiOR but the entire Gen2 biofuel space. As a cellulosic pure-play, KiOR is well positioned to address the “food vs. fuel” concerns and price volatility surrounding sugarcane and corn. We also like the versatility of KiOR’s biocrude – the ultimate “drop-in” biofuel. Balancing our positive view on the technology platform with scale-up and project financing risks, we reiterate our Outperform rating.

Slowdown rumors addressed

The news from KiOR sharply contrasts with a report from local Mississippi media that the plant was behind schedule – rumors that “clobbered the stock last month,” according to Raymond James’ Molchanov, who added that “Upgrading into cellulosic gasoline and diesel is set to begin in the next week, allowing for first commercial product shipments later in the month. Of note, KiOR recently sold a small amount of fuel from its demo plant near Houston.”

Next steps: new catalyst

In August, management said that they had a new catalyst in development that would lift yields by 20 percent without additional capital requirements on the front end – which would also reduce the yield in the coke by-product — but in fact, KiOR indicated yesterday that the new catalyst had boosted production rates by 25% in terms of feedstock utilization, and pushed biomass capacities at the upcoming Natchez facility to 1875 tons of biomass per day, up from 1500.

Capital raise coming

Molchanov writes, “The cash balance is $74 million, down $33 million during 3Q. With Columbus operating and technology risk therefore reduced, KiOR is in a much better position to access the capital markets. Further operational milestones should provide further validation and derisk the story. We anticipate an equity raise in 1Q13, consistent with management’s previously stated plans.”

Third quarter highlights

KiOR also yesterday announced its financial results for the third quarter ended September 30, 2012. Third quarter 2012 net loss was $27.0 million, or $0.26 per share, compared to a net loss of $23.0 million, or $0.22 per share, for the second quarter of 2012. Net loss for the third quarter of 2011 totaled $14.8 million, or $0.15 per share. KiOR did not recognize revenue during the third quarter of 2012; its activities remained focused on commissioning and start-up of its first commercial facility in Columbus, research and development (R&D) designed to improve production yields, and obtaining necessary financing for its expansion plans.

The bottom line

The question is often heard in the cellulosic biofuels space – where are the gallons? The answer, for now – take Interstate 55 south to Winona, then US Highway 82 east, towards Columbus. A town known in recent years primarily as the home of Columbus Air Force Base and its well-known flight training school – is proving home to the training-up of something as vital to national security, in its own way, as Air Force pilots – namely, the energy security that flows from home-grown biocrude.

More on the story

We looked at KiOR in depth in August in “No Eeyores for KiOR.”

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.



was posted on AltEnergyStocks.com.


       

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