Jim Lane

We were suitably intrigued by the headline, “Renewable Energy Program Could Make Fracking and Biofuels Obsolete.” And so the press release began:

“Project Volt Gas Volt, a new green program, shows the potential of storing renewable energy in surplus, which could make nuclear energy, natural gas, fracking, and biofuels seem like energy sources from the past.”

If that’s starting to sound like a pitch to fringe interests, read on.

“Surplus electricity that is generated by wind farms and solar parks and converted into methane can be stored for months in the existing natural gas grid. The surplus of energy makes it the battery for renewable energy while simultaneously making hydraulic fracturing (“fracking”) obsolete. The methane would be used to produce electricity, and district heating, or as a motor fuel.  We will use the surplus energy from nuclear, now largely wasted at night, to help pay for the exit from nuclear. And we will use the CO2 generated from burning waste, biomass and from steel mills and cement plants to generate the methane.”

Later in the underlying documents, the process is outlined. Use electricity to split water into hydrogen and oxygen, blowing off the oxygen. “Mixing hydrogen with CO2″ to make methane (note: it’s not exactly explained how, technically, this is achieved, though there are paths to make this happen.). Storing methane and burning eventually to generate power.

Then this.

“The first small scale industrial installation (6.3 MW) for the conversion of electricity into gas is currently being built in northern Germany by Audi, in collaboration with SolarFuel and EWE (a biogas user). Current production costs are high – around 25 euro cents per kWh of gas produced. The aim is to reduce this to around 8 cents per kWh by 2018…compared with the price of imported Russian gas, including transport costs, which is around 4 to 5 cents per kWh (2 euro cents not counting transport).”

So, let’s see if we get this. It costs 5X of the incumbent now. 3X after unspecified improvement that is five years away.

So here are the whoppers.

1. Not a substitute in real-world terms. If biofuels and other technologies simply had to reach 5X of the fuel price today and 3X by 2018 – why, all of them would be competitive with $500 per barrel oil today and $300 per barrel oil by 2018.

2. Not really replacing, er, biofuels. Note that the process is dependent on waste CO2 from…oops, burning biomass. Also, elsewhere in the project outline, it mentions crude biogas as a source of waste CO2 as well.

3. Transporting gas or power. We also might point out the dependency on aggregated sources of CO2, which is going to require transporting large amounts of a) power or b) gas. Sources of the kind of pure CO2 that’s needed, and wind/solar generation projects are unlikely to be co-located. You might also note how the transport cost is not included here, but is included for the comparative (Russian gas). Stripping out all transport costs, the cost premium is 12.5X.

4. The water sourcing problem. Watch out for the water usage. And, if the reaction uses salt-water, better prepare to have a use for the residual chlorine that may be produced as a byproduct of the reaction.

5. The CO2 sourcing problem. Good luck getting the CO2, anyway. Ethanol plants, cement plants and steel mills are going the liquid route, in search of higher values – rather than selling CO2 as  gas feedstock for the lower-value power market. Think Waste Management (invested in Fulcrum Bioenergy, Enerkem), BaoSteel (LanzaTech), St. Mary’s (Pond Biofuels).

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.

Posted by Guest Contributor at 11:33 AM | Permalink | Comments (1)

by Debra Fiakas CFA

Sometime back Poet, LLC, the private producer of ethanol based in Sioux Falls, SD (my home state), filed a lawsuit against the State of California, strenuously objecting to rules related to ‘carbon intensity’ adopted by the California Air Resources Board (CARB) When the dust settled, the California rules were still standing and Poet skulked off to the appeals court.  The appeal was filed this week in the California’s Fifth Appellate District in Fresno.

Originally approved in 2009, California’s ‘low carbon fuel standard’ (LCFS) is aimed at sorting apples and oranges in the renewable transportation fuels market by requiring that producers meet an average declining standard of carbon intensity.   Now they must reduce total carbon measure by 10% over the next seven years.  Carbon intensity is measured as the sum of all greenhouse gas emissions associated with the production, transportation, processing and consumption of a fuel.   CARB calls this a ‘pathway’.  More about pathways later.

Ethanol is at a disadvantage all around because it cannot be distributed through existing fuel pipelines.  It must be sent by rail or truck tanker to end-markets, adding to the carbon intensity.  What is more, ethanol fuels produced out-of-state end up classified lower than in-state product because the added transport element contributes even more to carbon intensity 

It is understandable why Poet has its corporate hackles up over the California rules. California is the largest ethanol market in the U.S.  The largest ethanol producers need to command a share.  Only Archer Daniels Midland (ADM:  NYSE) producers more ethanol than Poet.  Poet is not alone in its efforts to fight state bureaucrats.  The Renewable Fuels Association and Growth Energy also filed suit against California over the low carbon fuels standard.

Investors should also note that Poet is not arguing against the underlying principal of CARB’s LCSF.  Poet has told court that CARB failed to adequately assess the environmental impact of the standard before it was adopted.

The California Air Resources Board (CARB) is a group to watch in the renewable fuel industry.  They like it that way.  CARB was set up in 1967 by then Governor Ronald Regan.  It is a one-of-a-kind group, established before the federal government took over air quality standard setting for the country through a 1970 amendment to Clean Air Act.  Now the other forty-nine states are stuck with using CARB rules or federal rules.

CARB is not in the least intimidated by Poet’s arguments against the standard.  Earlier this year several parties with interests in the renewable fuel market weighed in to support CARB and its LCSF.  Natural gas supplier Clean Energy Fuels Corp. (CLNE:  Nasdaq) and California’s leading electric utility Pacific Gas & Electric (PCG:  NYSE) as well as the California Biodiesel Alliance and the National Biodiesel Board all filed briefs with the court extolling the virtues of CARB and its LCSF.  The briefs made note of California’s nascent cap-and-trade program, which sets California out ahead of the rest of the country.

Of course, these folks have a different view on California’s carbon intensity standard because it shifts the competitive balance in their favor.  Renewable diesel and algal-based fuels, for example, are so-called ‘drop-in’ fuels that can be distributed using the existing pipeline infrastructure.  These fuels come out looking good in the carbon intensity competition, even the producers from outside California.

So it is the ethanol industry against the renewable fuel industry.  What appears to be a blow to ADM and Poet may end up being a boon to others.

Companies that might benefit include Sapphire Energy, which produces an algal-based renewable diesel.  In March 2013 Sapphire landed an off-take agreement with oil refiner Tesoro Corp. (TSO:  NYSE).  Tesoro is buying an undisclosed amount of algal-based oil produced at Sapphire’s New Mexico plant.  Sapphire claims its plant has been producing two barrels of oil per day, but could ramp to 100 barrels per day.  Tesoro has reportedly agreed to take all production as the facility ramps to capacity.  The EPA still has not approved Sapphire’s fuel for on-road use.

Algal-based biofuel releases the same amount of carbon dioxide that was used to grow it.  This is about half the carbon dioxide released by burning gasoline.  However, when the carbon dioxide used to grow algae comes from power plant or other emissions, the carbon intensity is lowered.  Investors should note that there are a number of algal-based fuel producers in California.  The Algae Biomass Organization recently updated a U.S. map showing locations across the country

CARB has a table of carbon intensity ‘pathways’ for various fuels.  The table is to be used as guidance for all parties targeting the renewable fuel market in California.  CARB has invited renewable fuel producers to apply for new pathways.  With the competitive field tilted toward renewable diesel, it is not surprising that the market is attracting the interest of some big players. Indeed, oil refining giant Neste Oil (NEF: F)  has applied for a ‘pathway’ or carbon intensity measure for its non-ester renewable diesel product it calls NExBTL.  Neste’s Singapore plant produces about 250 million gallons of it per year from Australian tallow.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 03:08 PM | Permalink | Comments (0)

Jim Lane

Lies, Truth, and Disbelief via BigStock Photo

Are you missing out on great investment returns – is the Dow really headed for 20,000? Is the advanced biofuels rally for real?
Why are investors sitting on the sidelines in the Valley of Disbelief?

This year in the United States, despite awesome returns in the stock market and miserable bond yields, the Investment Company Institute estimates that $85.4 billion in new investment has poured into bonds — by contrast, only $73.2 billion into stocks.

Seth Masters, CIO of Bernstein Global Wealth Management told the New York Times last week that “people were so traumatized by the financial crisis that they were seriously underestimating the stock market” – and projected that the Dow would reach 20,000 by the end of the decade.

Let’s look at investor trauma.

A contrarian investor who, by contrast, put money into an S&P tracking fund on the day after the Thanksgiving holiday, would have realized an 18.4 percent return in less than six months.

What would have happened to same investor putting money that same day into the highly-maligned category of advanced biofuels equities (Amyris [AMRS], Ceres[CERE], Codexis[CDXS], Gevo[GEVO], KiOR[KIOR], Renewable Energy Group[REGI] and Solazyme[SZYM]), and weighted the investment according to their market cap?

A 31.6 percent return.



So why all the negativism - both inside biofuels — and without? Twitter, as seen through the lens of a keyword like “biofuels” — offers a heavy stream of sarcasm about crony capitalism, broken technologies, government interventionalism, third world oppression, infrastructure incompatibility, and lousy investment performance.

Advanced biofuels — and equities as a class — appear to have entered into a geography which you might call the Valley of Disbelief.

Irrational inexuberance

If the Valley of Death describes the dangerous period when emerging companies face difficulties in raising expansion capital to build their innovative products at scale — the Valley of Disbelief represents the period when companies have figured out a means across the Valley of Death but the market remains irrationally skeptical. You could call it a period of irrational inexuberance.

True, public markets have always been less patient sources of capital than early-stage or strategic investors — and advanced biofuels companies came out early.

(But then, so have biotech companies. Gilead paid an 89% premium over Pharmasset’s stock value to acquire the company, for $11B, more than two years before its signature all-oral Hepatitis C treatment (Sofosbuvir) was even expected to win FDA approval. Gilead shares have rocketed up 43% this year as Sofosbuvir gets nearer to market.)

Which is to say there’s long been an arbitrage between perception (in the public markets) and reality. The explosion of information in the digital age was supposed to level the playing field for the small investor, but seems to have exacerbated the gap. Let’s look.

It’s a period that Apple (APPL) famously went through — to mention the highest-flying stock of the 2000s, when it tumbled 71 percent between the spring of 2000 and the fall of 2001, even while it was launching its seminal Mac OS operating system and the seminal iPod. In fact, its shares continued to tumble for some time after the iPod appeared – investors had a hard time grasping that the world had changed. A $10,000 investment made the day after the iPod launch is worth more that $480,000 today.

And anyone who ever listened to a Steve Jobs keynote back in those days can assure you that Jobs was not shy in describing Apple technologies as the revolutionary unlockers of value that, in fact, they proved to be. He described the iPod as a “breakthrough digital device” — and as a first step in Apple’s “digital hub” family of devices, which ultimately included the, er, iPhone and the iPad.

A year after Job’s launch keynote and the iPod launch? You could pick up APPL for 19% less than the day before the announcement. Remember, this was a company that had already rolled out the strategy, was rolling out the products, was getting rave reviews, and had assembled the cash to execute its strategy (as it did) without a single dilutive equity issue or even a debt offer. Plus has the Steve Jobs “reality distortion field” working for it.

There are powerful magnets dragging on reasonable expectations — down there in the Valley of Disbelief.

Advanced biofuels in the Valley of Disbelief

It affects many great companies. You might notice that a company like KiOR, in our advanced biofuels set, has seen its shares fall dramatically since last autumn. Last week we saw this meme floating around Twitter, “Yesterday Molchanov reiterated his Outperform on KiOR despite losing 61% since his initial Outperform rating”

KiOR’s unforgivable market sin? Producing drop-in renewable fuels successfully in its new first commercial facility for the first time in Q4, as promised. Shipping drop-in renewable fuels to customers starting in Q1, as promised.

For meeting all its pre-IPO commitments and timelines, Solazyme was rewarded with a post-IPO 50%+ fall in its stock price — before beginning a meteoric rise last November. Renewable Energy Group, which was operating at scale for years before its IPO, experienced a 40% drop-off, post-IPO, before crossing back into positive territory just this month, 15 months after its IPO.

The problem of information overload

Why causes companies to fall into the Valley of Disbelief? At a time in history when digital distribution of information has made investing so much more transparent. You can find more chatter about stocks today than ever before – whole television channels, message boards, newsletters. Why does the information revolution not result in the death of disbelief?

In the 2003 book Anchoring America, I observed that rate of information distribution was rising, but that the circles were narrowing — in short, intensity was on the rise, but broad awareness was falling. The number of private messages received by the average individual had grown at two times GDP since the 1920s — from one per day to 48 per day (as of 2002). Information has only increased in intensity — as anyone knows who counts their emails, tweets, facebook postings, phone calls and texts.

The result is not a shared information base of common public knowledge — but a shattered glass a highly-fragmented culture — divided into little tribes of people, daily reinforcing their beliefs through shared messaging, selective news distribution, and inductive reasoning. Technologies that challenged tribal values, or were irrelevant to them, are misunderstood or ignored. The jungle drums are broken.

In Anchoring America, it was noted that there were an increasing number of children who would name and describe every single character in the world of Harry Potter, but only 20% of US sixth graders could correctly identify the United States on a world map.

We are left with no effective means of efficiently communicating the impact of new technologies. Consequently, technologies can begin to transform society long before the culture can embrace the significance.

There was a time when the cost of innovation was so high that transformative technologies were owned by corporations for year, even decades, before they were rolled out to individuals. So there was a long stretch of time for ideas to diffuse through the culture.

For example, consider the 30 years it took for computers to migrate from the corporate sphere to the consumer. By contrast, the iPhone was pushed into corporations because of consumer pressure — executives rebelled against their own IT departments.

The Problem of Dogma

For the intrepid investor, there is evidence of a significant lag time between the moment that a company has transparently assembled the means to go big, and the moment when that fact is valued in the market.

For everyone, a challenge. Given that 80% of new start-ups fail within five years, it is pretty easy to look smart by picking holes in the strategies and technologies of new ventures. You’ll look mighty smart practicing your “no,” but no one ever found happiness or riches without practicing their “yes” from time to time. Your “yes” will set you free.

You might ask and answer for yourself three questions.

1. Do I have “the right stuff “to study and understand these technologies — and decide which places on the Monopoly board I will place my bets, practice my “yes” and place them?

2. Can my belief withstand the terrors of the Valley of Death — or the Valley of Disbelief — or both, or neither?

3. If I can answer those two questions in the affirmative, what am I doing about it?

As Jobs himself said in remarks at the 2005 Stanford commencement exercises, “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma — which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

I’ll leave you today with a YouTube link to Steve Jobs’ October 2001 keynote.

Think Different.

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.

Posted by Guest Contributor at 10:08 AM | Permalink | Comments (0)

  Jim Lane

Only 5 min BigStock Photo

What’s in that Durn-tootin’ US Farm Bill, anyhow?

For the harried taxpayer, some relief. For energy security and rural economic development, targeted investments that now head to the legislative floor.

Here are the need-to-knows.

In Washington, the House and Senate Agricultural committees have now passed their respective versions of the proposed 2013 farm bill, which would take effect for fiscal 2014 through fiscal 2018.

Both bills have energy titles — meaning that, should they find passage, as expected this summer, in the House and Senate, the measures in the Energy title will come up for negotiation in the House-Senate conference, but not the existence of the title itself. In today’s Digest, we look at the two different versions of the Energy title — what’s getting funding, what’s not — and how much, and how.

Weighing the bills

The Senate’s bill weighs in at 1150 pages, no ounces — the House Bill at a comparatively light 576 pages.

The Overall Farm Bill

The Senate version reduces spending by $18B over the previous Farm Bill ($24.4B if the sequestration provisions are repealed by Congress, which itself slashed $6.4B), to $955B over a 10 year period between 2014 and 2023.

The Energy Title

Overall spending on the Energy Title is increased by $780M (2014-2023) under the proposed Senate version.

By section, the changes are

Biorefinery Assistance — $216M
REAP — $240M
Biomass R&D — $130M
BCAP — $174M
Other programs — $20M

Timeline to passage

House Ranking Minority Member Collin Peterson said, “With today’s action, I’m optimistic the farm bill will continue through regular order and be brought to the House floor in June. If we can stay on track, I think we should be able to conference with the Senate in July and have a new five-year farm bill in place before the August recess.”

The Details

Definitions

The House Bill does not add language to include renewable chemicals under the provisions of an Energy title — the Senate does.

Biobased Markets Program

Both the Senate and House include a biobased markets program. The House voted $2 million in discretionary funding (e.g. subject to annual appropriations). The Senate expanded the program’s scope to include assembled products, expands outreach and educational efforts, a study on market impact — and adds $3 million in mandatory funding from the Commodity Credit Corporation in addition to the $2M in discretionary funding offered by both the House and Senate.

Biorefinery Assistance

The House offered $75M per year here in discretionary funding, while the Senate offered $100M in for 2014 in mandatory funding and $58M in each of 2015 and 2016. The Senate also broadened the language to include renewable chemicals and biobased materials.

Repowering Assistance Program

The House authorized $10M for the program per year in discretionary funds, while the Senate did not vote funding.

Bioenergy Program for Advanced Biofuels

The Senate Bill authorizes $20M annually in discretionary funds, while the House authorizes $50M per year, also discretionary.

Biodiesel fuel education program

The Senate version keeps this program intact, but changes it from discretionary to mandatory funding. The House version doubles discretionary funding to $2M per year.

Rural Energy for America Program (REAP)

Both the Senate and House versions ask the Secretary to develop a three-tiered application process (for projects costing up to $80K, 80-2200K, and over 200K) and structure the comprehensiveness of the information required according to the cost of the program. The House version authorizes $45M per year in discretionary funding. The Senate offers $20M in annual discretionary funds, and $68M in mandatory funds via the Commodity Credit Corporation.

Biomass Research and Development

The Senate version offers $30M in annual discretionary funding, and $26M in mandatory annual funds. The House version authorizes $20M in annual discretionary funding.

Feedstock Flexibility Program

Both the Senate and House voted to extend this little-known, no-cost program through 2018. It’s purpose:

For each of the 2013 through 2018 crops, the Secretary shall purchase eligible commodities from eligible entities and sell such commodities to bioenergy producers for the purpose of producing bioenergy in a manner that ensures that section 7272 of this title is operated at no cost to the Federal Government by avoiding forfeitures to the Commodity Credit Corporation.

Biomass Crop Assistance Program

The House version eliminates the prohibition on animal, food or yard waste, and algae — and strikes the authorization to “assist agricultural and forest land owners and operators with collection, harvest, storage, and transportation of eligible material for use in a biomass conversion facility.” The House also increases funding from $20M to $75M per year, but changes this from mandatory to discretionary funding.

The Senate version adds a prohibition on funding “invasive species” and restricts use of lands enrolled in the conservation reserve program or is native sod — and generally prohibits food crops. The Senate version also sets a maximum BCAP term of 5 years for annuals or perennial crops and 15 years for woods.

Towards collection and harvesting, a maximum of $20 per ton for up to four year, on a matching dollar basis.

The Senate authorizes $38.6M per year in mandatory funding.

Forest Biomass for Energy program

The Senate voted to repeal the program, while the House version simply ignores and thereby effectively kills by de-funding.

Community wood energy program

The Senate voted to keep this program at $5M per year in discretionary funding, while the House version votes to reduce annual funding to $2M.

The Senate also creates a new category of ‘biomass consumer cooperative’ —”a consumer membership organization the purpose of which is to provide members with services or discounts relating to the purchase of biomass heating products or biomass heating systems.’’ and offers grants of up to $50K towards the establishment of expansion of such cooperatives.

The Bottom Line

It’s not a visionary Farm Bill for Energy — more about fine-tuning and maintaining provisions that were originally introduced in 2002 and 2008. But there’s a lot more meat on the bone, so to speak, with $780M in increased funding over a 10-year period.

On the other hand, it’s not a hugely expensive program when seen in the context of the federal budget — representing an addition expenditure of $0.26 per capita, per year.

There isn’t all that much for a House-Senate conference to bicker about — primarily, the status of renewable chemicals on the downstream side, and the inclusion of various new types of crops on the upstream side.

And there are funding differences that need to be ironed out – in particular, the balance between mandatory funding and discretionary embraced in the Senate version – while the House generally opts for a discretionary approach, especially for high ticket items.

There’s language in the BCAP program that will need to be settled out.

The Digest continues to point to opportunities for the creative use of Conservation Reserve program land — sensitive to and subject to hunting and environmental uses — for bioenergy projects, and thereby highlights the prohibition on BCAP funds being used for CRP lands, as envisioned in the Senate version of the bill (but not the House bill). We hope the House and Senate come to a creative mutual approach on this provision.

Read More:

• The relevant current US law is here.
• The House Bill is here.
• The Senate Bill is here.
• CBO Analysis of the Agriculture Reform, Food and Jobs Act of 2013

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.

Posted by Guest Contributor at 11:32 AM | Permalink | Comments (0)

Jim Lane

Has Gevo whipped its problems, and whipped them good?

When a problem comes along, you must whip it
Before the cream sets out too long, you must whip it
When something’s goin’ wrong, you must whip it
Now whip it into shape
Shape it up, get straight
Go forward, move ahead
Try to detect it, it’s not too late
To whip it, whip it good.
    Devo — “Whip It”

When last we took an in-depth look at Gevo, (NASD:GEVO) the company was beset by a swarm of motions, cross-motions and lawsuits in its long-running patent infringement drama, co-starring Butamax, “Bio’s Montagues and Capulets get it on, and on, and on“.

At the same time, Gevo had been forced by low yields induced by higher-than-desired levels of bacterial contamination in tis fermenters to switch back from isobutanol to ethanol production. Then, as the US drought caused corn prices to soar into the $8 range, Gevo all-but-halted production entirely as it improved its isobutanol process, shored up its cash position, and dealt with litigation.

The perfect storm of poor conditions in feedstock costs, processing yields and a cloudy picture on the “freedom to operate” front caused a number of investors to declare “there goes the neighborhood” and the stock has eventually run down into the sub-$2 range. Today, the company’s market cap is roughly the cost of acquiring and retrofitting its first commercial facility in Luverne, MN.

That was then, this is now.

The stock has not recovered much — but it’s remarkable the progress the company has made, all the same. Analysts are now expecting the company to bring its first production train up later this month with its improved isobutanol process, and moving towards full production on all four trains by year end.

Meanwhile, on the legal front, a Digest reader writes: “Gevo was very clear on their call last night that they had won on all counts and that Butamax had even greater legal risks.  I am sure Dupont disagrees, but the last time Dupont disagreed, they lost a $1 billion award to Monsanto.  And this is exactly the same legal team.”

Perhaps most remarkably, the company continues to enjoy strong support it continues to receive from key industry equity analysts at Piper Jaffray, Raymond James, and Canaccord Genuity — all of whom are rating the stock a buy. Piper Jaffray has a price target of $9 on the stock — more than five times its current value.

In a research note titled, “Less legal drain helps to regain (the focus on) the Train”, Canaccord Genuity analyst John Quealy writes: “While the Street continues to take a wait-and-see approach on the success of this speculative biorefinery business model, we find the technology and opportunity supporting a positive risk/reward long term.”

Looking at the legal front

Here’s what you need to know. Gevo has at this stage complete freedom to operate, and has been a consistent winner to date in the courts on patent infringement.

We asked a friend last week:

“From a legal strategy POV, why it is advantageous for a company like Butamax to sue now, before there is a product on the market?”

We heard back quickly.

“There is absolutely no reason to sue someone before they have a product on the market.  The reason you don’t sue someone before they have a product on the market is because there are no damages for you to recover.  The only reason to sue before there is a product on the market is to try to injure your competitor.  Butamax started this litigation fight in January 2011, years before Gevo could ever have a product on the market.”

Last word, we give to Piper Jaffray’s Ritzenthaler:

“Worst case scenario, in our view. Despite the negligible probability of a negative outcome for Gevo, a common inbound question is: what is the worst case scenario? We define a worst-case scenario as Gevo having to pay a royalty for use of some element of Butamax’s technology. If we assume an industry-standard licensing rate of 2% of revenues, our 2015 EBITDA estimate would be reduced by $25 million, resulting in a $12 stock using the same methodology – nearly 3x Monday’s closing price. In all reasonable likelihood, Gevo will emerge without any such strings attached.”

Looking at the production front

Cowen & Co’s Rob Stone writes, “Luverne is expected to begin limited production in one train in Q2, and be shipping by year end, with ramp pace hinged on corn/oil/isobutanol prices. The paraxylene pilot should also be operational by year end.

Raymond James’ Molchanov adds, “Finally, there is clarity. The plant is ready to start operating in single-train mode in May/June, and management made it clear that the entire facility (four fermenters and three GIFT systems) should be operational by year-end. We project full nameplate utilization (18 million gallons) by mid-2014.”

Looking at the financial front

In looking at the work-ups by the analysts, we see some different assumptions on timing, the expected price of isobutanol and the cost of inputs, but all analysts agree that a rapid expansion of revenues is expected throughout the 2013-15 period and beyond.

The consensus view? Revenues climbing from $14M this year to $99.4M in 2014, en route to $317.2M in 2014 — and analysts expect the company to reach break-even in 2015.

Looking at Gevo and Butamax’s relative progress

Butamax is inherently more opaque (as a private company), and comparisons are somewhat difficult to make. However, we understand that Butamax’s demo plant in Hull is about the same size as the demo plant Gevo did in Denver in 2008. Gevo has subsequently built a 1 Mgy demo plant in St. Joseph, MO and the 18 million gallon plant in Luverne.

By that measure, there’s some evidence that Gevo is something on the order of 1-2 years ahead of Butamax in commercialization — and Butamax has confirmed that it expects to go into commercial scale production some time next year.

On the customer front, both companies have signed up an impressive roster of plants for their early adopter conversion program. However, Gevo has a definitive deal for its Redfield, SD plant, whereas all the others for both companies are at this stage, so far as is publicly revealed, non-binding letters of intent.

In addition, Gevo has firm offtake agreements with SASOL and the US Air Force.  In addition, deals of a less definitive nature with Coca-Cola, Lanxess, Mansfield, Total and others.   All of which supports the view that Gevo is leading by a year or more.

The stakes

Well, there’s a lot on the line. From a fuel POV, we’ve pointed out before that a conversion of the US ethanol fleet to isobutanol is the surest low-cost, low-pain path towards meeting a target of 36 billion gallons of (ethanol equivalent) renewable fuel by 2022. The reason? Blend wall, baby. The US could use as much as 22.9 billion gallons of ethanol-equivalent by switching to isobutanol, before it reached a blend wall, owing to butanol’s higher energy density and blend restrictions.

By contrast, anything above 12 billion gallons of ethanol blended into the fuel supply in 2022 supposes moving beyond E10 blending to controversial business cases associated with E15 through E85.

The bottom line

On all fronts, it appears that Gevo is, indeed, whipping its problems, and whipping them good.

Evolution or revolution — we’ll know more in a year, and certainly by 2015. But either way, there’s been significant Gevolution, and there’s a lot more reason to feel Gevolicious as we head towards the critical 2013-14 period for the company — when it will need to raise capital and move definitively and forever into commercial-scale production.
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.

Posted by Guest Contributor at 09:03 AM | Permalink | Comments (0)

Jim Lane

Gevo a winner? Not the issue, says Butamax, as the Capulets and Montagues get it on again.

It’s a tennis match in which the score is never love.

Scene: Verona. A public place.

The Prince: Three civil brawls, bred of an airy word,

By thee, old Butamax, and Gevo,
Have thrice disturb’d the quiet of our streets,

And made the Digest’s ancient citizens
 setteth aside
required reading of matters thermochem and RFS,
to hear again, and again, and thence again
your claims and counterclaims and all the pleadings
that issueth, containing more commas than there are microbes under heaven.

This case shall confuseth us most relentlessly,
until we rent our clothes and throweth ourselves
into vats of isobutanol and drinketh thereof
until, verily, we goeth mad and blind.

In Delaware, the United States District Court for the District of Delaware entered a final judgment in favor of Gevo (GEVO) and against Butamax Advanced Biofuels, LLC (Butamax), a 50/50 joint venture between DuPont (DD) and BP, ending the trial court proceedings on Butamax’s Patent Nos. 7,851,188 (’188 Patent) and 7,993,889 (’889 Patent).

For those newer to the saga, Butamax and Gevo both make isobutanol, using modified microorganisms and employing a separation technology to part the butanol from the broth.

It is not entirely clear who owns what rights, and there has been an awful lot of suing going on.

“This is a huge victory for Gevo and our shareholders,” noted Patrick Gruber, Ph.D., Gevo’s chief executive officer.

Over to Butamax

There was substantially less cheering over on Planet Butamax.

Butamax spokesman Mark Buse said, “As we previously stated, Butamax strongly disagrees with the Court’s claim construction and decided instead of going to trial decided to appeal the case immediately.  This issue was decided two weeks ago.”

Gevo general counsel Brett Lund was incredulous. “Instead of going to trial? You don’t get to skip a trial. You lose.”

Butamax wasn’t buying any of that.

“The only real news today,” said Buse, “is that the Patent office has dealt a huge blow to Gevo, by issuing an Action Closing Prosecution rejecting all claims from their so called landmark GIFT patent. ”

From the ruling

From Judge Sue L. Robinson: “It is hereby ordered and adjudged this 10th day of April 2013 that final judgment be and hereby is entered in favor of Defendant Gevo, Inc. and against Plaintiff Butamax Advance Biofuels, LLC with respect to the claims relating to ’188 and ’889 Patents.”

Final judgement? We are afraid not.

The press release flurry

In a release, Butamax set forth its argument.

On April 10, 2013, the United States Patent and Trademark Office (“USPTO”) issued an Action Closing Prosecution (“ACP”), rejecting all claims of Gevo Inc.’s U.S. Patent No. 8,101,808 (“‘808 patent”), in the inter partes reexamination filed by Butamax on May 7, 2012. The ‘808 patent was described by Gevo as “a landmark patent … on its GIFT® separation unit, a central element in the Company’s unique fermentation technology”.

“The significance of this ACP is that the Patent Reexamination Specialist responsible has now heard both sides of the argument with respect to this patent, and has concluded that all of the original, amended and added claims are unpatentable.

“In making this decision, the USPTO adopted all prior art grounds for unpatentability cited by Butamax against both the originally issued claims and the claims Gevo amended and added during the proceedings. These included the claims for both Gevo’s GIFT® system, as well as all claims purported to cover Butamax’s technology. The USPTO also rejected Gevo’s claims related to retrofit of an ethanol plant, which was already known due to prior disclosures from BP and DuPont.

Gevo responds post-haste

The Examiner’s decision, which dismissed 110 previous grounds of rejection and introduced a limited number of new rejections, is a non-final action called an Action Closing Prosecution (ACP), and gives Gevo the opportunity to respond to the limited new questions raised by the USPTO Examiner. During this period of review, the ’808 Patent remains valid and fully enforceable during the reexamination process.

“Importantly, Gevo was successful in eliminating all of the previous 110 rejections presented in the first office action and the minimal number of new rejections are based on obviousness as opposed to novelty.” said Brett Lund, Gevo’s executive vice president and general counsel.

The bottom line

You have three main lines of gravity here.

1. The Butamax vs Gevo suit. Butamax is going to appeal the decision just handed down today. That could take (easily) more than a year to work its way through the courts.

2. The first Gevo vs Butamax suit. Gevo is suing Butamax for infringing the ’808 Patent. This case is scheduled to go to trial in the US District Court of Delaware in July of 2014.

3. The second Gevo vs Butamax suit. Gevo is suing Butamax for infringing the ’375 and ’376 Patents. This case is scheduled to go to trial in the US District Court of Delaware in August of 2014.

So – with the loser likely to appeal, all of these three cases could drag for years. And, more suits may be filed in the future based on new patents.

It tells you one thing. For sure, the owners of both these technologies see massive value in them – enough to undertake the costly and debilitating legal parry and thrust.

The best news, then? Someone is going to end up owning these technologies — and drivers and chemists will all stand to benefit from isobutanol’s attractive properties and what we expect will be good prices for the customer and great margins for the owners.

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.

Posted by Guest Contributor at 09:31 AM | Permalink | Comments (0)

Jim Lane

HydroMan may do his hydrogen-shift thing via water, at will – but outside of the Marvel Cinematic Universe, we have some hydrogen issues.

Psst! Like cutting out a fossil hydrogen dependency for many biofuels.

But, new pathways ensure that the status hydroquo may not last for long.

A numbers of readers responding to “Biofuels from a raging fireball” (on research work with the raging fireball, Pyrococchus furiosus, to make biofuels and renewable chemicals from hydrogen gas and CO2) raised the question, where is all the hydrogen going to come from?

As many know, hydrogen is not found in a free state in nature in much quantity — and we supply most of our hydrogen needs through steam reformation of natural gas, or cracking fossil petroleum. In other words, renewable fuels made using external hydrogen may well have a hidden fossil fuel dependency.

It all comes down to cost. There are alternative ways to make hydrogen gas, and renewable pathways for sure — if society is not using them, it is generally due to cost issues. In there, to some extent because the costs associated with renewable hydrogen are generally internalized in the process, while many of the social costs of fossil fuels are externalized — e.g. the venting of sequestered CO2.

The hydrogen dependency

Hydrogen gas is a dependency in a number of processes that make renewable fuels — most notably, those that have a hydrotreating step to remove excess oxygen. That includes the upgrade of pyrolysis oils, and even the production of aviation biofuels from renewable oils (the HEFA pathway that is currently powering most of the current flight activity).

Those beyond H2.

Now, hydrogen gas is not a required production element. Fermentation of biomass to produce an alcohol fuel does not require it. The production of diesel and jet fuels fuels using the processes pioneered by Amyris (AMRS) and LS9 do not. Neither does Joule’s process, not Cool Planet’s drop-in fuels (we think). We’ll get to the interesting case of LanzaTech shortly. Upgrading alcohol fuels to hydrocarbons can be accomplished without hydrogen gas — ORNL has developed such a process.

But some of the most promising companies are using hydrogen — Coskata, Sundrop Fuels, Primus Green Energy being three examples of companies that have begun to source fossil natural gas to get affordable feedstock. But processes such as Honeywell's (HON) UOP’s hydrotreating, used to make drop-in fuels with the Envergent process, or HEFA aviation biofuels in partnership with the likes of Dynamic Fuels and Solazyme (SZYM) — well, they need hydrogen.

So, what about hydrogen gas — can it be made renewably, and where and how?

The technical answer is, you bet. Affordably? Another question entirely. Let’s review the state of play with the two main pathways – and two outliers.

Electrolysis

The process? Hydrogen can be produced from water, and routinely is, using an electrolytic process that you can demonstrate in a high school lab.

The problem? The process will chew up some 35-50 kilowatt hours of electricity per kilo of hydrogen. There being roughly a kilo of hydrogen in a gallon of hydrocarbon fuel — at $0.10 for lowest cost renewable electricity (e.g. wind), there’s $1.70-$2.50 cost per gallon just to provide the hydrogen feedstock, and you still have to pay for the process and whatever cost of aggregating CO2.

Solution? Advocates routinely talk about producing hydrogen using excess (and thereby, nominally priced) renewable power — at times when the grid is loaded, rather than shunting biomass steam energy to cooling towers (as opposed to the turbines) or using large scale battery storage of the type that Duke Energy put in place at its Notrees wind farm in North Carolina.

Another solution. ORNL has developed a low-cost process – yet to be demonstrated at scale. More on that here.

Anaerobic digesters.

The process? Here, microbes chew waste materials and produce biogas, rich in methane.

The problem? Costs have been the issue. But systems have been getting bigger, and options for producing hydrogen from them are there, using essentially the same processes by which hydrogen is produced from natural gas.

Solution? As an example of progression in system size, Western Plains Energy announced plans to build a $40 million anaerobic digester to produce enough biogas to replace 90% of the fossil fuel used in the manufacturing process at the company’s 50-million-gallon Oakley ethanol plant. When completed, the digester is expected to provide 15 jobs converting manure, grain dust and food waste to power. The project received a $5 million grant in April from the U.S. Dept. of Agriculture, and $15.9 million one year ago when Kansas Gov. Sam Brownback redirected unspent American Recovery and Reinvestment Act funding to the project.

Steam reformation or other catalytic processes from biogas or biooil

The process? Cracking hydrogen from biomass using heat and catalysis.

The problem? Cost, again. Steam reformation itself has struggled with high costs associated with the high temperatures at which the system operates. But it has been a technology worth chasing, for in the development of F-T plants it eliminates both the need for expensive oxygen plants and larger footprints needed to deal with nitrogen dilution from air, lowering capex and space requirements.

Solution? In 2010, we reported on a team from East China University of Science and Technology and Guangxi University  has conducted a study of hydrogen production via catalytic steam reforming of bio-oil in a fluidized-bed reactor. They note that “hydrogen production from renewable biomass is particularly adapted to sustainable development concerns. Biomass, a kind of renewable resource that adsorbs CO2 during its growth, contributes net zero carbon emissions when used to produce hydrogen.”

A system that has been attracting the most attention in this area is the ClearFuels gasifier, the star gasifier at Rentech’s (RTK) Product Demonstration Unit in Colorado. Unlike other gasifiers or pyrolysis processes, ClearFuels HEHTR is a one-step rapid steam reforming process that converts all the biomass to syngas with no char, no liquid intermediates, no ash slagging/fouling and low tar content.

The technology has operational controls for a tunable hydrogen to syngas ratio of 1:1 up to 3.5 to 1, while also interchangeably running on syngas, tailgas, biogas or natural gas.

A first outlier. Syngas as a source of hydrogen — and renewable fuels, all at once.

You may recall that LanzaTech can use hydrogen-free gases for the production of ethanol. That is because their proprietary microbe can produce hydrogen from carbon and water as required.

Which, of course, raises the possibility of combining a LanzaTech-type process with a process that needs hydrogen — and obtaining both feedstocks at the same time from synthesis gas (a combination of hydrogen and carbon monoxide), produced by gasifying biomass. Just a matter of membrane separation of the hydrogen gas. Voila, renewable hydrogen, ready to be fed to a second system that uses CO2 and hydrogen to make fuels.

A second outlier – mimicking photosynthesis.

As you might have reflected during your reading this morning, what can plants teach us? Clearly they are obtaining hydrogen to make their own biomass, from water — presumably affordably, since trees are not filing for bankruptcies.

In California last week, HyperSolar announced its plan to build renewable hydrogen generators for commercial use. Named the H2Generator, the company’s first commercial product is expected to sell at a substantially lower price than other renewable hydrogen systems that rely on expensive and energy intensive electrolyzers to split water.

By optimizing the science of water electrolysis, the low cost device mimics photosynthesis to efficiently use sunlight to separate hydrogen from water, to produce environmentally friendly renewable hydrogen.

Tim Young, CEO of HyperSolar commented, “We believe that our intensive R&D efforts will finally pay off in the form of a go to market commercial product. One key discovery was an efficient and low cost polymer protective coating that will allow us to protect solar devices against photocorrosion. Using this coating to treat traditional silicon solar cells, we are able to eliminate the expensive electrolyzer by integrating the electrolysis function directly into a solar cell immersed in water.

“We have given our tech team the green light to complete the product design required to build the first demonstration system,” Young continued. “With a demonstration system in hand, we can then move to the manufacturing phase of the business.”

The HyperSolar H2Generator will be designed to be a linearly scalable and self-contained renewable hydrogen production system. As a result, it is intended to be installed almost anywhere to produce hydrogen fuel for local use. This distributed model of hydrogen production will address one of the greatest challenges of using clean hydrogen fuel on a large scale – the need to transport hydrogen in large quantities.

The bottom line.

Digesterati, take faith. There are multiple paths to renewable hydrogen — all a matter of cost. Our take: look for symbiotic systems, of the LanzaTech type we discussed above, where hydrogen or electricity becomes available as a residue from another process. In terms of bolting on to a second technology, there’s no better way to be capital light, and get closer, faster, to parity costs with fossil pathways to hydrogen.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 10:36 AM | Permalink | Comments (0)

Jim Lane

Compared to prior generations, CodeXyme 4 and CodeXyme 4X significantly reduce the cost of cellulosic sugar production for biofuels and bio‐based chemicals.

In California, Codexis (CDXS) announced the launch of CodeXyme 4 and CodeXyme 4X cellulase enzyme packages for use in producing cellulosic sugar for production of biofuels and bio‐based chemicals.

Codexis’ latest generation of advanced cellulase enzymes, CodeXyme 4 for dilute acid pretreatments and CodeXyme 4X for hydrothermal pretreatments, exhibits excellent performance, converting up to 85% of available fermentable sugars at high biomass and low enzyme loads. Combined with high strain productivity using the CodeXporter® enzyme production system, this allows for a cost‐in‐use that the company believes will be among the lowest available once in full‐scale commercial production.

CodeXyme 4 increases performance 10‐20% over Codexis’ last generation product, CodeXyme 3, measured by the amount of glucan converted into C6 fermentable sugar. For pre‐treatments with unconverted xylan, CodeXyme 4X maintains the same high C6 sugar activity while having additional C5 sugar conversion.

“After four years of development using our CodeEvolver directed evolution technology platform, we are proud to announce that our high‐performing CodeXyme cellulases are broadly available for the first time,” said John Nicols, Chief Executive Officer of Codexis. “CodeXyme has been tested against other commercially‐available cellulases and we have found the performance to be equal or better than alternative enzymes, across various feedstocks and pre‐treatment types. We expect CodeXyme cellulase to deliver significant cost savings and yield improvements for industrial‐scale production of cellulosic sugars.”

What does it mean?

Well, think a lot of things, but above all, think them in Portuguese.

This advance from Codexis — while having applications across a broad set of applications and geographies, has “Brazil” written all over it, and Codexis execs, speaking about the technology at World Biofuels Markets, confirmed that Brazil was on the radar.

Why? Iogen has parted with its other businesses and is laser-focused on commercializing its cellulosic ethanol technology with Raizen in Brazil — with no official enzyme partner announced to date. Not to mention that Raizen is the largest single shareholder in Codexis. Not to mention all that lovely bagasse. Not to mention that Raizen has been talking up their interest in cellulosic ethanol.

Leading Enzyme Performance?

During the past several months, CodeXyme cellulase has been tested on a variety of feedstocks and pre‐treatments, including corn stover, corn cobs, sugarcane bagasse, cane straw, wheat straw and rice straw. In all cases, CodeXyme 4 and 4X have been found to convert 75 – 85% of glucan and xylan into C6 and C5 sugars, at 10 – 15g enzyme per kg of glucan. With consistently high sugar conversion, customers are able to convert more sugar into high‐value biofuels and bio‐based chemicals.

Head to head with Novozymes, Dupont

In independent third‐party tests with the National Renewable Energy Laboratory (NREL) in Golden, Colorado and Chemical Engineering Research Consultants in Toronto, Canada, CodeXyme cellulase performed comparably or better than other leading enzymes. The studies compared the conversion of glucan to C6 sugars on dilute‐acid pre‐treated corn stover, using leading commercial enzyme products at their optimal pH and temperature. CodeXyme 3 (Codexis’ cellulase enzyme from 2011) was found to convert the same or more glucan at the same enzyme load as competing cellulase packages, and CodeXyme4 fared even better against the latest alternative commercial enzymes.

Commercial and Manufacturing Plan

In September 2012, Codexis established a robust applications capability and has since sold CodeXyme 4 and 4X to over a dozen potential partners and customers at lab and pilot scale. CodeXyme cellulase has been used successfully to hydrolyze biomass pre‐treated with both acid‐based and hydrothermal methods, as well as in sequential and simultaneous hydrolysis and fermentation.

Codexis is scheduled to scale up its novel CodeXyme 4X cellulase strain at commercial scale in the second quarter of this year. CodeXyme 4X cellulase will also be used in pilot production of bio‐based CodeXol detergent alcohols in collaboration with Chemtex in Rivalta, Italy by mid‐year.

More on the story.

Here are two must-reads.

An 11-slide deck from Codexis - the CodeXyme4 launch presentation.

CodeXyme4 product and applications info.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 08:44 AM | Permalink | Comments (0)

Jim Lane

Delays and cancellations photo via Bigstock

Investor flights GEVO, SZYM, AMRS — take off delayed by fog.

How soon will the potential of three of the hottest companies in the field be realized?

What are the key milestones coming up for the industrial biotech’s Gold Dust Triplets?

In Colorado, Gevo (GEVO) reported its Q4 and full-year 2012 results this week — and now the Q4 news for the gold-dust trio of Amyris (AMRS), Solazyme (SZYM) and Gevo is in — certainly the most highly-heralded three in the boomlet of cleantech IPOs in 2010 through early last year.

Today. we’ll look at those results briefly — but more importantly we would like to note the considerable fog which equity analysts are wading through in valuing the companies for the long-term. Fog that we believe is starting to lift — and the timing of that lift is where we would like to direct your attention to today.

For sure, it’s been a roller coaster ride.

Amyris originally opened in 2010 at $16.50, once traded over $30, but is trading at $2.97 today. Analysts at Raymond James, Piper, Cowen and Baird all have the stock rated at Neutral with targets between $3.32 and $4.00.

Gevo opened in 2011 at $15.50, once traded at a high of $26.36 and is trading today at $1.95. Analysts have the stock rated between Neutral and Outperform with targets between $3.00 and $9.00 — now, that’s a wide range.

Solazyme debuted two years ago this week at $20, once traded at a high of $27.47, and is trading today at $8.55. Analysts have the stock rated between Outperform and Underweight with targets between $5.00 and $10.50 — again, a wide range of values and we have a situation where analysts are recommending both “buy” and “sell” with seemingly no one in the middle.

Some of this — all analysts agree, is classic “sector compression” — where investor interest in giving lofty valuations to companies has evaporated based more on investor sentiment than a case of companies missing fundamental milestones.

But there have been slow-downs in scale-up — affecting Gevo and Amyris, and accounting generally for why these stock values have been more compressed.

When exactly will the fog lift — when will we have a materially clearer idea of the value of these companies? For early-stage companies it is much more about milestones rather than the kind of reporting on volume and price that drives quarterly reporting.

The fog-lift timetable

Solazyme

Q2 (June): Commissioning of phase 2 of the Solazyme Roquette joint venture’s Lestrem facility.

Q4: The Bunge (BG) Moema is expected to start production in Brazil.

Q2 2014 (Latest): Production starts at the Clinton, Iowa plant (with Archer Daniels Midland ).

Still in the fog: Timing of conversion of non-binding sales agreements with the likes of Qantas and Dow into binding contracts— a must for this year.

Amyris

Q2 (May): Next quarterly results should give the first really clear look at renewable product margins not obscured as in the past by the legacy ethanol business, legacy inventory and limited plant output in 2012.

Q1 or Q2 (expected): A definitive agreement with Firmenich for the flavors and fragrances markets.

Q4 (latest): Amyris is expecting to generate $60M-$70M in collaboration funding from partners to offset its burn rate. If not, it will be forced to raise more money for scale-up and potentially dilute the share value.

Q3 and Q4. Amyris begins initial shipments under its Novvi lˇubricants JV and increases shipments with Kuraray. Lookm also for updates on shipments of specialty fluids (through the JV with Total).

Gevo

March 20. A pretrial conference in the Butamax-Gevo patent dispute is expected should include a decision on claim construction that could heavily influence the patent trail.

April 1. Patent trial begins — resolution could be within the month. Raymond James’ Pavel Molchanov writes “we are of the view that Gevo enters this process in a substantively advantaged position. The reason is simple: last year, both the trial court and the appeals court firmly rejected Butamax’s request for a preliminary injunction against Gevo, with both courts explicitly finding that “plaintiff (Butamax) does not hold a valid patent, nor would defendant (Gevo) infringe if it did”.

Q2. Though Gevo is not guiding on specific dates for re-start at Luverne beyond a bland “sometime in 2013,” analysts expect restart in Q2, reaching full production by Q4.

Still in the fog: Start date for conversion of the Redfield (SD) plant, and the exact structure of future conversion agreements (e.g. how the value of a license turns into revenue).

Q4 2012 Financial results

GEVO

Revenues for the fourth quarter of 2012 were $1.9 million compared to $17.2 million in the same period in 2011. The decrease in revenues resulted from the company suspending ethanol production at its Luverne, Minn. facility in May 2012. The net loss for the fourth quarter of 2012 was $13.2 million compared to $14.2 million for the fourth quarter of 2011.

SZYM

Total revenue for the fourth quarter ended December 31, 2012 was $8.4 million compared with $14.9 million in the fourth quarter of 2011. Fourth quarter GAAP net loss attributable to Solazyme, Inc. common stockholders was $24.6 million, which compares with net loss of $15.6 million in the prior year period.

AMRS

Aggregate revenues for the quarter ended December 31, 2012 were $5.9 million versus $41.5 million in the fourth quarter of 2011. Of the $5.9 million in aggregate revenues during the quarter ended December 31, 2012, $3.0 million related to renewable product sales compared to $0.7 million for the same period in the prior year. GAAP net loss attributable to common stockholders for the quarter was $43.5 million ($0.72 per share) compared to a loss of $59.4 million ($1.30 per share) in the same quarter of 2011.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 12:01 PM | Permalink | Comments (0)

by Debra Fiakas CFA

As part of its program to promote beneficial reuse of carbon dioxide, the Department of Energy awarded a total of $27.2 million ($3.0 million in the first phase and $24.2 million in a second phase) to a consortium led by alternative energy developer Phycal, Inc. (private).  According to the DOE website, Phycal is to develop an integrated system to produce biofuel from microalgae cultivated with captured carbon dioxide (CO2).  The biofuel is to be blended with other fuels for power generation or as drop-in diesel or jet fuel.

It is a bit of a stretch to see Phycal’s project as a bona fida “reuse” of CO2 that would have otherwise gone out into the atmosphere.  The company ferments the root food crop cassava (also called yucca or manioc) to produce ethanol.  Nonetheless, this is more by-product that final product, because what Phycal really needs are the sugars and CO2 that are also produced in the fermentation process.  That is because Phycal is principally focused on algae-based biofuel production and CO2 is the critical food source for growing algae.  Sugars give the algae an extra boost before the oil harvesting step.
 

The design does have a certain appeal.  Algal oil can be turned into a drop-in diesel or jet fuel that has significantly more versatility and lower distribution costs than ethanol.  Integration of the dual ethanol/biofuel plant affords precious economies that are vital to turn out a cost-competitive fuel product.

Phycal’s development partners include General Electric’s (GE:  NYSE) Global Research Group and Seambiotic (private) among others.  The group has set up a pilot cassava/algae farm near Hawaii’s Wahiawa, Oahu.  Phycal has some confidence in its ability to iron out the kinks in its process.  In late 2011, the company signed an off-take agreement with Hawaaiian Electric for delivery of 100,000 to 150,000 gallons of algae-based biofuel beginning in 2014.  The biofuel will be tested at the utility’s Kahe Generating Station.

Unfortunately, only accredited investors are in a position to get involved with Phycal at this stage in the company’s development.  A stake in its partner General Electric is a play on the myriad markets that are the targets of GE’s broad product portfolio.

Given that the world economy has yet to agree on a value for the liability of creating toxic CO2 emissions, it is impressive that work on CO2 sequestration has progressed at all, let alone the next step of finding uses for CO2.  Even though “carbon capture and use/reuse” gets little attention from investors, it appears to be quietly underway.  We expect the economic impact will be equally quiet, manifesting in lower costs rather than generating more visible new revenue streams.  However, knowing which companies are successfully harnessing the CO2 beast could be an advance look at higher earnings.

Basically, CO2 can be used in three major areas:  polymers, biofuels and inorganic materials.  The previous post “Capturing CO2 for Environmental Remediation” was about Alcoa’s (AA: NYSE) attempt to use CO2 for treating clay soil for environmental remediation  -  an inorganic material.  Phycal’s project is an example of biofuel production.  Next post will be a look at a polymer application.  
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 08:15 AM | Permalink | Comments (0)

Jim Lane

Camelina microcarpa, aka Littlepod false flax.   Photo by Jim Pisarowicz, National Park Service

New renewable feedstock OKs. Good news, bad, neutral?

In Washington, the US Environmental Protection Agency issued a final rule qualifying biofuels produced from camelina oil as biomass-based diesel or advanced biofuel, as well as biofuels from energy cane which qualify as cellulosic biofuel.

This final rule also qualifies renewable gasoline and renewable gasoline blendstock made from certain qualifying feedstocks as cellulosic biofuel.

“This decision adds to the growing list of biodiesel feedstocks that meet the EPA’s standards for Advanced Biofuel and gives us yet another option for producing sustainable, domestic biodiesel that displaces imported oil,” said Anne Steckel, NBB’s vice president of federal affairs. “This is important for our energy security, for our economy and for addressing climate change, and we thank the EPA for conducting a thorough and fair review.”

By qualifying these new fuel pathways, this rule provides opportunities to increase the volume of advanced, low-GHG renewable fuels— such as cellulosic biofuels— under the RFS program. EPA’s comprehensive analyses show significant lifecycle GHG emission reductions from these fuel types, as compared to the baseline gasoline or diesel fuel that they replace.

Lastly, the rule clarifies the definition of renewable diesel to explicitly include jet fuel. This clarification offers additional market certainty and opportunity for renewable diesel producers.

Rulemaking Process

EPA published a direct final rule and a parallel proposed rule in January 2012 to amend the RFS regulations, but subsequently received adverse comment on certain aspects of the direct final rule and in March 2012, EPA withdrew the direct final rule.

EPA commented: “The adverse comments we received centered on a few narrow aspects of the assumptions underlying the greenhouse gas (GHG) estimates of producing biofuel feedstocks, including camelina, energy cane, napier grass, giant reed and corn stover. These comments were based on a misinterpretation of our analysis.

“In this final rule, we provide additional clarification regarding our assumptions, and the underlying analysis remains unchanged from the proposed rule.

“Commenters also stated the direct final rule did not properly address issues related to control of invasive species. The information provided did not raise significant concerns about the threat of invasiveness and related GHG emissions for camelina and energy cane. Therefore, we are finalizing the camelina and energy cane pathways in this rule based on our lifecycle analysis.”

No joy for elephant grass and arundo

EPA commented: “We are not finalizing at this time determinations on biofuels produced from giant reed (Arundo donax) or napier grass (Pennisetum purpureum), or biodiesel produced from esterification. We continue to consider the issues concerning these proposals, and will make a final decision on them at a later time.”

Pathway Determinations

The final rule describes EPA’s analysis and determinations for the following new fuel pathways:

Camelina oil

• Biodiesel and renewable diesel (including jet fuel and heating oil)— qualifying as biomass-based diesel and advanced biofuel
• Naphtha and liquefied petroleum gas (LPG)— qualifying as advanced biofuel

Energy cane cellulosic biomass

• Ethanol, renewable diesel (including renewable jet fuel and heating oil), and naphtha— qualifying as cellulosic biofuel

Renewable gasoline and renewable gasoline blendstock

• Produced from crop residue, slash, pre-commercial thinnings, tree residue, annual cover crops, and cellulosic components of separated yard waste, separated food waste, and separated municipal solid waste (MSW)

• Using the following processes— all utilizing natural gas, biogas, and/or biomass as the only process energy sources— qualifying as cellulosic biofuel:

o Thermochemical pyrolysis
o Thermochemical gasification
o Biochemical direct fermentation
o Biochemical fermentation with catalytic upgrading
o Any other process that uses biogas and/or biomass as the only process energy sources

Winners and losers

Well, clearly any venture woking with camelina or energy cane. But there’s some love in there for jet fuel, pyrolysis and a host of other processing technologies that had aimed at cellulosic biofuels.

It’s good news for KiOR, Inc. (KIOR) and Dynamic Fuels, too.

Losers? For the time being, it puts a kibosh on some of the plans at Beta Renewables to employ arundo donax as a feedstock for cellulosic biofuels.

The bottom line

It’s an incredible leap forward in terms of broadening opportunities to meet RFS targets with a broader range of feedstocks, conversion technologies and downstream products and by-products.

There are ever more way to earn RINs — although, suffice to say, it would have been more exciting if there had been go-to major projects that were immediate beneficiaries. Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 09:08 AM | Permalink | Comments (0)

Jim Lane

Earnings season is upon us — time to go, as they say, to the scoreboard for an update on some of the sector’s perennial favorites.

GPRE earning, DSM acquiring, AMRS shipping — some welcome pars, even a birdie or two, from the front-lines.

Now, the ethanol sector has been going through one of its periodic rough patches in recent months — in this case, courtesy of the dire US drought last year which has forced up corn prices and tightened inventories. A number of ethanol plants have tumbled into the red, or shut down production entirely until corn and ethanol prices become better aligned.

First up to bat: Green Plains Renewable Energy

So, it was surprising news when Green Plains Renewable Enegy (GPRE) came out with positive earnings for the 4th quarter and the year as a whole.

Net income attributable to Green Plains for the full year of 2012 was $11.8M, compared to net income of $38.4M in 2011. Revenues were $3.5B for 2012 compared to $3.6B in 2011. For Q4, net income was $33.0M, compared to $13.3M in 2011. Revenues were $883.7M for Q4 compared to $922.8M for Q4 2011.

“All of our business segments reported positive operating income during both the fourth quarter and the last half of 2012,” said CEO Todd Becker. “We ended 2012 with $280 million in cash and the lowest ethanol plant debt in our history. This positions us for the future to take advantage of growth and diversification opportunities and to continue to withstand the cyclicality of our business.”

The strong earnings earned high marks from investors. Overall, shares jumped from a closing low of $7.59 on January 30, to $9.90 at the closing bell on Valentine’s Day before settling back to $9.88 at yesterday’s close. A very impressive 30% leap — and an upgrade from TheStreet Ratings (from sell to hold).

Looking at the company’s longer range future, news continues to be positive in GPRE’s BioProcess Algae venture. The start-up initiated and completed construction of Phase III Grower HarvesterTM reactors in Shenandoah, Iowa. Construction of Phase IV, involving an additional 4.25 acres of reactors and a new downstream processing facility, has begun with completion expected in September 2013.

The upside there is to convert the low-value CO2 byproduct at the conpany’s Shenandoah plant to a feedstock for a high-value algae venture in producing feed, nutraceuticals and fuels. A Bioseutica deal for Omega-3 oils is a first step in monetizing that project.

It’s proof positive, GPRE’s results that is, that lean times in corn do not necessarily have to translate into disaster at the earnings call. Investors who bought in during the company’s long run at the $10-$12 range may not have received satisfaction — both those who took the plunge when the company’s shares were trading at $3.57 back just 6 months ago are pocketing large gains.

Over to Amyris

Next on the docket — Amyris, Inc. (AMRS) reported in yesterday with its Q4 and year-end results.

Overall, aggregate revenues for the quarter ended December 31, 2012 were $5.9 million versus $41.5 million in the fourth quarter of 2011. The decline in revenue was due to the Company’s planned transition out of the ethanol and ethanol-blended gasoline business, which was completed in the third quarter of 2012.

Of the $5.9 million in aggregate revenues during the quarter ended December 31, 2012, $3.0 million related to renewable product sales compared to $0.7 million for the same period in the prior year.

On a non-GAAP basis net loss attributable to common stockholders was $29.7 million compared to $52.8 million ($1.15 per share) in 2011.

For the year as a whole, 2012 revenues were $73.7 million versus $147.0 million for 2011. On a non-GAAP basis, the net loss for 2012 was $131.8 million ($2.32 per share) compared to $153.4 million ($3.42 per share) in the prior year.

“In the final quarter of 2012, we completed commissioning and began commercial production of our industrial-scale farnesene production plant in Brazil. Also, we secured additional capital from some of our largest shareholders,” said John Melo, President & CEO of Amyris. “Amyris is focused on continued execution of our business strategy with the goal of achieving positive cash flow in 2014, underpinned by a reduced operating expense profile, strong product and collaboration revenues, and ongoing support from our investors,” Melo concluded.

Over at Cowen & Company, Rob Stone wrote: The Q4:12 cash loss was 20% wider than St. on lower revenue, weak mix, and higher expenses. Product and collaboration revenue both fell short of our estimates. Squalane and niche diesel are still the only products shipping; others should follow in H2:13. Despite the recent financing, only about 50% of expected 2013 collaboration funding is firm. Maintain Neutral (2).

Over at Piper Jaffray, Mike Ritzenthaler wrote:

“We maintain our Neutral rating and $3 target on shares of AMRS following their 4Q GAAP print of ($0.72) in loss per share, below our estimate of ($0.55). Gross margins on farnesene again appeared to be above zero, and $3 million in product sales were about half of the total 4Q revenues. Management’s focus continues to be on reducing costs, but with ~$30 million of burn in 4Q, cash availability remains a central tenet of the Amyris story. The Paraiso startup and new potential volumes are promising steps in the right direction, but with $30 million in cash on hand and ~$85 million in burn on tap for 2013, we remain on the sidelines.”

The stock is on a run in recent weeks — running up over $4.00 per share briefly, prompting a technical downgrade from Raymond James after shares shot up 60% in a month and overshot the RJ’s price targets. Since then, the buyer jets have cooled somewhat and the stock has settled back to $3.13 this morning after taking an 8% hit following the earnings announcement.

But, by any measure, miles better than the $1.57 low that AMRS shares reached after a steep slide last spring when the company’s ramp-up targets were abandoned due to technical problems in scale-up.

Over to DSM

This morning, Koninklijke DSM NV (DSM.AS) reported €243 million in EBITDA for Q4, with the company noting that this result came despite a €100 million lower contribution from its caprolactam activities compared to Q4 2011. For the full year EBITDA amounted to €1,109 million, 14% lower compared to 2011. Profit growth in all clusters was more than offset by approximately €300 million lower results from DSM’s caprolactam activities in Polymer Intermediates and Performance Materials.

Nutrition results in Q4 increased by 6% versus Q4 2011 and full year results increased by 8%, as a result of contributions from acquisitions and continued organic growth.

Pharma results in Q4 as well as for the full year 2012 were slightly above the level of the comparative periods of 2011.

Performance Materials recorded 21% higher EBITDA in Q4 compared to Q4 2011 due to higher volumes, improved margins and lower costs. Full year EBITDA was 4% lower due to lower margins in the polyamide-6 value chain (caprolactam effect) and lower volumes at DSM Dyneema.

In early trading, NYSE-traded shares in Royal DSM were up to $15.78, nestled quite close to an 18-month high (the stock briefly touched $16.00 in late January). DSM has not hit the $18 mark in the past five years — is the company poised to make a strong run in 2013, after dipping to as low as $10.83 in mid-summer. Certainly, the company has been active in M&A, most recently acquiring enzyme-related businesses from Cargill.

The Bottom Line

For all three reporting stocks — the companies have recovered strongly from share price jitters in the past year. Intrepid investors have been making large returns in all three stocks over the past few months. Each of the three issued relatively bullish outlooks for their development efforts — more cautious on the short-term economics and earnings.

But a whale of a lot batter than seven months ago — when scale-up concerns, drought concerns and capital-finding woes had tumbled shares associated with advanced bioenergy and renewable chemicals into the tank.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 08:58 AM | Permalink | Comments (0)

Jim Lane

Dew Drop Inn, Hathern.  © Copyright Chris J Dixon and licensed for reuse under this Creative Commons Licence.

B20, B5, B100, E10, E22, E85, Bu12.5, HEFA 50

Is your head swimming with acronyms and blend ratios? Who exactly is making drop-in fuels, and what does that mean?

“Drop-in” — a spectrum more than a spec when it comes to renewable fuels.

In the world of alternative fuels and transport, there are two types of technologies that are highly controversial:

1. Specifically to biofuels, fuels made (exclusively) from feedstocks that are also used for food production.

2. In every alt transport sector, infrastructure-incompatible fuels or engine technologies.

While fuel or vehicle cost impact is a huge factor in adoption, much of the squabble over the US Renewable Fuel Standard, for example, has to do with how ethanol matches up with the existing vehicle fleet and fuel transport infrastructure.

The fact that Brazil solved a lot of those challenges, years ago, is one of the reasons why major petroleum producers like BP, Shell and Petrobras are diving into Brazilian ethanol while refiners in the US have been, by and large, tepid in their support.

Meanwhile, in the US producers have reached the distribution wall imposed by E10 blend limits; E15 blending is early-stage and controversial; for higher blends, there’s an acute shortage of pumps, and E85 prices aren’t tempting many customers.

But the controversy over infrastructure extends well beyond ethanol. Biodiesel producers have worked hard to move accepted blend ratios beyond B5 towards B20 and eventually B100. For compressed natural gas (CNG), there are only around 500 pumps in the country; for liquified natural gas (LNG), there are only around 40, and most of those in one state (California). Battery-electric vehicles struggle with recharge facility availabilities and charge-time.

Over to drop-ins

Which brings us to the drop-in fuels.

These are, by definition, infrastructure-compatible fuels — although, as we shall see, fuels form a spectrum and there really isn’t a simple “wall” dividing incompatible fuels and drop-ins.

Generally around the world, fuels are blended by refiners – who add anything from oxygenates to detergents — and for the foreseeable future, expect to live in a world of blends.

So, here’s a guide to the world of drop-ins and dropping in.

1. Drop-in intermediates for petroleum refineries.

These are feedstocks that can “drop into” existing refining capacity and can be used to make infrastructure-compatible fuels. These can include, for example, upgraded pyrolysis oils of the type that KiOR (KIOR) makes. For now, KiOR is upgrading at its own facility to demonstrate that it can make 100% drop-in, finished fuels — but they could, long-term, position themselves as a supplier of intermediates to conventional refiners.

These also can include renewable oils which can be “dropped into” a hydrotreating unit to make HEFA jet fuels, which are now certified for use in commercial aviation at 50/50 blends with conventional jet fuels.

2. Drop-in intermediates for biorefineries.

These are, for example, renewable sugars that can be dropped in to fermentation systems and used to make, for example, cellulosic sugars at an old corn ethanol plant; or, synthetic biology technologies of the LS9, Amyris (AMRS) or Solazyme (SZYM) type can use them to make a range of tailored drop-in fuels and chemicals including diesel and jet. Catalytic technologies of the Virent type can also convert them into renewable diesel or jet — as well as chemicals.

The renewable sugars can be made from a variety of non-food feedstocks — and Proterro is making them via synthetic biology directly from water, CO2 and nutrients.

Renewable sugars developers include Renmatix, Virdia, Sweetwater Energy, Comet Biorefining, Proterro, and Bluefire Renewables (BFRE).

3. Drop-in gasoline, diesel and jet fuels.

Companies like Diamond Green Diesel, Dynamic Fuels and Neste Oil (NEF.F) have built or are constructing, in biofuels terms, large-scale refineries to convert biobased oils to diesel fuel via hydrotreating. These can be blended by refiners or used as a 100% drop-in replacement. And, these providers can also produce renewable jet fuel at their plants.

In addition, there are the above-mentioned diesel and jet fuels made by the likes of LS9, Amyris, Virent from renewable sugars. The jet fuels are generally of the HFA spec, that can be blended in 50/50 ratios with conventional jet fuels.

Coming along in the development pipeline, there is the technology developed by Chevron Lummus and ARA – that makes a 100% drop-in jet fuel from renewable feedstocks. There has also been research in making jet fuel from biobased terpenes — and these could have enough fuel density to be used as a 100% drop-in replacement for JP-10 fuels, which are used for selected high-performance technologies like guided missiles.

4. Butanol

Companies like Butamax, Gevo (GEVO), Cobalt and Green Biologics are developing biobased isobutanol(Butamax, Gevo) and n-butanol (Green Biologics, Cobalt).

Isobutanol is case in point when we talk about “drop-in” being a spectrum rather than a spec. It is fully compatible with fuel infrastructure – e,g, tanks and pipelines and vehicle tanks and fuel lines. In terms of engine performance, it blends in at up to 60 percent with no loss in performance. However, EPA rules on emissions limit biobutanol right now to 16 percent blends (as a maximum – DuPont (DD) earned a waiver some time ago at that level) or 12.5 percent (generally). There is hope that biobutanol waivers could be issued by EPA for up to 24 percent blends in the future — but that is a ways off.

Of course, for those comparing butanol to ethanol, it’s also worth noting that a gallon of isobutanol has the energy density of 1.3 gallons of ethanol. So, you can travel roughly 50 percent farther on the renewable molecules in a 16 percent biobutanol blend than a 10 percent ethanol blend.

5. Biodiesel

A lot of people regard biodiesel as a drop-in fuel — and it's true, there are vehicles out there running on B100 today. Generally, though, B20 is the maximum blend for which carmakers will not void a warranty, today, and a lot of vehicle models are still only approved for B5. That’s changing – slowly.

At the same time, biodiesel has some infrastructure incompatibility when it comes to pipelines — it can’t be mixed, not one drop, with jet fuel.

6. Ethanol

Now, there are E100 cars in Brazil, and there are ethanol pipelines there, too. So, for that reason, sometimes you hear about ethanol being described as a drop-in fuel. Which is to say, it drops-in to some cars and infrastructure, but far from all.

In the US, ethanol is not compatible with pipelines, and requires its own special tanks and equipment because it corrodes conventional fuel storage.

With vehicles, it depends. Cars made since 1995 tolerate E10 ethanol blends. Cars made since 2001 tolerate E15 blends. Plus, there are more than 10 million “flex-fuel” vehicles that can drive on blends up to E85. Of course, there’s the problem with pumps — very few E15 pumps out there, and only about 3,000 E85 stations compared to well over 100,000 conventional fuel outlets.

Who’s Making What?

In the chart below, we look at the 50 Hottest Companies in Bioenergy to see exactly who is making what, and what progress they have made towards commercial-scale.

6 companies are excluded because they made the Hot 50 as feedstock developers (e,g, seeds and crops) or as downstream strategic partners. Of the remaining 44, eight make renewable sugars, yeasts or enzymes — these do drop-in at biorefineries, but are outside of the “fuels” category.

Of the remaining 36, 18 make ethanol, 2 make biobutanol, 3 make biodiesel, and 13 make high-blend or 100% drop-in replacements.

Of the 13, eight have completed scale-up demonstrations of the technology and are developing first commercial projects, one is constructing a first commercial facility, two have completed small commercial plants and two are operating (Neste and Dynamic Fuels) full-scale commercial biorefineries.

That’s a lot of progress. Six years ago, none of the 13 were operating at anything larger than pilot-scale – at least four were still at lab-scale.

Interest in companies with drop-in capabilities remains intense. Of the 13 companies in the Hot 50, eight of them are found in the top 16, and they currently hold the top two positions (Solazyme and KiOR).

The Digest’s 3-Minute Drop-In Guide

Disclosure: None.

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

Posted by Guest Contributor at 09:11 AM | Permalink | Comments (0)

Jim Lane

You’ve heard about the crack spread, and the crush spread — as means to value oil refining and crop refining.
Let’s think about biomass densification and compression, and in that context, a little about KiOR.

You might have heard a little or a lot about KiOR, Inc. (Nasdaq: KIOR) — which is currently commissioning its first commercial-scale (11 million gallon) biofuels plant in Columbus, Mississippi.

Now, the oil industry might, via the American Petroleum Institute, be currently talking down the validity of the Renewable Fuel Standard — but it is not entirely clear that KIOR would have found the financing that it did without the EISA Act galvanizing investors into action.

KiOR’s secret sauce

Now, it is getting more clear — among all the glittering pieces of technology that the biofuels industry has developed — that the oil refining and marketing sector would really, really like to have invented KiOR’s BFCC unit — KiOR’s secret sauce.

What is a BFCC? It is a fluidized-bed catalytic cracker that works with biomass (in KiOR’s case, they are working now with southern yellow pine they expect to obtain at $72 per bone-dry ton).

Why is it coveted? It takes biomass, which has low density, and liquifies it into an intermediate with very high energy density — and does so at a transformatively low cost. That intermediate can be hydrotreated into an in-spec drop-in fuel — either in the gasoline range, or diesel, or even jet.

Why is that important? Because it is expected to be available at a lower cost than the marginal cost of oil production — when taken to an appropriate scale.

Equally importantly — because it is produced from renewable biomass — it can help de-carbonize an atmosphere that is producing increasingly wacky weather.

The marginal cost of producing oil

In a world where oil prices are highly volatile, one statistic for price prediction has held true for a long time — and that it is averaged cost of marginal production of oil for the world’s 50 largest public oil companies.

What exactly does ” the marginal cost of production” mean? It is the cost of exploring and capturing the last barrel of oil needed to meet overall global demand.

Bernstein Research circulated a note last year estimating that the marginal cost of production (for the top 50 public companies — note that some national oilcos have very different cost structures) increased by 229 percent between 2001 and 2010. Meanwhile, oil prices increased by 228%. Eureka — a driver of long-term oil prices.

It stands to reason. If the oil price falls below the marginal cost of production – productio stalls until the price rises. That’s simple economics.

All that lovely Bakken crude

Further, it is not as easy as many suppose to disrupt that price with, for example, an explosion of oil production in the Bakken oilfields of North Dakota or the tar sands of western Canada. Bakken crude sells at a very deep discount, already, to Brent Crude — the spread has exceeded $30 per barrel at times.

That’s because of the lack of pipeline and railcar capacity to move it to international markets.

Which brings us back to KiOR — and the possibility that, long-term, the future of the company may focus less on building complete field–to-wheels fuel capacity via hydrotreating intermediates onsite, at its own facilities.

It has a future — perhaps a very big one— not so much as a supplier of finished fuels to its own customer base of fuel buyers, but as a supplier of crude-equivalent feedstocks to existing refinery infrastructure.

That’s where that $92 a barrel becomes important — not the $100-$115 retail value of the barrel, but the production cost of that barrel.

Recovering prehistoric algae as an energy business

You see, at the end of the day what you get from punching holes in the ground (i.e. oil exploration) is a well tapping into some prehistoric algae which — over 60 million years or so — has been transformed by Nature into crude petroleum and natural gas.

Nature made the biomass for free — via its own cocktails of carbon dioxide, water, and trace nutrients. Then, Nature conveniently densified the biomass for free, too. What we pay for is the harvest — it’s the energy equivalent of hunter-gatherer.

With a barrel of oil, you get around 5.8 million BTUs. That’s around $15.86 per million BTUs for the marginal cost of production.

In the case of KiOR, you have to pay for the biomass — the aforementioned $72 for each bone-dry ton. In that ton, you start with 14-20 million BTUs. So, you are paying $3.60-$5.14 per million BTUs for the wood.

The problem is, you can’t burn wood in a car engine — and even if you could, you think range anxiety for battery-electric vehicles is bad. Sheesh!

So, here’s the challenge, and here’s the prize, and a caveat.

Challenge? Densify the wood biomass into a crude-equivalent refinery feedstock for less than $12.72 per ton of biomass, including your operating and capital costs and your cost of capital.

Prize? Well, the International Energy Agency expects that energy demand will rise some 50 percent over the next 25 years — rising demand that you can serve.

Caveat? Lowest-cost producer wins. No one is likely to buy your $92 per barrel intermediate if there’s a $90 barrel available.

Catalytic fast pyrolysis

Where does this all lead us? In the case of making crude-equivalent intermediates — catalytic fast pyrolysis has emerged, of late, as the lowest-cost path towards answering that challenge. It is not entirely clear this class of technologies will actually reach scale — and reach the targeted costs — and find boatloads of affordable capital any time soon. But the signs are quite encouraging.

Catalytic fast pyrolysis — that’s what KiOR does. That’s why so many people watch their development with such attention. Why there is such an intense interest in their progress that media have been snooping around the plants, trying to get information on production prior to the company’s quarterly earnings call (earnings are expected to be reported March 25, according to NASDAQ).

Other paths to biofuels heaven

Nor is it entirely certain that crude-equivalent intermediates are the only viable path to market. For instance — there is the entire class of alcohol fuels, which are controversial in the US and the EU because of infrastructure issues, but are well-established in Brazil.

Crude-equivalent intermediates certainly are attractive — if one of your goals is to avoid finding out how much the oil & gas industry is willing to spend to send you to the devil, if you come up with a technological path to affordable meeting transportation fuel demand that doesn’t pass through oil refineries.

The oil industry’s anguish over alcohols is as profound as the Prohibition Party’s anguish used to be.

Back to KiOR

So — that brings us back to KiOR, and its prospects. We’ll know quite a lot more on the next earnings call. For now, they are in the business of making finished fuels and earning revenues from RINs and fuel sales.

For sure, right now they are proving the validity of their process to investors. One might speculate that they are also surrounding their IP — their secret sauce — with a complete path to market so that never become the captive of a refiner & marketer who can form a barrier to entry between their crude and the downstream gas station. With ethanol producers we have seen, ahem, where that can lead.

Long-term — we don’t see a process that can turn that much southern yellow pine (and other biomass, down the line) into sub-$92 crude-equivalent intermediates having a market cap of $584 million, as KiOR has today. If the technology does not work out — well, it’s not very valuable, is it? But if it does work out – as sports broadcaster Keith Erickson used to say “Whoa, Nelly!”.

Why? Looked at it as a technology that converts resources into proved reserves (valued at, say, $20 per barrel, or the spread between Brent crude and the marginal cost of production) – KiOR is valued at around 29 million barrels of oil. That’s the volume of oil you get from converting 400,000 tons of wood into oil refining intermediates.

But there’s a lot more wood out there.

The above-ground oil field a/k/a the US wood basket

The US Department of Energy, in their Billion Ton update study in 2011, estimated that there would be 120 million tons of wood biomass available, per year, at $80 per ton, that could be sustainably used for bioenergy. The figure declines to around 85 million tons at $40 per ton.

That’s a big spread.

So — in all things biofuel – keep that cost of densification very much in your mind.

The Compression Spread.

In traditional oil and agricultural economics, we think about the the cost of liberating a known molecule. In the new bioenergy — getting biomass sufficiently densified, via technology instead of Nature — may open the door to ultra low-cost feedstocks and some amazing upside value for the liberators and their inventions.

That’s the compression spread.

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.

Posted by Guest Contributor at 10:32 AM | Permalink | Comments (1)

Jim Lane

A Biofuels and Biobased investment primer: An 18-combination, 8-character system for classifying bio investments
Here’s our investment primer on how to size up the risks and the rewards and tune them to meet your goals.
And, a system for organizing opportunities.

So, you’re thinking about investing in bio? Here’s the good news – you’re not alone. Here’s the bad news – you’re not alone.

There are retail, private equity, hedge fund, sovereign wealth, strategic, grower, VC and institutional investors snooping around too, and making active investments.

For one thing, carbon’s making a comeback as the economy recovers and the weather continues to get wilder, whackier and scarier. As DOE Deputy Chief of Staff Jeff Navin observed, “Just because the appetite to tackle it went away, didn’t mean the [climate change] problem went away”.

As investors are discovering, the whole world changes when the rain doesn’t fall where it used to fall.

Though there are hundreds of companies, you can parse it all down into some pretty simple categories – in order to measure the rewards (which, generally speaking, you’ll hear a lot about from the promoters) against the risks (er, less chatted up).

That’s what we’re going to cover today — with three broad strokes: stage, stream and degree of novelty. There are only 18 combinations. They are the first keys to unlocking opportunities.

3 Streams

There are lots of ways to sector out the biobased space. The most useful way is to divide it, like oil &gas, into upstream, midstream and downstream. The way these work are a little different, and here’s how.

Upstream. In a word, feedstocks – typically crops or residues. Could be anything as mainstream as year’s corn crop, to something as exotic as carbon monoxide and water or municipal solid waste and sludge. A seed company or a grower fits into this category. More exotically, an algae grower does too. Sometimes, a polluter does, if there’s a residue in the mix. If you’re invested in Syngenta, Monsanto or Ceres, you are right here.

Midstream. These are the processing technologies. Could be standard fermentation that has been used for centuries to make alcohols from grain – could be exotic technologies that make bio-oils and char. They could be owner-operators of projects, or technology licensors. If you are invested in Solazyme, Gevo, Renewable Energy Group or Amyris, you fit right here.

Downstream. These are the molecules themselves – their distribution into the marketplace.

2 degrees of novelty

There’s known, and there’s novel. For example, gasoline is known, ethanol is novel (though less so).

Known molecules cause no infrastructure change or change in other processes. Making renewable diesel or jet fuel is an example.

Novel molecules can be substitutes with new uses, such as using biofene as a lubricant— or known molecules that have never been feasible before (e.g. using adipic acid as an intermediate pre-cursor for nylon 6,6 – which wasn’t economically feasible before).

Known molecules have equivalent performance. Novel molecules can be varied – they can perform better, or worse.

3 investment stages

There’s early stage, mid-stage and late-stage. Now, everyone has a different definition – for instance, late-stage can mean “pre-IPO” for VC investors. SO, here’s how we look at it.

Early stage. The proof of concept phase. Not just proving that, for example, you can train an given organism to secrete a hydrocarbon. It means — from the first moment of the idea until the point where, at any scale, the process is shown to work and is feasible.

This assumes that results hold up during scale-up, the molecule performs as expected in an engine or in green chemistry, input and product prices hold, and that the process bolts into the rest of the field-to-wheels supply chain as expected).

Proof-stage. The point from proof of concept to proof of process.

Late-stage. Process is proven, economics are known. From here, it is a a matter of lining up location, customers and capital in an optimal way. For example, Shell’s Gas-to-Liquids project in Doha, Qatar.

OK, so you’re done. There are 18 different combinations – ranging from “Early-stage, novel, upstream” (e.g. a jatropha seed developer) to a “late-stage, known, downstream” (e.g. investing in a fuel marketer that is distributing, as an offtaker, renewable diesel from a producer’s sixth commercial plant).

You can use acronyms if you like. You use U, M or D for stream, E, P or L for stage, and K or N for novelty. In the examples cited above, you have ENU, and LND. There are just 18 combinations.

Assessing risk and opportunity

From that point, you can start to make some rational investment risk assessments. It’s helpful to line up opportunities within categories (like for like), and compare.

For example, early-stage investments tend to be smaller, and riskier – than later-stage. The “will it work?” factor looms large, early-on. Later, you have more certainty — and, as a result, less upside. The more you understand technology and market forces, the more you will like the early-stage.

Upstream technologies are more fully exposed to the biobased sector, than midstream and downstream, while the farther you move down the stream the more you are exposed to a market in a given molecule (downstream), or the arbitrage between the molecule price and feedstock price (midstream).

In terms of novelty — for sure, novel technologies have transformative economics on price as well as cost – known molecules tend to offer opportunities in terms of cost savings (cheaper production) or market share shifts (as customers adopt, for example, equally-priced molecules with attractive carbon attributes).

By contrast, novel technologies can have superior performance, or can eliminate a step in a chemistry – even if they cost more, they can offer customers amazing opportunities. But the more novel the molecule, feedstock or technology, the more important the IP protection is, and potentially devastating the loss of patent protection is — speed to market will matter in terms of producing ROI.

A real-world example

Let’s take a popular area for investment these days — adding technology to enable an existing ethanol plant to make biobutanol.

They are currently in proof-stage, making known molecules, and midstream. Call it a MPK.

So, there you have it. The biobased world of thousands of molecules, a hundred feedstocks and several dozen technologies, parsed down into 8 simple letters, and 18 combinations, that you can use to rate opportunities for risk and reward.

In the retail investing world, in debt-side investing, or in pre-IPO equity investing — there are companies of all combinations available. Parse away.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 09:16 AM | Permalink | Comments (0)

Jim Lane

“Electric power is cheap”, and “cellulosic biofuel costs less than $1.00 per gallon”.

The Tesla Model S, from the unveiling on 26-Mar-2009. (Photo credit: Wikimedia Commons)

So why isn’t everyone buying a Chevy Volt? And why can you get lower interest rates on your Visa Card than next-gen biofuel developers face?

It’s the old capex-opex (Capital Expense vs. Operating Expense) fallacy.

Earlier this week, a new study from researchers at UC Santa Barbara determined photovoltaics to be much more efficient than biomass at turning sunlight into energy to fuel a car.

“Even the most land-use efficient biomass-based pathway,” the researchers wrote, “(i.e., switchgrass bioelectricity in U.S. counties with hypothetical crop yields of over 24 tonnes/ha) requires 29 times more land than the PV-based alternative in the same locations.”

Which raises two fundamental questions. First, why don’t all biofuels developers close shop and go home? Second, why for all that efficiency are the sales of battery-electric vehicles so low?

Time for a fresh look at the data.

Turns out that rational consumers — i.e. you — make choices not based on land use but on price and preference.

To cite an example, it takes more land to support a US football football team than an MLS soccer team, so why does anyone watch the Super Bowl? It takes far more land to produce a pound of hamburger than a pound of grass, so why doesn’t McDonalds sell grass? Yada yada yada.

But there’s something else in this analysis that is more important to look at.

The comparison — between biofuels-ICU engines and the solar-electric engine driving option — is actually a variation on the business model for selling razors and blades, or printers and inks.

You know how it goes, you buy a cheap printer for under $100, then spend a fortune on the ink.It’s the old capex-opex fallacy.

What is that? “Low operating expense doesn’t always lead to the best choice” — because the capex might be unaffordable, unfinancable, or so high that no operating efficiency will ever make up the difference.

Comparing the all-electric Chevrolet Volt to the comparably-sized Chevrolet Eco Cruze, the New York Times reported that (based on a workup from TrueCar), the payback period on a Volt was 26.6 years. After the article appeared, rebuttals surfaced placing the true break-even period at 8.7 years.

8.7 years!? 26 years?! Cars go vintage at 25.

The 8.7 year payback required the Volt owner to never drive more more than 38 miles in a single excursion, was based on a gasoline price of $3.85 per gallon (vs the current average price of $3.31), 15K miles driving per year (vs. the real-world average of 13.4K) and based on a $7,500 subsidy given to the Volt buyer.

And — oops — that all-electric subsidy that, by law, will sunset if Chevrolet’s all-electric sales ever climb above 200,000 cars in a single year. In short, if it helps the economics so much that you actually want to buy an all-electric, it goes away.

That’s like Mom saying “If you get a job this summer, you can can give us all the money you earn for extra rent.” Yes, Mom. Looking at the want ads right now, Mom.

We might add, the costs are based on a car without many of the trimmings – the MRSP of a fully-loaded Volt is $46,265 — and, surprise, you need to install a $490 charging system in your garage — if you have one — and it takes four hours to power up.

Cost, recharge time and range anxiety — that’s why the general public has not embraced the electric car.

Perhaps one day soon the economics will change. Sigh.

Turning to advanced biofuels

When it comes to biofuels as a system, too — beware of the capex-opex fallacy — that any system is a feasible system as long as the operating costs are low.

Or vice-versa. Just in case I can interest you — step right this way, sir and madam — in a FREE phone! …er, pay no attention to the man with the five year mobile contract with those debilitating prices.

One of the highly-touted advantages of all next-generation biofuels platforms is that it provides a work-around for a dependency on a single feedstock such as corn, sugarcane or soybeans — and prices for all those feedstocks have soared over the years, regardless of whether you think biofuels or other sector demands or input costs are to blame.

It was Coskata that first tipped a potential, roughly four years ago, for a fuel with an operating cost of $1.00 per gallon. The company picked up a tremendous amount of attention with that line of argument. So why has the company been unable to construct its first commercial plant, even more than a year after being “open for business” after the highly-successful conclusion of its pilot project?

In fact, the company has pivoted away from biomass and towards natural gas as a feedstock for its first commercial plant. Why is that, if it can produce fuel at $1.00 per gallon?

Ah, it’s the capex-opex problem, again.

Cellulosic fuels, for sure, have access to transformatively low-cost biomass. For example, a bushel of corn yields around 50,000 BTUs per dollar of corn, depending on how you value the co-products. By contrast, a dollar of $55 per ton biomass brings you 140,000 BTUs or so – if you use the Coskata yields of 100 gallons per ton.

So why is there so much corn ethanol and so little cellulosic ethanol?

The answer lies in the capex — because it costs less than $2 per gallon of installed corn ethanol capacity, vs somewhere between $6 and $12 per gallon for cellulosic ethanol capacity, depending on which technology you choose.

Given the cost of capital for high technology in these nefarious times we live in, that’s why there aren’t cellulosic ethanol plants cropping up everywhere, every day. And that’s why, if you ask advanced biofuels developers what they are working hardest on, it is knocking down the capital costs.

When the Congress passed the 2007 Energy Independence and Security Act, it probably seemed incomprehensible to lawmakers that credible technologists — backed by credible investors, with significant offtake contracts and low-cost inputs — could get lower financing costs for a shopping spree charged to a Visa Card than for their emission-busting, energy security-promoting and job-creating technologies.

Perhaps one day soon the financing economics will change. Sigh.

Here’s a thought. Maybe one of these days, someone is going to produce a car with a fuel nozzle that only accommodates, say, renewable diesel — and they are going to offer you “FREE FUEL FOREVER!” and simply load the projected lifetime cost of the renewable fuel into the cost of the car.

At an average of $3.30 per gallon, 30 mpg, and 13,000 miles per year for five years, it would add about $7,150 to the price of the car. Even if drivers doubled up on fuel consumption because of the all-inclusive effect, the difference would still be less than the premium paid, at this time, to drive an all-electric.

Hoo-boy, I wonder what people will write then. They probably will point out the capex-opex fallacy — and would be right in doing so. But I see an awful lot of low-cost printers flying off the shelves at my local Best Buy – don’t you?

Between now and then — beware of the free printers, phones, the cheap razors, $1 per gallon cellulosic ethanol, and buying an electric car in order to save money. Buy an electric car in order to do something positive and personal for the environment, or because you like the zippy acceleration or the low-noise. If you do, rock on with your Tesla (NASD:TSLA) and peace on you, my friend.

But leave off with the smug glance for your hard-pressed neighbor, just trying to pay the bills, who chooses the lower-cost route of embracing a biofuels-powered vehicle — and who ought to be getting your “awesome!” or your fist-bump, not your gentle shove under the bus.

And, we might add: beware of research papers that put some lipstick, for those who haven’t seen it before, on the old capex-opex fallacy.

Disclosure: None.
Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

Posted by Guest Contributor at 10:29 PM | Permalink | Comments (0)

Jim Lane

Biofene production starts up in Paraiso, Brazil – sales expected to commence in Q1 2013 – Total, Temasek, Biolding inject fresh capital.

What’s next for biofuels’ “Comeback Kid”?

By now, most of the “smart set” that found itself excited about Amyris (AMRS), and about advanced synthetic biofuels during the IPO fever, have moved on.

They read Dan Grushkin’s “The Rise And Fall Of The Company That Was Going To Have Us All Using Biofuels” in Fast Company, wrote off Amyris and possibly the entire sector, and presumably migrated their enthusiasm to low-cost natural gas, battery technology, or tablet computers.

But Amyris is still there, and this week achieved what, for many, was the last-chance, must-hit milestone. The company’s purpose-built, 50 million liter industrial fermentation facility in Paraiso, Brazil has successfully begun production of Biofene, Amyris’s brand of renewable farnesene.

“Our own farnesene plant at Paraiso has been successfully commissioned, with initial farnesene production underway. We anticipate sales from this facility during the first quarter of 2013,” Melo concluded.”

So what exactly is farnesene, again? It’s a fragrant oil chemical – that distinctive acrid odor you detect in a Granny Smith Apple, that’s it. You also find traces of it in the hops used for some very nice Czech pilasters and Irish lager beers. It’s used as a component in its own right by manufacturers around the world.

Amyris’ storied IPO and post-IPO peril

The Amyris strategy — commercialize farnesene for the chemical markets, then turn to farnesane, which you produce by adding hydrogen. Farnesane is the company’s showcase diesel molecule, and forms the basis of its breakout from a speciality pharma and chemicals maker to a fuel player, though that business will ultimately be run by Total.

In its 2010 IPO, there were partnerships announced with Bunge (BG) and Cosan (CZZ) for lubricants, Soliance for renewable cosmetics, M&G for PET production (the key ingredient in clear plastic bottles) and a series of deals with Procter & Gamble to incorporate farnesene in specialty chemical applications within P&G’s products.

Then came the expected ramp-up to 6-9 million liters of production for 2011 – and then the story changed when the company’s scale up timetable imploded and it was forced in early 2012 to pull its guidance on future production.

Back in 2010, in “Amyris: Farnesene and the pursuit of value, valuations, validation and vroom,” Biofuels Digest warned, “There are concerns about how robust the engineered yeast will prove in an industrial-scale setting. Concerns generally raised by those familiar with Amyris’s technical challenges.”

We noted that “a flurry of JVs and partnerships focused both on the chemicals and fuels markets, demonstrates that Amyris is fully embarked on an integrated strategy of flexible product lines, an impressive array of partnerships and contract manufacturing arrangements to keep the company on its “capital light” path.” But we flagged the “Major open question? Performance of the magic bug at industrial scale.”

Following the failure to achieve its stated production goals, post-IPO, the stock was crushed — from a high of $33 to a low point of $1.45 – recovering in recent months to yesterday’s close of $2.64. The company restructured management, and put all its chips on getting its 50 million liter Paraiso plant up and running.

Fresh Capital Raised

Meanwhile, its key investors — notably, French oil giant Total — hung tough, and stayed with the vision. This week, with Biolding, Total and Temasek pumping in another $42.5 million, in acquiring another 14.2 million shares, or an additional 19 percent of the company’s equity.

Singapore’s sovereign wealth investment fund, Temasek, was the largest investor in the round, adding $15 million to their investment total, putting them behind only Total on the shareholder tote board.

The deal didn’t come cheap for Amyris — by contrast, it sold 17 percent of the equity, just before the IPO, to Total for $133 million.

“Cash proceeds were $37.25 million, plus Total converted $5 million from an outstanding convertible note,” said Raymond James equity analyst Pavel Molchanov in a note to investors yesterday. “The “implied” equity sales price is $2.98, a small premium to yesterday’s closing price, though there is no getting around the fact that this is still a substantially dilutive deal.”

“A private placement with existing investors should help fund operations,” wrote Cowen & Company’s Rob Stone and James Medvedeff, “but we already model $20MM/year in funded R&D as well as $146MM additional debt to fund losses and Sao Martinho capex in 2013-15.”

But it’s a capital lifeline and as CEO John Melo noted, “We are encouraged by the continued, strong commitment from our major investors, particularly as we start up our new industrial fermentation facility for the production of our renewable hydrocarbons in Brazil.”

The new scale-up timeline

Amyris these days doesn’t offer forward production guidance although they noted that farnesene sales from Pariso were expected in Q1 2013. “We expect the plant to ramp throughout 2013 and achieve full utilization by 1Q14,” said Molchanov.

Stone and Medvedeff added, “Ramp risk remains and we model losses through 2015. [We] lifted 2014-15E shipments about 8% and 11%, but we trimmed 2013E 19% as we see a slow ramp. We estimate feedstock and operating cost may be 15-20% higher, but AMRS should still benefit from additional sales and spreading of fixed costs, particularly as initial volume is targeted at higher value end products.”

READ MORE: Captive company for Total?

The bottom line

The capital raise is dilutive, and the opening of Paraiso was expected — accordingly, AMRS shares dropped yesterday on NASDAQ following the announcement.

But it’s a remarkable production milestone for the company — substantially de-risking the venture as a whole and offering hope to Amyris’ investors and backers that the company is getting back to playing offense and putting points on the board after a lengthy period in which the doubters reigned.

Next steps: producing at capacity at Pariso and — the big challenge moving forward— moving down the cost curve so that the company continues its journey towards the long-desired markets in fuels and larger volume lubricants and chemicals.

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.

Posted by Guest Contributor at 09:52 AM | Permalink | Comments (0)

Jim Lane

Next-gen renewable oils producer achieves first linear scale-up to 500,000 liter fermenters — clears path for large commercial production volumes.

In biofuels, the “ethanol blend wall” gets a tremendous amount of attention. This is the restriction on ethanol blending in gasoline to (today) 10 percent. It limits overall US ethanol distribution, and vexes ethanol producers and corn growers. But that’s only the second most critical wall.

Over in advanced biofuels — which are expected to provide 21 billion of the 36 billion gallons of renewable fuel targeted in the Renewable Fuel Standard by 2022 — there’s the ferment wall.

What is the ferment wall? To date, no next-generation producer had successfully achieved linear scale-up in 500,000 liter (or larger) fermenters. Now, it’s simply impossible for fermentation-based technologies to affordably produce fuels and chemicals in small fermentation tanks — its way too much capex, too much opex to produce, say, 10,000 liters at a time.

So it is big news that Solazyme (SZYM) has announced the completion of multiple initial fermentations in 500,000 liter fermenters at Archer-Daniels-Midland Company’s (ADM) Clinton, Iowa facility — about four times the scale of the vessels in Solazyme’s own Peoria, IL facility.

According to the company, Solazyme achieved commercial scale production metrics, exhibited linear scalability of its process from laboratory scale, and demonstrated the ability to run at this scale without contamination. Solazyme is initially targeting annual production of 20,000 metric tons of oil starting in early 2014 at the ADM facility, with targeted expansion to 100,000 metric tons.

Next across the river – Gevo and Amyris?

It was not originally expected that Solazyme would be the first next-gen company to break the barrier. Both Gevo (GEVO) and Amyris (AMRS) had built up enough of a lead in the race that they were expected to reach linear scale-up earlier this year, in Gevo’s case, and late last year at Amyris.

Amyris began its attempt at linear scale-up to 200,000 fermenter scale in June of last year, after installing two large fermenters at the Biomin facility, in Brazil’s Sao Paulo state. As Daniel Grushkin at Fast Company memorably recalled, “The plant, which began running in June 2011, was beset with problems. Sometimes the process worked as it had in the California labs. Other times, the enormous tanks frothed with the carcasses of exploded yeast cells.”

By February, we reported that “Amyris announced major changes to its financing, strategy and near-term production targets, disclosing that it has produced only 1 million liters of biofene to date at three tolling facilities, compared to a 2011 target of 9 million liters originally set in April 2011, and reduced to 1-2 million liters in an update later in the year.”

In July of this year, Gevo went for it, targeting scale-up in 1,000,000 liter fermenters at its newly retrofitted facility in Luverne, MN. At first, all seemed well. “We are pleased with the progress to date in our initial startup campaign, CEO Pat Gruber, reported. “We’ve shown that we can successfully ferment isobutanol in large (250,000 gallon) commercial fermenters, isolate the product and get it into tanks and railcars.”

But by September, it was clear that, although the process works well, linear scale-up was not happening and production rates were behind expectations. Late in the month, Gruber announced “Early indications are that, while we are making significant progress towards economic production levels, we will not achieve our desired year-end run rate – instead we would expect to achieve that during 2013 — and ceased isobutanol production at Luverne until early 2013 while it fixed its process.

Cracking the 100,000 liter barrier – LS9, Solazyme

Some companies had already cracked the 100,000 liter barrier. In Florida this fall, LS9 announced the completion of its first production run of fatty alcohols at its new facility in Okeechobee. The first run at 135,000 liter scale produced several tons of fatty alcohol with “excellent replication of technical metrics”.

“We are very pleased that our very first run at 135,000 liter scale went so well,” LS9 CEO Ed Dineen said at the time. “We plan to perform additional fatty alcohol runs to demonstrate the robustness of our technology platform and then switch to diesel fuel and ester chemical production to further demonstrate the production optionality of the technology.”

And Solazyme, itself, had achieved linear scale-up in its own 125,000 liter fermenters in Illinois.

Reaction at Solazyme

“Working with ADM’s world class fermentation team to achieve commercial scale operations at the ADM facility shortly after announcing the partnership exhibits our ability to rapidly and successfully scale in large commercial fermentation facilities,” stated Peter Licari, CTO, Solazyme. “Solazyme is currently developing commercial facilities in the US, France and Brazil, and with these runs we have now achieved linear scale-up of over 70,000-fold from our labs.”

De-risking the company — and the sector?

In the case of Solazyme — and all next-gen producers — concerns about scale-up have been affecting the stock price. Investors and equity analysts have also expressed concerns about the absence of sufficient offtake deals for the company’s tailored renewable oils – but scale-up has been a near term issue.

As Piper Jaffray’s Mike Ritzenthaler wrote a month ago, “Although sector valuations have compressed substantially, and shares of SZYM in particular are down ~55% since early April, we still believe more downside lies ahead for shares…our rating and price target reflect our view on four key factors: building capacity ahead of firm demand (disallowing lofty margin projections), the relative lack of control over growth drivers, the potential for scale-up problems, and the lack of visibility or clarity of co-product value or offtake (which is important for lowering net production costs).”

ADM taking equity in Solazyme

An interesting twist, buried in the latest news from Iowa — as part of the contract arrangements between Solazyme and ADM, the companies have agreed that certain payments can be funded with Solazyme equity, rather than cash. , Solazyme has the ability to fund certain payments with equity rather than cash.  To facilitate the equity payments, the Company filed a registration statement with the SEC, writing:

“In connection with the strategic collaboration agreement we entered into with Archer-Daniels-Midland Company (“ADM”) in November 2012, we agreed to grant ADM a warrant to purchase 500,000 shares of our common stock…In addition, under our strategic collaboration agreement with ADM, we will pay ADM annual fees for use and operation of certain production facilities, a portion of which may be paid for in our common stock.”

The bottom line

500,000 liters is a big deal – it represents production at the kind of scale that supports moving down the cost curve from markets in exotic, high-priced oils into the world of commodity fuels and chemicals where the margins are tight but the pools are vast. Last step on the journey? Hardly.

But a momentous crossing of the industry’s Rubicon – that is, widely contemplated, critical for all that follows, hitherto not successfully achieved. Sure, it’s that. Now begins the march on Rome.

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.

Posted by Guest Contributor at 09:23 AM | Permalink | Comments (0)

Jim Lane

Dyadic International, Inc. is a global biotechnology company that uses its patented and proprietary technologies to conduct research, development and commercial activities for the discovery, development, manufacture and sale of products and solutions for the bioenergy, industrial enzyme and biopharmaceutical industries.

Address:

140 Intracoastal Pointe Drive
Suite 404
Jupiter, Florida 33477

Year founded:

1979

Stock Ticker:

Pink Sheets: DYAI

Type of Technology(ies)

Patented and proprietary C1 platform technology based on a unique fungal microorganism which is programmable and scalable in producing enzymes and proteins in large quantities

Feedstocks:

Dyadic’s C1 platform technology is effective in producing enzymes from a broad variety of feedstocks

Fuel Type

Dyadic’s C1 platform technology can be used to produce many types of biofuels including, but not limited to, cellulosic ethanol, biobutanol and biodiesel.

Offtake partners

    Abengoa Bioenergy (ABGOY)
    Codexis Inc. (CDXS)

Co-products (if applicable)

Industrial Enzymes

3 Top Milestones for 2010-12

•     Entered into non-exclusive license agreement with Abengoa Bioenergy
•     Reported record revenues and profits for fiscal year 2009
•     Signed term sheet for potential exclusive outlicense of C1 technology for biopharmaceutical applications to EnGen Bio, Inc.

3 Major Milestone Goals for 2013-15

•     Consummate additional licensing and other strategic collaborations to monetize Dyadic’s technologies
•     Increase sales of industrial enzymes
•     Consummate additional research and development collaborations

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

•     Technology licensor
•     Industrial enzyme sales

Competitive Edge(s):

•     Patented and proprietary C1 technology
•     C1 platform technology is programmable (genome has been sequenced and annotated)
•     C1 technology can produce enzymes and proteins on commercial scale (up to 150,000 liter fermentors)
•     Dyadic provides partners with ability to license the C1 platform technology for in-house/on-site manufacturing of customized enzymes and proteins

Distribution, Research, Marketing or Production Partnerships or Alliances.

•     Non-Exclusive License Agreement with Codexis Inc.for use of C1 technology for biofuels, chemicals and pharmaceutical intermediate production
•     Non-Exclusive License Agreement with Abengoa Bioenergy New Technologies, Inc.for use of C1 technology for biofuels, chemicals and/or power production
•     Non-binding term sheet with EnGen Bio, Inc. for potential outlicense of C1 technology for biopharmaceutical applications
•     Multiple research partnerships
  

Stage:

Dyadic has been producing enzymes in up to 150,000 liter fermentors for over a decade

Demonstration and soon-to-be commercial stage through Dyadic’s licensees and partners

Website

www.dyadic.com

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.

Posted by Guest Contributor at 09:27 AM | Permalink | Comments (0)

by Debra Fiakas CFA

Sorghum Bicolor photo by Matt Lavin

 
 Like the Fairy Godmother in Cinderella, the Environmental Protection Agency has waved a wand and given sorghum a new dress and slippers.  Sorghum has been designated as an eligible feedstock under the Renewable Fuels Standards for production of advanced biofuel.  Only biofuels produced from non-corn starch, sugar, or lingo-cellulosic biomass, which reduces carbon intensity by 50% or more from a gasoline baseline, qualify as ‘advanced.’

Sorghum qualifies for advanced fuel status as the result of a 53% reduction in greenhouse gas emissions.  The plant is hardy and requires grows with modest moisture conditions and requires little fertilizer.  Indeed, in comparison to corn, sorghum requires one-third less water but produces an equal amount of ethanol.

As an advanced fuel, sorghum-based ethanol with benefit from higher prices.  The prospect has ethanol producers salivating.  Western Plains Energy in Kansas has indicated interest in as much as 17 million bushels of grain sorghum from farmers in the area and its facilities are being converting to methanol from natural gas as a production fuel source.  The company is targeting 50 million gallons of ethanol that will qualify as ‘advanced.’  Pacific Ethanol (PEIX:  OTC/BB) announced that sorghum provided 30% of the feedstock used in third quarter 2012.  The sorghum was sourced from farms in California.

Do not expect a sweeping conversion of ethanol plants from corn to sorghum.  The preponderance of ethanol plants is located in the Corn Belt precisely because the corn is there.  While there are a few sorghum fields in Iowa and Illinois, most of red grain is raised in the central and southern plains  -  Texas, Oklahoma, Kansas, Colorado, Nebraska and South Dakota.  This means that for the time being the ethanol facilities in these states will likely be the sorghum lottery winners.

If I am right in this view, then there are likely a string of ethanol stocks that could get a boost for the development.  Abengoa’s (ABGOY:  OTC/PK) Bioenergy has plants in Kansas and Nebraska.  In Nebraska is home to plants operated by Aventine Renewable Energy (AVRW:  OTC/BB) and Green Plains Renewable Energy (GPRE:   Nasdaq).  In South Dakota Valero’s (VLO:  NYSE) Renewable Fuel produces as much as 12% of the one billion gallons of ethanol that is presently originated in the state.  Two private producers, POET Biorefining and Glacial Lakes Energy, account for over half the state’s output.  The added value from the switch to sorghum could be the catalyst that enables POET's long-awaited public offering.
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 08:47 AM | Permalink | Comments (0)

Jim Lane

Solazyme lands monster capacity expansion agreements with Archer Daniels Midland (ADM) and Bunge (BG)– what’s the sector’s hottest company up to now?

Wednesday, Solazyme (SZYM) announced two landmark capacity expansion agreements with Bunge and ADM, respectively.

The Bunge agreement will expand joint venture-owned oil production capacity at Solazyme Bunge Renewable Oils from the current 100,000 metric tons under construction in Brazil to 300,000 metric tons by 2016 at select Bunge owned and operated processing facilities worldwide.

Under the terms of the ADM agreement, Solazyme will initially target the production of 20,000 metric tons of oil in 2014, with an aim to increase production to 100,000 metric tons in subsequent years.

“After building a strong commercial relationship together, we believe there is a broader scope of opportunities ahead of us,” said Ben Pearcy, Managing Director, Sugar & Bioenergy, and Chief Development Officer, Bunge Limited. Specifically, in this round of announcements, in edible food oils.

Let’s look at the scope of Bunge’s operations and current customer base, in this regard.

In their latest quarterly report, Bunge posted $2.395 billion in edible oils sales, representing 1.692 million tons of product sold at $1,415 per metric ton.

In that context, this deal represents $424 million in potential revenues at current prices, using the average edible oils prices that Bunge is currently generating.

Over at ADM

The ADM deal is much smaller, initially, but consistent with Solazyme’s approach to incremental scale-up. It’s capital-light, using the plant that ADM built in order to produce Mirel (PHA) bioplastics in its Telles joint venture with Metabolix, which was recently unwound.

But what is the fundamental nature of both deals?

Fundamentally, the market of customers is beginning to see Solazyme as a particularly efficient hybrid of agroscience company and grower. In the old model, companies like Bunge and ADM depended on companies like Monsanto, Dow AgroSciences, and DuPont’s Pioneer HiBred to come up with seed technologies that optimized oil characteristics, and farmers to grow the oilseeds via their “programmable” farmland.

The old model was slow-moving in product development, slow-moving in adoption, complex in its organization, and subject to risk-building pressures ranging from diesel prices to weather.

For some time, Solazyme has been talking up a comparison to Monsanto, Dow and DuPont – but this week’s deal-making brings the other aspect of the company into a clearer light. That is the ability of the company to replace, via an industrial process, the grower in the field – through large-scale capacity deals that bring tailored renewable oils to market. The company – well, it’s a hybrid, and comes with its own flavor of doublecross hybrid vigor.

Solazyme's platform, compared to traditional agroscience companies

Offtake for growers, vs processors

There has been some bemoaning in the investor and analyst community about of the lack of customer offtake deals within the Solazyme universe. And it’s true – they have a number of contracts, but nothing that would, today, provide complete offtake for the kind of capacity that the company has now set out to build.

But, is that really the right question? After all, Warren Buffett doesn’t have offtake agreements for shares in Berkshire Hathaway, either. It is not offtake, but demand that is the question – especially for growers.

After all, growers don’t generally lock in 100% of their output in offtake deals with end-use customers they might find, one supposes, at weekend Farmer’s Markets. They form relationships with the next set of companies in the supply chain — the processors, with whom they form complex relationships and trades.

Solazyme's complex universe of molecules and applications, seen against the backdrop of everyday life

Solazyme's complex universe of molecules and applications, seen against the backdrop of everyday life
The major traders and processors — the famed ABCDs — ADM, Bunge, Cargill and Dreyfus, they are likely to form a key route to market, for hybrids like Solazyme, just as they do for growers and the seed companies who serve them.

And it’s not hard to see why there’s interest in the new model, from the processor side. It’s the opportunity to access a more tailored product, faster, and eliminate the crushing and extraction steps.

At bunge.com, they make the case: “Bunge knows that today’s consumer have a higher level of health concerns than ever before. Even when it comes to indulging, customers continue to look for ways to feel better about the foods they eat. These reasons, combined with the ban on trans fat in several areas, are why we offer multiple oil and shortening solutions.”

What do they see?  In companies like Solazyme, better solutions for their customers through a microbial platform that grows oil in one step – versus the old route of grow, crush, extract. They see the hybrid vigor.

Solazyme vs Metabolix

The Metabolix problem is part of what is spooking investors, when they consider Solazyme.

Both companies had a promising biotechnology that attracted name-brand partners to establish sizzling joint ventures. In the case of Metabolix, it has never been made entirely clear why the order volumes for Mirel bioplastics never reached very attractive levels in the partnership with ADM. Ultimately, what started as a landmark collaboration eventually unwound.

But let’s make the difference clear. Mirel was a single molecule, and a novel one. Solazyme has a platform technology in triglycerides, not a single waffle iron that runs into problems finding markets for all the waffles when they produce them at industrial scale.

Triglycerides are the dominant form of edible oil, here on Planet Earth – demand is abundant, global and obvious. The only questions are price and performance.

The best judge of those? The companies that see all the prices both upstream from growers and downstream with customers, and measure customer demand. In this sector, that’s the ABCDs.

Bunge and ADM: so whadda they know?

In this case, the majors are betting with dollars and with their existing capacity. Should you bet along with them? Well, you know your portfolio investment goals better than we.

Bet against Solazyme’s understanding of the market? A young, small company just getting on its feet as an industrial-scale concern. Sure, that would be reasonable.

Bet against Bunge’s understanding of the edible oils market? Bet against their understanding of what customers need and what production processes will be the winners in the long-term?

Hmmm, you are betting against a market-maker, whose information is bound to be more complex, production-data based and richly understood than your own. Bet at your peril.

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.

Posted by Guest Contributor at 09:01 AM | Permalink | Comments (0)

Jim Lane

Company description:

Neste Oil is a refining and marketing company, with a production focus on premium-quality, lower-emission traffic fuels. The company produces a comprehensive range of major petroleum products and is the world’s leading supplier of renewable diesel. The company has operations in 15 countries. Its growth strategy is focused on producing premium- quality renewable diesel fuel. The company had net sales of EUR 11.9 billion in 2010 and employs around 5,000 people.

Address:
Keilaranta
 P.O. Box 95
00095 NESTE OIL

Year founded
Established in 1948

Annual Revenues:
Around EUR 11.9 billion in 2010

Major Investors

Neste Oil’s share is listed on the NASDAQ OMX Helsinki with the symbol NES1V.  It trades as NEF on German Exchanges, and NTOIF on the US Pink Sheets. The company’s biggest shareholder is the Prime Minister’s office.


Image: Neste Oil Rotterdam Facility.  Source: Neste Oil

Type of Technology(ies)

Neste Oil has developed a premium quality NExBTL renewable diesel production technology which allows flexible use of any vegetable or waste oil in the production of premium-quality renewable diesel and aviation fuel. Based on its technical qualities, NExBTL diesel is one of the best diesel fuels in the world. NExBTL is produced by hydrotreating vegetable or waste oils. As a hydrocarbon it corresponds to the chemical composition of traditional diesel.

Neste Oil’s major investment projects are linked to increasing the company’s NExBTL renewable diesel capacity. In 2011, Neste Oil started up the Europe’s largest renewable diesel plant in Rotterdam. The plant has a capacity of 800,000 t/a. Neste Oil already operates a renewable diesel plant in Singapore that came on stream in 2010 and two plants in Porvoo in Finland that came on stream in 2007 and 2009. All Neste Oil’s NExBTL plants are capable of producing both NExBTL renewable diesel and NExBTL renewable aviation fuel.

With the Rotterdam start-up, Neste Oil’s major €1.5 billion investment program aimed at increasing the renewable diesel capacity and the company is very well placed to meet world’s growing energy needs and demand for cleaner, sustainable bio-based fuels.

Feedstocks:

Neste Oil’s NExBTL renewable diesel production technology allows flexible use of any vegetable or waste oil in the production of premium-quality renewable diesel without compromising on quality.

At the moment, Neste Oil produces NExBTL renewable diesel from a mix of palm oil, stearin and palm oil fatty acid distillate (PFAD) which are by- products of palm oil production, rapeseed oil, jatropha oil, camelina oil, soybean oil as well as waste animal fat produced by the food processing industry.

Widening the raw material base is one of the company’s main future goals. About 80% of the company’s R&D costs totaling approximately 40 million euros annually are directed to researching renewable raw materials. Progress continues to be made and in 2011 Neste Oil expanded the raw material feedstock with jatropha oil, camelina oil and soybean oil. In addition, research has shown that algae oil and microbial oil, together with wax derived from wood-based biomass, can all be used as feedstocks for producing NExBTL renewable diesel.

Notable successes in this area include:
patented a waste-based microbial oil technology
progressed with research on algae oil and produced an initial trial batch
achieved good results at our pilot plant in producing biowax from wood- based biomass and started environmental impact assessments for a possible commercial plant
partnered with the world’s leading research institutes, companies and
universities to find ways to produce renewable raw materials on industrial scale

Products

NExBTL renewable Diesel

Based on Neste Oil’s proprietary technology, premium-quality NExBTL renewable diesel is the most advanced diesel fuel on the market today. It easily outperforms both conventional biodiesel and fossil diesel, and can be produced from a flexible mix of vegetable oils and waste animal fat sourced from the food industry. Neste Oil’s procurement chain ensures that all the raw materials it uses for NExBTL are produced responsibly. NExBTL renewable diesel has been shown to reduce greenhouse gas emissions by over 40% over the product’s entire life cycle when compared to fossil diesel. Its lower tailpipe emissions also make a valuable contribution to enhancing overall air quality.

NExBTL renewable aviation fuel
Neste Oil is a global pioneer in aviation biofuels. The company’s NExBTL renewable aviation fuel meets the very stringent quality standards demanded of aircraft fuel and can be produced in industrial quantities. Production of Neste Oil’s renewable aviation fuel is based on the company’s NExBTL technology.

NExBTL renewable aviation fuel can significantly reduce an aircraft’s greenhouse gas emissions compared to fossil fuel. In addition to a smaller carbon footprint, it also offers lower emissions of other pollutants such as NOx. Neste Oil’s NExBTL renewable aviation fuel is a pure hydrocarbon comparable to fossil-based aviation fuel. NExBTL renewable aviation fuel is fully compatible with all current aircraft engines and no aircraft-related investments or modifications are needed before it can be used.

Past Milestones
1. Compared to fossil diesel, NExBTL reduces greenhouse gas emissions by over 40% over its entire lifecycle. NExBTL is currently being sold to consumers in Finland and to other oil companies in Europe and North America to be used as a premium quality biocomponent. It can be used in blends in any concentration, i.e. 0–100% of the content. The company started up three plants in Finland, Singapore and Rotterdam and increased its total production capacity to 2.0 million t/a.

2. Lufthansa started commercial flights powered by Neste Oil’s NExBTL renewable aviation fuel in summer 2011. This was the first time that renewable fuel is used in regular commercial airline service. Neste Oil is currently one of the only companies in the world capable of producing renewable aviation fuel at commercial scale.

3. Neste Oil is committed to using sustainably produced bio-based raw materials. The company has developed its own sustainability verification system which exceeds the industry standards for renewable raw material procurement and meets the requirements of legislation. The commitment to expanding the raw materials portfoliio has meant Neste Oil has successfully widened its raw material base to produce NExBTL renewable diesel. About 80% of the company’s R&D costs totaling approximately 40 million euros annually are directed to researching renewable raw materials.

New raw materials, such as jatropha, camelina and soybean oils have been introduced. In addition, research has shown that algae oil and microbial oil, together with wax derived from wood-based biomass, can all be used as feedstocks for producing NExBTL renewable diesel. Neste Oil’s work on sustainability has received recognition in numerous international comparisons for many years in succession (e.g. Dow Jones Sustainability Index, Global 100 list, Forest footprint disclosure).

Future Milestones
1. Generate profitable growth in the renewable fuels market by developing global customer base and supply chain, expanding the feedstock base, ensuring smooth operation of the new production plants and taking part in developing and planning new legislation.
2. Continue researching and introducing new raw materials. When selecting its inputs, Neste Oil prioritises suppliers that follow sustainable cultivation and production practices and have a good greenhouse gas balance. The final deployment decision is also affected by raw material availability and consistency of supply, as well as price.
3. Develop new applications, such as NExBTL renewable aviation fuel, that help customers to reduce greenhouse gas emissions and dependence on fossil fuels.

Business Model:

Neste Oil is a refining and marketing company, that produces renewable fuels based on its proprietary NExBTL technology. The company owns and operates four production plants producing NExBTL renewable diesel. The output of the plants is sold to other oil companies in European and Northern American markets to be used as a premium quality bio- component.

Competitive Edge(s):
Neste Oil’s strategy is founded on its unique ability to refine premium- quality fuels from a wide range of different, cost-effective feedstocks. Specialisation and in-depth expertise are central to enabling Neste Oil to
succeed in the international marketplace, despite its small relative size.

Neste Oil’s strengths in renewable fuels business include: cutting-edge NExBTL technology and product, growing production capacity, and industry-leading operations based on sustainable raw material procurement. Additionally, Neste Oil’s expertise in research and technology is one of the company’s key success factors.

Research, or Manufacturing Partnerships or Alliances.

NExBTL renewable diesel, for example, is the outcome of an intensive R&D effort.
Neste Oil has invested around EUR 40 million annually in R&D in recent years, of which around 80% has gone on research into renewable raw materials and technology for refining these inputs.
Neste Oil is involved in research in both completely new raw materials such as microbes, algae, and wood-based biomass, and existing alternatives such as used cooking oil and waste fat from the fish processing industry.

Neste Oil cooperates closely with some of the world’s leading research institutes and companies.

Neste Oil and Stora Enso are collaborating on research into utilizing wood biomass. The partners will decide whether to go ahead with basic engineering on a 200,000 t/a plant when the question of public subsidy for the project is solved.

Neste Oil, Boreal Plant Breeding, and Raisio are developing high- yielding rapeseed varieties that could be used as a raw material for renewable diesel.

Neste Oil has researched waste-based microbial oil in cooperation with the Aalto University School of Technology.

Neste Oil takes part in international algae research projects in Australia and the Netherlands to test various methods for growing algae in outdoor conditions.
Neste Oil and the Finnish Environment Institute have launched a joint algae research program testing the lipid production capacity of different types of algae and analyzing how the quality and quantity of these lipids can be optimized by adjusting the conditions under which algae are grown.

Neste Oil cooperates with approximately 25 universities and research institutes worldwide.

Stage (Bench, pilot, demonstration, commercial)
Commercial

Company website: http://www.nesteoil.com/

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.

Posted by Guest Contributor at 09:20 AM | Permalink | Comments (0)

Jim Lane

Location: St. Louis

Year founded:
USA – 1982
EU – 1998
Brazil – 2007

Type of technology(s):
a. Traditional fermentation of cereal grains and sugar cane for the commercial production of bioethanol

b. Traditional transesterification for the production of biodiesel from cereal and vegetable oils.

c. Multiple technology options for the commercial demonstration of cellulosic fuel production.

Fuel Type:
Bioethanol, biodiesel.

Major Investors

Abengoa is a public company, of which Abengoa Bioenergy is a wholly-owned subsidiary.  Abengoa trades in Madrid with the symbol ABG, and as ABGOF on the US Pink Sheets.

Past milestones:

New Facility start-ups
1. Biodiesel (San Roque, Spain)
2. France ethanol plant (55 MMGPY)
3. Indiana and Illinois grass-roots ethanol facilities (88 MMGPY each)
4. Biomass commercial demonstration facility at BCyL, Spain

Commenced construction:
5. Two 70-MW Cogen facilities at both Brazil facilities
6. 110 MMGPY ethanol facility in Rotterdam

Instituted GHG Inventory system to support Sustainability goal.
7. · EU Parliament approved Renewable Energy and Fuel Quality Directives.
8. Direct Blending of ethanol in Spain

Future milestones:

Completion of cellulosic biorefinery scheduled in Hugoton, KS in 2013

Business model:
Owner / Operator

Fuel cost:
Depends on feedstock cost and energy cost.

Competitive edge(s):
Distribution (own marketing company), economies of scale provides
low-cost, quality (only Fuel Ethanol company that is registered to
ISO-9001), locations (three continents), R&D investments.

Distribution, research, marketing or production partnerships or
alliances.

Industrial Partners

• NatureWorks
• Novus International
• Monsanto
• Genencor
• Dyadic International (DYAI)

Universities

• Auburn University
• Kansas State University
• University of Concepción
• University of Buenos Aires
• Lund University
• University of Sevilla
• University of Nebraska

Research Centers

• Asociación de Investigación y Cooperación Industrial de Andalucía -
AICIA
• Centro de Investigaciones Energeticas, Medioambientales y
Tecnologicas – CIEMAT
• National Renewable Energy Laboratory – NREL
• Pacific Northwest National Laboratory – PNL
• Argonne National Laboratory – ANL
• Instituto Catalysis y Petroquimicos – ICP
• Instituto Tecnologico de Aragon – ITA
• Centro de Investigacion y Desarrollo en Automocion – CIDAUT
• Washington University – St. Louis
• UOP

Stage
Commercial, pilot and demonstration.

Company website: http://www.abengoabioenergy.com/

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.

Posted by Guest Contributor at 09:54 AM | Permalink | Comments (0)

Jim Lane

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 KiOR

“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.

Posted by Guest Contributor at 10:37 AM | Permalink | Comments (0)

Jim Lane

KiOR, Inc. is a next-generation renewable fuels company that has developed a proprietary technology platform to convert sustainable non-food biomass into cellulosic gasoline, diesel and fuel oil. Using standard refinery equipment, KiOR’s products are compatible with the existing fuel infrastructure. KiOR strives to ease dependence on foreign oil, reduce lifecycle greenhouse gas emissions and create high-quality jobs and economic benefit across rural communities.

Address:

13001 Bay Park Road, Pasadena, TX 77507

Year founded: 2007

Stock: Nasdaq: KIOR.

As of 8/31/12 Khosla Ventures, Artis Capital, Alberta Investment Management Corporation and other major direct and institutional holders were major investors in KiOR.

3 Top Milestones for 2009 – 2012:

1.       Development and commercialization of the Company’s proprietary biomass-to-cellulosic fuels technology.

2.        Acquire funding for the Company’s capital and operating requirements through the public and private capital markets.

3.        Development, construction, commissioning and operation of the Columbus, Mississippi facility, KiOR’s first commercial scale cellulosic fuel production facility.

3 Major Milestone Goals for 2013 – 2015

1.        Full ramp up of Columbus facility

2.       Development and construction of KiOR’s first commercial cluster of production facilities, consisting of four standard conversion facilities (three times larger than the Columbus facilities) and two upgrading facilities for production of cellulosic gasoline and diesel

3.        Continued research and development on KiOR’s proprietary biomass-to-cellulosic fuels technology platform to reach targeted yield and throughput goals

Business Model:

Owner-operator and “value share” joint venture participant

Competitive Edge(s):

1. Breakthrough technology based on well-established refining processes.

2. World’s first “drop in” cellulosic hydrocarbon gasoline and diesel (as opposed to ethanol or biodiesel) producible at commercial scale.

3. Cellulosic fuel that can be cost-competitive with traditional fossil fuels but with 80% reduction in lifecycle greenhouse gas emissions than fossil fuels.

4. Feedstock flexibility on all types of sustainable, non-food biomass.

5. Enhances energy independence and increases energy security.

6. Significant economic benefits for rural communities.

Research, or Manufacturing Partnerships or Alliances. 

None

Stage: Commercial

Company website: http://www.kior.com/

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.

Posted by Guest Contributor at 09:23 AM | Permalink | Comments (0)

Jim Lane

Address: 1 St James’s Square, London, SW1Y 4PD. UK.

Year founded

BP Biofuels was set up in 2006.
BP p.l.c. celebrated its centenary in 2009.

Company description:

BP Biofuels is a leading global biofuels player, with a breadth of investment that is unique in terms of both its scale and its reach. Since 2006, BP has announced investments of more than $2 billion in biofuels research, development and operations, and has production facilities operating or in the planning/construction phases in Brazil and Europe.

BP Biofuels has investments throughout the entire biofuels value chain: from sustainable feedstocks, including cellulosic energy grasses, through to advantaged molecules like biobutanol. BP’s close links into other sectors that will be crucial to the development of the biofuel industry, particularly the automotive industry, and its in-depth knowledge of the fuels market and infrastructure, will underpin the biofuels industry’s intentions to grow to be a more material and sustainable part of the global transport fuel market.

In Brazil, the company has have assets (BP-operated and joint venture assets) producing ethanol from sugar cane today. We were the first international oil company to invest in this industry. BP also has a cellulosic biofuels demonstration facility, producing cellulosic ethanol in Louisiana and a purpose-built R&D facility in San Diego, California, where bioscientists are advancing the technology advancing the technology to commercialize cellulosic biofuels.

BP owns a large portfolio of intellectual property rights throughout the cellulosic biofuels value chain, encompassing proprietary conversion technology.

A BP joint venture, Butamax Advanced Biofuels, is developing the advanced biofuel biobutanol and commissioning a technology demonstration facility in the UK. Also in the UK, in partnership with AB Sugar and DuPont, BP is constructing a 110 million gallon per year wheat-to-ethanol facility. In addition, BP has invested $500 million over 10 years in the Energy Bioscience Institute (EBI), at which biotechnologists are investigating applications of biotechnology to energy.

BP is one of the world’s largest energy companies, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products for everyday items. It is the largest oil and gas producer in the US and one of the largest refiners. BP also has a global network of around 22,000 service stations. BP blended and distributed more than 1 billion gallons of ethanol in 2008.

Major Investors

BP is a public company, of which BP Biofuels is a wholly-owned subsidiary.
LSE (BP)
NYSE (BP)

Type of Technology(ies)
The BP Biofuels strategy focuses on the fermentation of sugars to produce ethanol, biobutanol and biodiesel.

Feedstocks
- Sugarcane
- Cellulosic feedstocks, on-purpose energy grasses
- Wheat

Products

- BP is producing ethanol from sugar cane in Brazil at operated assets in Minas Gerais and Goias states and a joint venture in Goias.
- In partnership with DuPont (and via a joint venture Butamax Advanced Biofuels), we are developing the advanced fuel molecule biobutanol, which has a higher energy content that ethanol, can be blended at higher rates into fuel that can be used by vehicles on the road today and may be able to facilitate the adoption of biofuels into the fuel supply chain at a faster rate. The partners are constructing a technology demonstration facility in the UK.
- With AB Sugar and DuPont (through a joint venture called Vivergo Fuels), BP is constructing a 110 million gallon-per-year wheat to ethanol plant in the UK. When operating next year, it will produce one-third of the UK’s requirement for ethanol under the UK’s renewable transport fuel obligation (RTFO). Once the technology has been proven at scale, the partners will look to convert the plant to produce biobutanol.
- BP is collaborating with DSM to advance technology for the conversion of sugars into biodiesel. The technology will convert sugars derived from biomass feedstocks (such as sugar cane or dedicated energy grasses) into diesel fuel molecules.
- BP has committed $500 million over 10 years into the Energy Biosciences Institute – working with the University of California Berkeley and its partners, the University of Illinois, Urbana Champaign and the Lawrence Berkeley National Laboratory. The institute is exploring ways in which biosciences can be applied to produce new, cleaner energy fuels, including advanced biofuels.

Past Milestones

• Safe and reliable operations at operational facilities in Brazil
o Industry leading safety performance. Recordable Injury Frequency rates have fallen from 5.5 (annual frequency per 200,000 hours worked) in December 2008 to 1.2 at the end of April 2011 – significantly lower than industry averages.
o Above-expected production levels.
o Acquired majority control of Brazilian sugar and ethanol producer CNAA in April 2011.

• Development of lignocellulosic biofuels:
o Acquired biofuels operations from Verenium Corporation in 2010, including IP, R&D facility in San Diego and a demonstration facility in Louisiana. Also became 100% owners of commercial project in Florida.

• Sugar-to-diesel technology:
Joint development agreement (JDA) between BP and Martek Biosciences Corporation announced August 2009. JDA will establish proof of concept for large-scale, cost effective microbial biodiesel production through fermentation, from biomass feedstocks.

Future milestones

With their JV partners:

• Demonstrate biobutanol technology and develop next steps for commercial deployment (with their partners DuPont, through the joint venture, Butamax Advanced Biofuels).
• Progress development of sugar-to-diesel technologies in partnership with DSM.
• Begin commercial production at world-scale wheat-ethanol facility in the UK (with partners AB Sugar and DuPont, through the joint venture Vivergo Fuels).
• Commercialize biobutanol technology (through the joint venture Butamax Advanced Biofuels).

Business Model:

BP operates throughout the biofuel value chain. They own and operate facilities in Brazil and the US and have joint ventures and joint development partnerships in the Brazil, US and Europe where this gives us access to expertise in the technologies and markets required to ensure success. BP brings scale, infrastructure and fuels market knowledge to these partnerships to drive long-term development of the businesses.

Competitive Edge(s):

• Global scale and reach, and an intent to develop projects that can succeed on a global platform and make a material difference to supplies of sustainably-produced biofuels.
• Breadth of strategy – covering the entire biofuels value chain, from a range of sustainable feedstocks appropriate to different markets, through to the production of advantaged molecules to meet varied consumer needs: ethanol, biobutanol and biodiesel.
• As one of the world’s largest energy companies and a major blender, distributor and retailer of transport fuels, BP has core expertise and capabilities in fuel infrastructure, fuel markets and the requirements of the vehicle parc. This experience will be crucial in scaling-up the biofuels supply chain to meet the needs of consumers.
• Sustainability has been central to the strategic decisions that BP has made about its biofuels business: the feedstocks to invest in, the geographies to focus on and the molecules to pursue. We are developing ways to ensure and report on sustainability throughout our supply chain – including the development of an effective sustainability management system for our biofuels operations. BP is a member of the Roundtable for Sustainable Biofuels, Bonsucro (formerly the Better Sugarcane Initiative), Roundtable for Sustainable Palm Oil and Roundtable for Responsible Soy.

Research, or Manufacturing Partnerships or Alliances.

• DuPont (DD)
• AB Sugar
• DSM
• LDC Bioenergia
• Brazil Ecodiesel
• The Energy Biosciences Institute

Stage (Bench, pilot, demonstration, commercial)

• Commercial production of bioethanol from sugar cane in Brazil.
• Commercial production of bioethanol from wheat under construction in the UK.
• Biobutanol technology demonstration facility in commissioning phase in the UK.

Company website

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.

Posted by Guest Contributor at 09:00 AM | Permalink | Comments (0)

Jim Lane

Though a panic-inducing analyst report circulates on the internet, the consensus among analysts continues to be bullish on the biobased isobutanol pioneer.

With Gevo, Inc.’s stock (NASD:GEVO) in the toilet — as of now, trading at $2.00 — the company has a market cap of $79 million and $92 million in the bank. When any company — much less one with a hot technology — is trading at less than its cash-on-hand value, it’s both rare and a reason to reflect on the financial state of affairs.

Especially since alarming reports such as David Sterman’s “Bankruptcy Watch: Sell Gevo Now” appeared at StreetAuthority.com, suggesting that “A technical glitch could be a death blow for this biofuels firm.”

Regarding Gevo’s third quarter results, energy analyst Pavel Molchanov writes.

“The reported net loss per share of $(0.31) included a $15 million non-cash gain from a change in the convert-related derivative. Adjusting for this gain, the loss per share of $(0.70) was below our estimate of $(0.46) and consensus of $(0.43). In the absence of commercial isobutanol (or ethanol) production during 3Q, revenue was de minimis and consisted of funding from R&D agreements with Coca-Cola and others. The miss was mainly driven by higher SG&A (including Butamax-related legal costs) and interest expense. Adjusting our interest expense assumptions results in slightly wider future losses, though we continue to project operating cash flow turning positive in 2H14.”

Looking at the quarterly result, Sterman wrote:

“Can Gevo work out the bugs? Well, it’s not a hopeful sign that the company’s chief technology officer, David Glassner, decided to resign on Oct. 1. This may have been a sign that a technology fix is neither imminent nor feasible…For now, I give this stock “4″ bankruptcy rating, which means that bankruptcy concerns aren’t imminent, but the company may need to sell stock in the next 12 months. However, if the technology update on Oct.30 proves disappointing, then I may be inclined to move the rating up to “6,” which implies that bankruptcy is possible within the next 12 months.”

The change in technology management – true?

True. Gevo reports that Chris Ryan, Gevo’s President and Chief Operating Officer, assumed the additional role of Chief Technology Officer. Dr. Ryan is no stanger to the role. Prior to joining Gevo in 2009, Dr. Ryan co-founded NatureWorks LLC in 1997 and served as its Chief Technology Officer from 2005 to 2008, where he led the development and commercialization of that company’s proprietary yeast biocatalyst and new biobased polymer from laboratory scale production through completion of a commercial-scale production facility.

How was the technology update?

Molchanov writes: “While the yield optimization program is underway, the target for resuming isobutanol production remains no more specific than 2013, though management has indicated that a more precise timeline should be available by the time of the 4Q12 results next February. Our restart assumption remains April.

At Piper Jaffray, analyst Mike Ritzenthaler penned this to shareholders: “We believe that the new organism will be ready for startup in the commercial plant in 1Q13, and have modeled a production ramp starting in 2Q13 through the end of the year…We are cognizant that Gevo’s current state of development and stage of commercialization can be confusing, especially given the woeful under-delivery at some of Gevo’s peers. Having commercialized similar technologies in the past, we are supremely confident that there is no such confusion at the company.”

The cash burn’s impact

At Cowen & Company, Rob Stone and James Medvedeff write: “Negative EBITDA could consume remaining cash, leaving challenging funding necessities. Management estimates $60-63MM of 2012 EBITDA burn and has $92MM of cash on hand. Unless isobutanol is brought back on line, successfully, in volume, this burn rate would leave less than the $45-55MM needed to build out Redfield. Additional financing may be needed, which could be expensive (if debt) or dilutive (if equity).”

Gevo CEO Pat Gruber’s outlook

“Our goal now is to resume isobutanol production in 2013. While isobutanol production at the Luverne facility is temporarily paused, we plan to take advantage of our flexible technology and temporarily revert the Luverne facility to ethanol production with two goals in mind: a) demonstrate to our partners that our plants can switch between isobutanol and ethanol production, which is important to them and differentiates our technology from others; and b) generate incremental cash flow. Prior to that, if we need to produce more isobutanol for market development reasons and it makes good business sense we can always bring the plant back up to produce isobutanol.”

When will we know on a return to isobutanol at Luverne

Molchanov writes: “Clarity on Luverne likely by February. Gevo has produced over 150,000 gallons of isobutanol and currently has ~100,000 gallons in inventory. The plant is being readied for the (temporary) transition to ethanol. While the yield optimization program is underway, the target for resuming isobutanol production remains no more specific than 2013, though management has indicated that a more precise timeline should be available by the time of the 4Q12 results next February. Our restart assumption remains April.

The bottom line: analysts

Molchanov writes: “GEVO shares have fallen more than 30% since the September 24 news of scale-up delays at the Luverne plant – a “sell first, ask questions later” reaction that needs to be seen in the context of a hyper risk-averse, short-term fixated market. Quite simply, most investors appear to have given up on Gevo. Our view, by contrast, is that the market experienced a textbook overreaction to a delay that is frustrating but in no way unprecedented or shocking. The slower than expected scale-up is entirely normal for industrial biotech. We think the market egregiously overreacted, and we strongly encourage investors with a 12+ month time horizon to view this as a buying opportunity. We reiterate our Outperform rating.”

Ritzenthaler agrees. “We maintain our Overweight rating. Among the positives in the quarter is an additional supply agreement with the Air Force, and following a discussion of energy goals we had with DOD officials last week, the new contract is certainly an encouraging development. Additionally, a new LOI was signed with an affiliate of Great River Energy with access to 130 million gallons of ethanol capacity. This agreement, along with the LOI with BFE announced last quarter, could take the form of technology licenses, as opposed to Gevo putting its own capital to work. We are lowering our price target to $9 (from $15) on sector compression.”

The Digest’s Take – Butamax’s outlook may be highly gevolicious

It’s a lonely view that Gevo won’t have the liquidity or cash-raising power to address its needs. It’s more popular among analysts to suggest that delaying the return to isobutanol production at Luverne into Q3 or later will start to put pressure on Gevo’s ability to finance both Redfield and its litigation with Butamax. Accordingly, Gevo is facing the squeeze on its litigation – and it is not out of the question that the company may have to accept an unfavorable settlement in the suit, simply to boost investor confidence and clear its financial path at Redfield and beyond.

The analysts all agree on this: the February update on Luverne is critical. An early return to isobutanol production will preserve cash, and make the path to financing the conversion at Redfield much more clear. With the stock trading at just 1.5 times the cash required to retrofit Redfield, an equity raise would be painful if needed.

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.

Posted by Guest Contributor at 09:35 AM | Permalink | Comments (0)

Jim Lane

Address: 345 Inverness Dr. South; Bldg. C; Suite 345, Englewood, CO 80112

Year founded:

2005

website: www.gevo.com

Stock: NASD: GEVO

Type of Technology(ies): Gevo has two proprietary technologies that combine to make it possible to retrofit existing ethanol plants to produce isobutanol, a four carbon alcohol which serves as a  hydrocarbon platform molecule.  We have developed a robust industrial scale yeast biocatalyst to produce isobutanol without typical byproducts operating at parameters equivalent to commercial ethanol producers.  The second piece of technology is a separations unit that operates continuously and removes isobutanol during fermentation.

This helps reduce distillation requirements, thereby reducing process energy consumption. With its exclusive engineering partner, ICM, Gevo completed its first commercial retrofit of a 22 MGPY corn ethanol plant in Luverne, MN and started producing isobutanol in early 2012.

Products:
Gevo will produce isobutanol, a four carbon alcohol that can be dehydrated using well known technology to isobutylene, a C4 hydrocarbon.  Isobutanol has 30% more energy content than ethanol and can be blended into gasoline without modifying automobile engines.  Isobutanol is a low RVP blendstock and less soluble in water than ethanol.  It can be transported in pipelines and be dispensed in existing retail pumps.  Isobutanol is a biofuel that carries a RIN value of 1.3 and It can be an advanced biofuel from corn if it achieves a 50% GHG reduction.

Isobutanol also has a market as a chemical solvent.  The opportunity for isobutylene spans many C4 markets in jet fuel, paraxylene, PET and other multi-billion dollar applications in fuels, synthetic rubber, chemicals and plastics.

Gevo has a number of off-take agreements and has announced non-binding letters of intent to supply Total for gasoline blendstock; United Airlines for biojet; Lanxess for butyl rubber; and, Toray industries for p-xylene.

Product Cost: Gevo’s isobutanol should be competitively priced with C4 petrochemical streams and low RVP gasoline blendstock components.

Past Milestones

Gevo successfully commissioned its 1MGPY demonstration plant in late September, 2009 in St. Joseph, MO in cooperation with ICM.  In September of 2010, Gevo completed acquisition of the 22 MPGY ethanol plant owned by Agri Energy in Luverne, MN.  Retrofit construction is planned to begin early in 2011 and be completed by the end of the year.  Isobutanol should begin production in Luverne early in 2012.

Future Milestones

Gevo started commercial production in summer 2012 in Luverne, MN.  They also plan to bring another 50-200 MGPY of capacity into the development pipeline, commencing with the Redfield Ethanol Plant in Redfield, SD. Further commercial supply agreements are expected to be announced.  In 2012-13, Gevo will begin to implement its ex-USA strategy.

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

Gevo has developed its technology to retrofit ethanol plants to produce isobutanol.  Gevo has a flexible business model, i.e., it will own and operate production capacity or align with others in joint venture or lease arrangements.  Gevo will also license its technology.  We plan to partner with cellulosic conversion companies to develop and commercialize cellulosic isobutanol for the gasoline and jet fuel markets.

Competitive Edge(s):

Gevo’s proprietary retrofit technology is a cost efficient (approx. $0.40/gallon) and rapid (12 months) retrofit of first generation ethanol capacity to make isobutanol.  Gevo’s exclusive collaboration with ICM, the premier engineering services company in the ethanol industry with over 60% of the installed capacity, is another competitive advantage.  Finally, our flexible business model enables us to work with investor owned and farmer owned ethanol producers through acquisitions, joint ventures or lease arrangements.  Gevo will be able to deploy cellulosic butanol technology as soon as conversion technology is available for biomass refineries.

Research, or Manufacturing Partnerships or Alliances.

Gevo has an exclusive collaboration with ICM for the retrofit of ethanol plants in North America.  Gevo also has an exclusive technology alliance with Cargill to develop a yeast biocatalyst for cellulosic isobutanol.

Stage (Bench, pilot, demonstration, commercial): Commercial

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.

Posted by Guest Contributor at 09:23 AM | Permalink | Comments (0)

Jim Lane

Based in: Illinois

Business:

Honeywell’s UOP has developed a renewable jet fuel processing technology, as well as a joint venture. UOP and Ensyn announced the formation of a new joint venture, dubbed Envergent Technologies, that will market technologies and equipment for generating power, transportation fuel and heating oil from biomass using pyrolysis. The joint venture will utilize forest and agriculture residues as feedstocks in a Rapid Thermal process, where feedstocks are heated in the absence of oxygen, to produce pyrolysis oils that can be utilized directly in heating oil or power gen. UOP also owns a Renewable Energy & Chemicals business that produced green diesel using its Ecofining process. UOP and Vaperma announced a partnership to bring Vaperma’s polymer membrane technology to the ethanol industry, where it will reduce energy consumption and emissions for for first-generation ethanol, as well as cellulosic ethanol and butanol.

Model: Licensor; often develops technologies in partnerships.

Owned by: Honeywell (NYSE:HON)

Website: http://www.uop.com/

Past milestones:

In 2006-09, Virgin Atlantic, Continental, Japan Air Lines and Air New Zealand and the group as a whole conducted a series of laboratory, ground and flight tests, indicating that test fuels performed as well as or better than typical petroleum-based Jet A. The tests revealed that using the Bio-SPK fuel blends had no adverse effects on the engines or their components. They also showed that the fuels have an average 1.8 percent greater energy content by mass than typical petroleum-derived jet fuel.

In 2009, at the Paris Air Show Boeing and a series of partners involved in four biofuels-based test flights released the data from the tests, and said that with the release they are on a path towards flight certification of biofuels as soon as late 2010.



Future milestones:

UOP expects to commence licensing its fuel technology in 2009, and said that it has already commenced advanced discussions with multiple potential licensees.

The consistent message from airlines and aircraft manufacturers is that the certification of biofuels for regular commercial flights is in the 2012/13 timeline. Boeing spokesman Terrance Scott said that biofuels could be a regular source for jet fuel with 3-5 years, with algae becoming a common component in 8-10 years.



Metrics: UOP said that it was modeling future refineries for renewable jet fuel using a 60-150 Mgy scale, and said that while this was only a fraction of the typical 4.2 billion gallon per year scale of a typical oil refinery that the size was the most effective given the expected supply chain for renewable jet fuel feedstocks.  UOP said that it expects the cost of refineries to be in the $150 million range.

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.

Posted by Guest Contributor at 09:34 AM | Permalink | Comments (0)

Jim Lane

Address: 5885 Hollis Street, Emeryville, CA

Year founded:

2003

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Amyris is an integrated renewable chemicals and fuels company founded in 2003 and based in Emeryville, CA, with additional operations in Chicago, IL and Campinas, Brazil. Amyris has over 400 employees, with three-quarters of its employees located in the United States. Amyris subsidiaries include Amyris Brasil Ltda., a wholly-owned Brazilian company through which Amyris conducts its Brazilian operations for the manufacture and trade of products; and Amyris Fuels, LLC, a wholly-owned subsidiary through which Amyris is building its U.S. fuels distribution capabilities.

Stock: NASD: AMRS

Type of Technology(ies): Amyris has developed genetic engineering technologies that enable modification of the way microbes process (i.e., metabolize) sugar. By controlling these metabolic pathways, Amyris is able to design microbes, primarily yeast, to be tiny living factories that convert plant-sourced sugars from crops such as sugarcane or sweet sorghum into target molecules. Using its industrial synthetic biology platform, Amyris develops yeast strains designed to produce a broad range of molecules. The first molecule that Amyris is focusing on is Biofene™, Amyris-brand farnesene, a hydrocarbon building block that can replace petrochemicals in a wide variety of products in the cosmetics, flavors and fragrances, consumer product, polymers, lubricants and fuel markets.

Feedstocks:Amyris can use a broad range of plant sugars to produce its products. Amyris expects to scale production initially using Brazilian sugarcane as a feedstock.

Products: Renewable fuels, lubricants, polymers and plastic additives, consumer products, flavors & fragrances and cosmetics.

Product Cost: Please see quarterly earnings statement

Offtake partners: As part of its go-to-market strategy capitalizing on the flexibility of its proprietary molecule, Amyris has entered a number of off-take and co-development agreements with partners in specific, high-value vertical markets such as cosmetics, consumer products, flavors and fragrances and lubricants. Amyris has an offtake agreement with Shell for the supply of Amyris No Compromise® diesel, with M&G Finanziaria S.R.L. to incorporate Biofene® as an ingredient into M&G PET processing and with The Procter & Gamble Company for use of Biofene in certain specialty chemical applications within P&G’s products. Amyris also has co-development agreements with companies in a variety of markets, including with Total to develop renewable jet fuel and with Kuraray to develop polymers to replace petroleum-derived feedstock such as butadiene and isoprene, allowing Amyris to target high-value markets while ramping up production of renewable diesel.

Past Milestones

1.      Completion of initial public offering.

2.      First purchase order for Amyris’s first commercial product, renewable squalane, followed by sales of Amyris renewable diesel and lubricants.

3.      Initial commercial production facilities in Brazil, Spain and U.S.

Future Milestones

1.      Build and operate two additional productions sites in Brazil (SMA and Paraiso).

2.      Remain on track for target production costs while meeting increasing customer demand.

3.      Add C5 and C10 molecules along with new products and customer agreements.

Business Model: (e.g. owner-operator, technology licensor, fee-based industry supplier, investor)

Amyris partners with biofuel producers to build new, “bolt-on” facilities adjacent to existing mills, instead of building new “greenfield” facilities, thereby reducing the capital required to establish and scale production, while simultaneously offering partners the opportunity to diversify and grow their product lines. Each of these steps in the production process – from the feedstock, through fermentation, to recovery and finishing – use processes that are already used by other industries today, enabling cost-effective scaling of production. Amyris’s streamlined production process employs an innovative take on established infrastructure and allows for lower start-up and capital costs and more efficient processes. In addition, Amyris’s partnership model incorporates cultivating long-term relationships with customers and co-developing ingredients with them to meet specific product development goals.

Competitive Edge(s):

Biofene provides a number of compelling advantages when compared to other renewable chemical and fuel alternatives, most notably that it is an oil. It can therefore be a drop-in replacement for many petroleum products, and it fits into the existing petroleum transport and distribution infrastructure. It is also an extremely flexible molecule that, with a few simple finishing steps, can replace petroleum derived chemicals in a number of markets, including ingredients in cosmetics, polymers, lubricants and consumer products, and renewable diesel and jet fuel. Amyris’s technology has been designed to be feedstock-agnostic and its platform is extremely flexible; Biofene is just one of thousands of molecules that Amyris can produce.

Research, or Manufacturing Partnerships or Alliances.

Amyris is a member of the National Advanced Biofuel Consortium under the Department of Energy (DOE) and NREL as well as a recipient of an Integrated Biorefinery (IBR) grant from the DOE. Amyris has ongoing research collaborations in Australia, Brazil and the U.S., and is a founding member of the Advanced Biofuel Association (ABFA), Biotechnology Industry Organization (BIO) and Diesel Technology Forum (DTF), among others. Amyris has manufacturing partnerships with Glycotech, Biomin, Sao Martinho, Tate & Lyle and Antibioticos.

Stage (Bench, pilot, demonstration, commercial): Commercial

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.

Posted by Guest Contributor at 09:14 AM | Permalink | Comments (0)

Jim Lane

Address:

1007 North Market Street
Wilmington, DE 19898

Year founded:

DuPont: 1802
DuPont Industrial Biosciences: 2011

Annual Revenues:

$38 billion (DuPont overall for 2011)
$1.2 billon (Industrial Biosciences unit for 2011)

Company description:

Last year, DuPont purchased Danisco and its Genencor unit and added their expertise into a new unit: DuPont Industrial Biosciences. This integration allows us to optimize DuPont’s bioscience technology and commercialization capabilities with Genencor’s biofuel enzyme technology.

DuPont is committed to being a part of the solution to develop renewably sourced biofuels. For close to ten years, we have invested hundreds of millions of dollars and put our best researchers to work to find answers to the pressing global issue of increased need for food, feed and fuel. We have developed a three-part strategy to deliver these new technologies to the growing biofuels market to help biofuels become more competitive with petroleum. The strategy includes:

1. Improving existing ethanol production through differentiated agriculture seed products and crop protection solutions as well as through improved bioprocessing aids and enzymes that allow animals to get the most out of valuable ethanol co-products;
2. Developing, commercializing, and licensing new technologies to allow conversion of cellulose to ethanol; and
3. Developing and supplying advanced biofuels, such as biobutanol, a performance drop-in fuel easily integrated with the existing liquid fuel system.

In addition, as part of DuPont Industrial Biosciences, DuPont Pioneer helps farmers by delivering high-yielding products, supported with proven expertise and innovative services to meet growing demand from the biofuels industry. Pioneer offers more than 230 High Total Fermentable (HTF) ethanol hybrids that increase the fermentable starch content of corn plants for greater outputs. Many ethanol hybrids contain Herculex® insect protection traits to reduce insect damage to grain and help prevent molds and mycotoxins. This helps ensure a consistent supply of high-yielding, high-quality grain. DuPont Crop Protection further helps growers produce and maximize the yield and quality of biofeedstocks including sugarcane and corn with solutions that help reduce weeds and control insect and disease.

Stock: NYSE: DD

3 Top Milestones for 2009-12:

1. The launch of ACCELLERASE® TRIO™ in 2011 http://biosciences.dupont.com/fileadmin/user_upload/genencor/documents/AccelleraseTRIOProductLiterature_120719.pdf (and see product description below)

2. DuPont’s 250,000 gpy Cellulosic Ethanol demonstration plant in Vonore, Tennessee producing ethanol from corn stover and generating key data for commercial production (see details below) psychoanalyze

3. The Success of the DuPont Stover Harvest Collection Project http://www.ddce.com/news/120315.html (and collaboration description below)

3 Major Milestone Goals for 2013-15:

1. Commercializing cellulosic ethanol through the planned DuPont cellulosic ethanol biorefinery in Nevada, Iowa (see below).

2. The licensing of the cellulosic ethanol technology produced at the DuPont Nevada, Iowa biorefinery

3. BioIsoprene™ Monomer: DuPont builds relationships to enable further pilot and commercial development of BioIsoprene™ monomer, to be used in the manufacture of synthetic rubber for tires and the potential for various other applications, such as specialty elastomers and adhesives .

Business Model (e.g. owner-operator, technology licensor, fee-based industry supplier, investor):
• Merchant enzyme supplier to ethanol/biofuel industry
• Integrated solutions provider in cellulosic ethanol industry through DuPont Cellulosic Ethanol Program
Competitive Edge(s):

DuPont has a unique position in the industry because its offerings span farm, feed and fuel. For example, we are able to build on Genencor’s expertise in designing and operating cell factories, leverage Pioneer’s knowledge of production agriculture and relationship with growers, and apply DuPont’s capabilities in engineering and advanced materials.

Research, or Manufacturing Partnerships or Alliances:

DuPont has a 50/50 joint venture with BP Biofuels called Butamax™ Advanced Biofuels which is working to develop and commercialize biobutanol. Isobutanol is a molecule that is similar to gasoline, and can be readily dropped into the current liquid transportation infrastructure, without changes to the refiner or distribution. Biobutanol is deployed through retrofit of current ethanol facilities, so does not require building entirely new facilities. It also can be blended at a higher rate than ethanol into gasoline under current regulations. So far in 2012, Butamax has signed up seven existing ethanol producers with a total of 11 plants for its early adopters program to convert their facilities to biobutanol production. Butamax will begin retrofit of the first facility in 2013.

DuPont also has a partnership with The Goodyear Tire & Rubber Company. Through this collaboration, DuPont and Goodyear have been developing a first of its kind biobased process to produce isoprene (BioIsoprene™) from renewable raw materials.

DuPont’s Stover Harvest Collection Project involves collaboration with farmers, DuPont Pioneer biomass supply chain experts and Iowa State University, as well as custom harvesters and equipment manufacturers. It is focused on standardizing equipment and techniques for collection, transport, storage and pre-processing of stover, while ensuring stewardship of farms and achieving economics of the biorefinery. In 2010, DuPont began the project by partnering with six leading Iowa corn growers and conducting a pilot-scale stover harvest on 2,500 acres. The project has grown to partnering with more than 100 corn growers for 2012 and harvesting approximately 25,000 acres of stover, representing about one seventh of our first biorefinery’s annual commercial feedstock requirement.

Stage: (Bench, pilot, demonstration, commercial)

DuPont Industrial Biosciences currently operates a demonstration facility in Vonore, Tenn., which is producing cellulosic ethanol from stover and is generating data for commercial production.

The next step is the construction and operation of our commercial-scale cellulosic ethanol biorefinery in Nevada, Iowa. DuPont plans to break ground on that project later this year (2012), with a 12-18 month build out. Once completed, this will be one of the first commercial scale cellulosic biorefineries in the world and will generate 28 million gallons of cellulosic biofuels from corn stover (corn residues, including cobs, stalks, leaves).

DuPont Cellulosic Ethanol is also currently working with local farmers to build and scale up the supply chain for this biorefinery. DuPont’s Stover Harvest Collection Project involves collaboration with farmers, DuPont Pioneer biomass supply chain experts and Iowa State University, as well as custom harvesters and equipment manufacturers. It is focused on standardizing equipment and techniques for collection, transport, storage and pre-processing of stover, while ensuring stewardship of farms and achieving economics of the biorefinery.

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.

Posted by Guest Contributor at 08:22 AM | Permalink | Comments (0)

Jim Lane

Elephant herd running photo via Bigstock

28 big balance sheets deploying capital into commercial-scale advanced biofuels.
Who’s writing the checks, and for what, and when?

It’s become an article of faith among the unenlightened that advanced biofuels are always five years away, and the chief investors are the US Department of Energy and a gaggle of key Obama campaign donors.

The Wall Street Journal, last December, opined:

“Congress subsidized a product that didn’t exist, mandated its purchase though it still didn’t exist, is punishing oil companies for not buying the product that doesn’t exist, and is now doubling down on the subsidies in the hope that someday it might exist. We’d call this the march of folly, but that’s unfair to fools.”

Well, as we do here in Digestville, let’s look at the facts on the ground. Typically, we typically look at advanced biofuels sector through the lens of the processing technologies, feedstock developers or downstream customers. Today, we’ll look at the bigger balance sheets to see who is investing what, and when, with whom, and why.

We’ve added in a few bonus smaller balance sheets that are financing commercial scale projects off the balance sheet – like Solazyme (SZYM), KiOR (KIOR) and Gevo (GEVO) – but our primary focus here are the elephants rather than the antelope.

We’ve also focused here, for the sake of brevity, on those financing commercial scale projects. So, Exxon’s $300 million commitment into algae biofuels R&D is not here, nor are activities at Bayer, BASF, Dow and elsewhere which are still in the joint development agreement stage. Also, we have not reported investments by sovereign wealth funds, family offices or VCs, although they can be in the tens of millions.

What do we see? If it is indeed a march of folly, it is a popular parade. Oil & gas companies, major chemical companies, steelmakers, airlines, Big Ag, enzyme producers and food companies – from 14 countries in all. There are upstream feedstock aggregators, technology developers, and downstream customers. It’s a varied lot, not known for folly, or light-hearted investing strategies.

Abengoa (ABGOY)

Building a 23 million gallon cellulosic ethanol plant in Hugoton, Kansas – off its own balance sheet – opening in 2013. The company is reported to be looking at developing a second commercial plant for mid-decade.

Bao Steel

Investing, with LanzaTech, in deploying gas fermentation technology, in China, utilizing steel mill off-gases. Bao financed a 100,000 gallon demonstration and the next stage is the construction of a 40 milion gallon project. Indian Oil Corp., LCY Chemical Corp, Posco, Mitsui & Co., Petronas, Shougang Group and Harsco Corp are among those who have also begun discussions or development projects with LanzaTech.

Beta Renewables

Building and financing, off its balance sheet, a 20 million gallon first commercial cellulosic ethanol project in Crescentino, Italy – and is aiming to build another on its own dime in North Carolina.

BP

There are now more than 4,000 employees in BP Biofuels – the unit has grown immensely with the acquisition of Tropical Bioenergia in Brazil. The company is financing, off its balance sheet, a first commercial (36 million gallon) cellulosic ethanol plant in Florida, expected to open in 2014.

British Airways

The company is moving forward on the construction, contributing equity from its balance sheet, of a first commercial project producing aviation biofuels from municipal solid waste, located east of London. The plant is expected to open by 2014.

Bunge (BG)

The company has formed a JV with Solazyme to build a commercial scale renewable oils production facility in Moema, Brazil – 26 million gallons in capacity, expected to open in 2013.

Cargill/NatureWorks

Cargill is financing, through its NatureWorks subsidiary, in a venture with PTT Chemical, the construction of a second Ingeo biopolymer facility, in Thailand. The 18 million gallon facility is expected to open in 2015.

Chesapeake Energy (CHK)

Chesapeake is financing, off its balance sheet, a 50 million gallon facility expected to open in 2014, using Sundrop Fuels technology including methanol synthesis and the Mobil MTG process to produce renewable gasoline.

COFCO

COFO is financing, off its own balance sheet, the construction of a 26 million gallon cellulosic ethanol facility in Singapore – first phase of 13 million gallons is expected to open in 2013.

Darling (DAR)

In a JV with Valero, is financing off its balance sheet a 135 million gallons renewable diesel project, Diamond Green Diesel, scheduled to open by 2013.

DONG Energy

Financing, off its balance sheet, a first commercial Inbicon cellulosic ethanol in Maabjerg, Denmark, expected to open in 2014 with an 18 million gallons capacity. DONG (Danish Oil and Natural Gas), which is the parent of Inbicon, previously financed a demonstration-scale plant off its balance sheet.

Dupont (DD)

Financing, off its balance sheet, a first commercial Dupont Cellulosic Ethanol plant in Nevada, Iowa – capacity of 27.5 million gallons.

FHR

Just bought a 155 million gallon corn ethanol plant this week in Nebraska from Advanced Bioenergy. Has invested in advanced jatropha via SG Biofuels, advanced biodiesel via Benefuel, and cellulosic ethanol via EdeniQ.

Graal Bio

Financing, off its balance sheet, construction of a 21 million gallon cellulosic ethanol plant in Alagoas, Brazil. Expected to open in 2013 – technology from Beta Renewables.

INEOS

Financing, off its balance sheet, a first commercial (8 million gallon) cellulosic ethanol plant in Vero Beach, FL – for which construction is complete and commissioning is underway.

Mitsubishi Chemical

Financing off its balance sheet, through its MCC Biochem JV with PTT Chemical, a 13 million gallon succinic acid plant in Thailand – project expected to come online in 2014.

Neste Oil (NEF.F)

Financed, off its balance sheet, the construction 572 million gallons of renewable diesel capacity in Finland, the Netherlands and Singapore. ALl projects complete, commissioned and producing.

Petrobras

Financing, off its balance sheet, a 4 million gallon demonstration of its cellulosic ethanol technology developed in partnership with Blue Sugars. Expected to open in 2013.

POET-DSM

Jointly financed a $250 million JV, POET-DSM, to complete a 23 million gallon first commercial cellulosic ethanol plant in Emmetsburg, Iowa – opening in 2013. The JV expects to deploy numerous additional plants.

PTT Chemical

Financing off its balance sheet, through its MCC Biochem JV with Mitsubishi Chemical, a 13 million gallon succinic acid plant in Thailand – project expected to come online in 2014. PTT is financing, through its in a venture with NatureWorks, the construction of a second Ingeo biopolymer facility, in Thailand. The 18 million gallon facility is expected to open in 2015.
Raizen (Royal Dutch Shell-Cosan)

Financing, off its balance sheet, a first commercial cellulosic ethanol plant in Brazil, in partnership with Iogen.

Roquette

Financed, through a 50/50 joint venture with Solzayme, a first small commercial renewable oils plant in Lestrem, France.Subject to approval of the board of directors of the JV, Roquette has also agreed to fund an approximately 50,000 metric ton per year facility that is expected to be sited at a Roquette wet mill and owned by the JV.

Total

Invested more than $175 million in Amyris, and has also invested in Gevo and Coskata.

Tyson

Financed, off its balance sheet, through a JV with Syntroleum, the 75 million Dynamic Fuels renewable diesel plant in Geismar, Louisiana – which is commissioned and operating.

Valero

In addition to operating numerous corn ethanol plants, Valero has invested in Algenol, Enerkem and Mascoma, and is proving major financing for Mascoma’s first commercial cellulosic ethanol plant in Michigan, scheduled to open in 2013-14.

Waste Management (WM)

Invested in Enerkem, Fulcrum Bioenergy and Renmatix – and is proving financing, off its balance sheet, for Fulcrum Bioenergy’s first commercial cellulosic ethanol project near Reno, Nevada.

Wilmar

Financing off its balance sheet, in a JV with Elevance, a 52 million gallon first commercial integrrated biorefinery in Gresik, Indonesia, scheduled to open in 2012-13.

Zhejiang Hisun Biomaterials

Financing off its balance sheet a 16 million gallon first commercial project to produce polylactic acid (PLA) from cassava, in Zhejiang province in China, scheduled to open in 2013.

Smaller balance sheets financing projects

Gevo (GEVO)

Financed, off its balance sheet, the acquisition of the Luverne Ethanol plant in Luverne, Minnesota and conversion to isobutanol production.

KiOR (KIOR)

Financing, off its balance sheet, its first commercial (13 million gallon) biocrude project, in Columbus, Mississippi. Construction is complete and the plant is now in commissioning.

Solazyme (SZYM)

See the JVs with Roquette and Bunge. Financed, off its balance sheet, a demonstration of its technology, now commissioned and operating in Peoria, Illinois.
More data and project details: a free download

For more data, see the Advanced Biofuels Project Datanbase, a free Digest download available here.

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.

Posted by Guest Contributor at 09:17 AM | Permalink | Comments (0)

by Debra Fiakas CFA

The previous post “Solazyme's Detours on the Way to Algae Biofuel” began a discussion of Solazyme, Inc. (SZYM:  Nasdaq), a self-described “oil developer” targeting three commercial markets that are known heavy oil users:  chemical and fuel, nutrition and skin care.  Solazyme touts its ability to serve customers with oils tailored to their specific needs, creating a paradigm shift from the status quo where formulators and manufacturers must design around the limitations of conventional oils.

Solazyme is attempting to harness the oil producing capability of microalgae -  the most diminutive of algae.  Based on average yield rates, biodiesel from oil crops, waste cooking oil and animal fat cannot realistically satisfy even a small fraction of existing demand for transport fuels, largest oil market.  However, microalgae can produce up to 300 times more oil than conventional crops and have been clocked at growth speeds 20 to 30 times faster than oil-producing crops such as corn or soybean.

The exceptional efficiency derives from the simplicity of microalgae.   Simple one-cell organisms, they take nutrients directly from the water where they live.  They do not need the growth-sapping stems and stalks of crops growing in fields.  What is more they are content to live in harsh environments such as seawater and wastewater.

The U.S. Department of Energy estimates that microalgae can produce enough oil to replace all petroleum fuel required in the U.S. market using less than 1% of the country’s land area.  Even with such great promise of efficiency and productivity from algae, actual substitution of algae-based oil for petroleum has yet to begin.  In part that is because scaling up production is not so easily accomplished.

Algae in the Dark

Most algae rely on sunlight to drive photosynthetic processing of carbon dioxide.  The first algae-based biofuel developers started with open ponds stocked with algae and exposed to year-round sun, only to find that as the ponds got larger they were beset with poor light diffusion near the center.  What is more, the algae were stressed by changing weather conditions and airborne contaminants.

To side step these problems Solazyme has tapped a special kind of algae that thrive in the dark  - “heterotrophic” Chlorella.  Instead of using photosynthesis to process carbon dioxide, heterotropic algae get carbon from sugars in a dark, watery environment.  This makes it possible to put the algae indoors, housed in large, closed containers.  There is no worry about light diffusion at the center of the pond or contaminants or weather conditions.  The Japanese have been successful with Chlorella cultures in containers as large as 100,000 liters, generating useful biomass of hundreds of kilograms.

Solazyme uses cane-based sucrose or corn-based dextrose to feed its algae.  The increased cost of buying a sugary lunch for the algae is at least partially offset by reduced costs of the containers or fermenters in which they are housed.  That is because practically any fermenter used in food or pharmaceutical processes will work for heterotrophic algae.  Standard fermentation containers mean lower costs.

Not all is smooth sailing for developers using hetertrophic algae.  Competition with other microorganisms in the fermenter can put a damper on the algae’s oil production.  Excess organic substrate can inhibit rather than fuel growth, making it necessary to fine tune the cultivation process and monitor it carefully.

Nonetheless, it is worth the try for Solazyme to be among the first to pursue hetertrophic algae cultivation.  One study completed in 2006 by Chinese researchers found that the lipid content in certain heterotrophic algae were four times greater than algae cultures grown with photosynthesis.  So besides using algae to produce oil  -  an organism that is substantially more efficient than another of the other “oil” crops like corn  -  Solazyme is using the most productive type of algae.

Investors in the Dark

It would seem logical that the chain of efficiencies would translate to commercial value and subsequently to shareholder value.  Until a year ago Solazyme had only been able to scale production at a 75,000-liter facility operated by a partner.  Last year the company began fermentation at a facility in Peoria, Illinois with multiple 128,000-liter fermenters and an annual oil production capacity in excess 2 million liters.  Solazyme also has access to production capacity one the facilities owned by its joint venture with Roquette.

So far management has been a bit protective about yield rates, leaving investors in the same dark space as its algae.  Solazyme is pushing forward with new production capacity.  They broke ground for 100,000 metric commercial facility in Moema, Brazil earlier this year and more capacity is planned.  Production yields would need to be significant to justify expansion of this level.  Without disclosures, investors will just have to take management’s word for it  -  and the risk that they have overstepped.  This risk may be one of the reasons the stock is trading at a level well off its IPO price of $18.00.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 09:32 AM | Permalink | Comments (0)

by Debra Fiakas CFA

Algae in the River Wate photo via BigStock

My post “Algae Takes Flight” featured Algae-Tec (ALGXY:  OTC/PK),  Lufthansa’s new biofuel partner.  Algae-Tec has agreed to operate an algae-based biofuel plant in Europe to supply Lufthansa with jet fuel.  Lufthansa is footing the capital costs of the plant, which is to be located in Europe near a carbon source.  Algae thrive on carbon so industrial plants and power plants using fossil fuels make the best neighbors.  Lufthansa has agreed to purchase a minimum of 50% of the algae-based biofuel Algae-Tec can produce.

Australia-based Algae-Tec is not Lufthansa’s first biofuel source.  The same week it inked the deal with Algae-Tec, Lufthansa also entered into a memorandum of understanding with synthetic fuel developer Solena Fuels Corporation.  Solena has already decided on a location at the PCK Industry Park in Schwedt/Oder, Germany.  The plant will use municipal waste to produce bio synthetic paraffinic kerosene, which Solena calls Bio-SPK.

Lufthansa is eager to adopt biofuels in order to comply with the European Union’s emissions trading system (ETS), which added aviation to the mix of industries that must reduce carbon emissions in the EU region.  Airlines had until March 2012 to reach compliance to the EU standards.  In the future, airlines that do not comply could face fines of US$128 per ton of carbon dioxide emissions.  Non-compliance could lead to a ban from European airports.  It is not surprise that According to the U.S. Energy Information Administration, worldwide over 5,000 barrels of jet fuel are used each year, resulting in as much as 635 million tons of carbon dioxide emissions.

Lufthansa burns at least nine million tons of jet fuel each year.  The airline has had some difficulty in sourcing renewable fuels that could reduce it carbon footprint.  In July 2011, Lufthansa began using Neste Oil's (NEF: Berlin) NExBTL renewable aviation fuel in an Airbus A321 aircraft.  Flights between Hamburg and Frankfurt were run in both directions four times a day.  One of the engines of the aircraft operated using a blend of 50% NExBTL renewable aviation fuel and 50% fossil fuel.  However, in January 2012, Lufthansa announced it would be discontinuing flights using renewable jetfuel because it had not been successful in securing long-term sources of biofuel. In all, Lufthansa completed 1,187 biofuel flights between Hamburg and Frankfurt that relied on biofuel.  Lufthansa claimed CO2 emissions were reduced by 1,471 tons.

It would seem that meeting aviation emissions standards in Europe would be a source of significant demand for renewable fuels.  However, it might be premature to expect anything more than modest shifts in fuel sourcing.  After considerable pushback from China and India airlines, the European Union has been considering a rollback of emissions standards.  Members of the U.S. Senate met in August 2012 with representatives from twenty countries to draft a resolution against the EU’s fines.  The group was unable to reach agreement, but the meeting made clear that U.S. leadership is more concerned about profits than environmental sustainability.

In the meantime, several biofuel companies have been cozying up to the aviation industry.  Amyris (AMRS: Nasdaq)is working with Brazil’s Azul Airlines.  Solazyme (SZYM: Nasdaq) has been mentioned as in cooperation with both United and Quantas airlines.  Honeywell’s UOP (HON:  NYSE) is working with India’s Kingfisher Airline, United Airlines, British Airways, France Airways and Spain’s Iberia.  U.S. carriers alone used at least 16.4 million gallons of aviation fuel in 2011 (U.S. Bureau of Transportation Statistics).  At least a third of that is used in international flights.  It presents a very large market opportunity for the biofuel producer that can deliver renewable fuel.  Unless, of course, politicians get in the way.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 08:55 AM | Permalink | Comments (0)

Jim Lane

On October 8th, Renewable Energy Group (REGI), the leading US biodiesel producer, announced unexpectedly that it now expects to report Adjusted EBITDA ranging from a loss of $2 million to a loss of $7 million. The company’s prior guidance for Adjusted EBITDA was a gain of $10 million to $15 million. The company expects to report gallons of biodiesel sold in a range of 60 to 63 million, compared to prior guidance of 55 to 60 million.

The good news

REG CEO Daniel Oh said that “Despite these fluctuations in our markets, we remain optimistic about the long-term prospects for REG and the biodiesel industry. The recent finalization of the [1.28 billion gallon biodiesel obligation for 2013] provides growing demand for the next year. Our flexible feedstock technology gives us a long term advantage as a low cost producer, since we can adjust to fluctuations in feedstock prices. Furthermore, REG continues to have a strong balance sheet with cash to sustain our growth strategy.”
What’s going on?

In biodiesel, the change in REGI guidance is directly related to movements in commodity prices, a steep depreciation in the price of RINs and tighter margins than expected.

On the ethanol side, it’s been commodity margins that have led to rough times. Caused, in turn by drought-induced steep corn prices, falling gasoline demand and the resulting overcapacity in ethanol production leading to surplus ethanol stocks.

Accordingly, Biofuel Energy announced in late September that it has decided to idle its Fairmont, Minnesota ethanol facility until further notice. The plant ceased ethanol production as of the end of last week. The Company reported that its second plant in Wood River, Nebraska continues to operate.

Low-cost ethanol capacity

Company	Symbol	Capacity(mgy)	Marketcap($M)	Value/gallon
Pacific Ethanol	PEIX	200	43.62	$0.22
Biofuel Energy	BIOF	220	39.69	$0.18
Aventine Renewable Energy	AVRWD	312	5.34	$0.02
Green Plains Renewable Energy	GPRE	740	179.71	$0.24
Ethanol total		1472	268.36	$0.18
Renewable Energy Group	REGI	201.58	220	$1.09

The market caps on publicly traded pure-play ethanol stocks are averaging $0.18 per gallon of installed capacity, a fraction of the construction cost. Biodiesel is down on the weaker outlook for REGI, but still substantially better.

Relief in sight?

Futures prices 10/9/2012
Date	Corn	Ethanol	Ratio
Dec-12	7.460	2.385	0.32
Mar-13	7.462	2.376	0.32
May-13	7.400	2.397	0.32
Jul-13	7.342	2.391	0.33
Sep-13	6.580	2.31	0.35
Dec-13	6.300	2.191	0.35

For first-generation ethanol capacity, there’s marginal relief in sight starting in mid-2013 when corn prices are expected to climb down from the $7.40 range – first falling to $7.34 next July, according to the futures price at CBOT this week, and then falling into the mid-$6 range by September. But, with ethanol prices expected also to fall, there are modest improvements expected in the ethanol-to-corn price ratio, but it’s not exactly time to strike up “Happy Days Are Here Again”.

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.

Posted by Guest Contributor at 01:52 PM | Permalink | Comments (0)

by Debra Fiakas CFA

Algae powered plane photo via BigStock

No one has been more disappointed than me in the failure of algae-based biofuel operations to achieve commercial production  -  at least so far.  The model is beguiling:  feedstock for biofuel production in the form of oils produced by simple and widely available algae that can thrive on carbon dioxide, an otherwise be a toxic emission.  However, scale seems to have eluded algae-base biofuel producers.

GreenShift Corp. (GERS:  OTC/BB) recently shifted its focus to corn oil extraction to serve ethanol producers hungry for a process efficiency.  Earlier this year Valcent Products changed its name to Alterrus Systems, Inc. (ASIUF:  OTC/BB) turned to vertical farming.  Green Star Products (GSPI:  OTC/PK) was already sidelined last year and is now concentrating on new product testing and certifications and is introducing a line of lubricants.  PetroSun (PSUD:  OTC/PK) claims it has not abandoned its microalgae and macroalgae interests, but its focusing on energy sources that can be a “bridge” to renewable fuels.

OriginOil (OOIL:  OTC/BB) is not exactly producing biofuel.  However, it has found alternative commercial applications for its technology and expertise.  OriginOil has developed an energy production process for cleaning up oil and gas water.  OriginOil is marketing its technology to oil and gas operators using hydraulic fracturing.  A partner in Japan is also deploying the OriginOil’s algae harvesting technology in a novel process to clean up radioactive materials.

We were nearly ready to delete the Algae Group from our Beach Boys Index.  Then Germany’s air carrier Lufthansa came flying in with a press release, announcing its plans to build “a large-scale algae-to-aviation biofuels production facility in Europe.”  Lufthansa has partnered with Australia’s Algae-Tec Ltd. (ALGXY:  OTC/PK or AEB: ASX), a developer of algae-based biofuel technologies, and has agreed to foot the bill for the facility, but has so far been mum on the cost.  Algae-Tec will run the facility.

The commitment of a large company like Lufthansa to such an undertaking is impressive.  The air carrier had previously run several test flights using biofuel but complained about inadequate biofuel supplies.

Commissioning and running the biofuel plant for Lufthansa will not be a maiden voyage for Algae-Tec.  Just two months ago the developer opened a new algae-based biofuel plant in Australia’s New South Wales. The company claims to have perfected a “high-yield, enclosed and scalable algae growth and harvesting system.”

One of the attractive elements to the Algae-Tec system is reliance on carbon emissions as feed for the algae.  I noted that Lufthansa’s announcement made much of the emissions savings and that the location of the plant in Europe would depend upon finding a reliable source of carbon.  They should have little difficulty in finding a partner willing to give up carbon.

It will take some months to find out whether Algae-Tec’s system will take flight with Lufthansa.  However, after the many delays algae-biofuels investors have experienced already, a bit more time on the tarmac should not be a problem.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 

Posted by Debra Fiakas at 09:41 AM | Permalink | Comments (0)

Jim Lane

Amyris redux, or fiscal caution in the ramp-up process?

We look at the data, as the advanced isobutanol pioneer switches Luverne from isobutanol to ethanol amidst production shortfalls.

In Colorado, Gevo (GEVO) announced that, while making significant progress towards economic production levels, the company does not now expect to achieve its desired year-end run rate – instead it has delayed hitting that target into 2013.

“While we have made significant progress towards economic production levels,” said Gevo CEO Pat Gruber, “we have decided to optimize certain specific parts of our technology to further enhance bio-isobutanol production rates.  Implementing these adjustments while trying to produce product in a plant the size of Luverne makes no sense from a business or technical point of view, particularly when we have better options available.

“In order to maximize cash flow, we believe it makes more sense to temporarily shift to ethanol production. This optionality is a result of Gevo’s patented retrofit design that allows for switching between isobutanol and ethanol. It’s very important to us to introduce this technology to the marketplace in the most considered and responsible way, and do what’s right for our customers, our shareholders, and the long-term needs of the business.”

“In five short years, we have gone from start-up to commercial-scale production at the world’s first commercial bio-isobutanol production facility,” Gruber added. “Production start-ups are never easy, but we are years ahead of our competition and well on our way to realizing economic production levels during 2013.”

Why the switch?

Bottom line, isobutanol has been produced, but not at economically viable yields. The process needs improvement, at scale, which leaves the company with the choice of producing isobutanol at suboptimal yields and losing money – or switching back to ethanol and conserving cash. Since the company had not made any formal performance targets aside from a commitment to reach a 1 million gallon per month throughput by December – which is clearly out the window anyway – the option that offered the lower cash burn clearly looked more attractive to management.

Rob Stone of Cowen and Co writes: “Railcar quantities [of isobutanol] have shipped, and additional inventory should enable customer testing. However, throughput is too low, so continued production while working on the fix would consume cash. Specific issues have been identified, but were not disclosed for competitive reasons. Timing for a solution is uncertain, and Redfield is likely on hold.”

“This is a slightly positive cash margin business under current commodity prices, commented Raymond James energy analyst Pavel Molchanov, “so it’s preferable than the alternative, i.e. making isobutanol at suboptimal rates and generating negative margins.”

Amyris redux?

“Investors who got burned on Amyris (AMRS) over the past year may see this news as a repeat of that company’s initial guidance cut in November 2011 (which was followed by a full-fledged guidance withdrawal in February 2012),” commented Raymond James energy analyst Pavel Molchanov.

“There is a parallel here, of course, in that both companies experienced, in their own ways, the fermentation scale-up issues alluded to earlier. We don’t see the Gevo announcement as a carbon copy of what happened at Amyris. In retrospect, Amyris had laid out production and financial targets (including positive cash flow in 2012) that had been far too aggressive.

“Gevo’s only formal target previously had been the year-end 2012 exit rate of one million gallons per month, and at this point the company is (wisely, in our view) staying away from providing a specific timeline for resuming isobutanol output. Our prior assumptions didn’t show positive EBITDA until well into 2014, although that may need to be pushed out further depending on the progress in optimizing Luverne. We plan to update our near-term estimates for Gevo as part of our 3Q12 alternative energy earnings update next month.”

Molchanov added, “The other important difference compared to Amyris is their relative valuation. On November 2, 2011 – right after its initial guidance cut – Amyris was trading at 85% of our discounted cash flow (DCF) per share estimate. By contrast, Gevo as of yesterday was at only 35% of our DCF estimate – as shown on page 2, the lowest multiple in the peer group. In other words, Gevo is by no means priced for perfection, and while we expect some weakness today, we think it will be moderate.”

The fiscal impact

Rob Stone of Cowen & Co writes: “We believe it may take six months before isobutanol production resumes, and more time will be needed to prove economic viability. This raises uncertainty and likely pushes out future projects. Depending on the length of the delay, additional funding may be needed to reach cash flow break-even. Trading at about 1.2x BV looks fair, given a deteriorating balance sheet and no visible triggers. We lower our rating from Outperform to Neutral.

Impact for Gevo customers

“This delay does not endanger any of Gevo’s offtake agreements with its customers,” said Molchanov.

The Redfield impact

Gevo’s second project is at the Redfield ethanol plant in South Dakota. Analysts are expecting a 6-month delay in that project coming online.

Can Gevo make money producing ethanol?

It appears to be a breakeven.

“Rather than try to solve problems while in production, or idle the plant,” commented Cowen & Co’s Rob Stone, “the decision was made to switch Luverne back to ethanol. This is good for labor, local suppliers, and offtakers, while demonstrating the value of the reversibility feature for potential future partners. If favorable regional prices for corn and animal feed persist, management believes it should at least be able to run the plant at break-even cash flow.

The view from management

Gevo has likley said all it is going to say on the matter. But Molchanov notes, “in mid-August – only a month ago – Gevo’s CEO [Pat Gruber] made a $49,000 purchase. We are always fans of insider buying, particularly at early-stage companies such as this.”

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.

Posted by Guest Contributor at 09:37 AM | Permalink | Comments (0)

Jim Lane

Closely-watched green gasoline producer collapses as Waste Management (WM) declines next financing round.
What does it mean for companies like Fulcrum Bioenergy, Enerkem, Agilyx, Agnion, Renmatix, Genomatica, and InEnTec? The Digest looks at the inside story.

In Texas, Terrabon filed for Chapter 7 bankruptcy protection; the company’s operations will cease and a trustee will be tasked with liquidating the company’s assets for the benefit of creditors.

The complete Chapter 7 announcement is here.

In a statement, Terrabon’s leadership said that company could not obtain additional corporate funding to finish developing and engineering its first commercial-scale plant. Suspension of operations resulted in lay-offs of approximately 60 full-time employees, effective with the bankruptcy filing.

The storyline is clear enough: Terrabon had a financing round planned for this year, which Waste Management was expected to lead. In August, Terrabon learned that Waste Management would not be participating in the round – part of what Terrabon was informed was a cutback in WM’s overall capital investment following a late July corporate shake-up.

What does Terrabon make?

Terrabon produces high-octane gasoline using its MixAlco technology. MixAlco is an acid fermentation process that converts biomass into organic salts. The resulting non-hazardous organic salts, or bio-crude, would be then shipped by truck, rail or pipeline to a Valero refinery or other centralized processing facility where it would be converted to a high-octane gasoline that can be blended directly into a refiner’s fuel pool, avoiding many of the blending and logistics challenges presented by ethanol.

As of last year, Terrabon had exceeded its goal of producing 70 gallons of renewable gasoline per ton of MSW using its patented acid fermentation technology.

And last fall, Terrabon announced that it has been awarded a $9.6 million, 18-month contract by Logos Technologies to design a more economical and renewable jet fuel production solution for the Defense Advanced Research Projects Agency.

More on that project here.

Rumors flying

The announcement capped off a month in which unconfirmed rumors concerning Terrabon’s struggles in its latest financing round increased in frequency and intensity. By Wednesday, the Digest wrote:

“But we expect that we have not seen the last round of rationalization by a major strategic – perhaps not even the last major announcement this month. Watch those companies that have had their strategics on board for three years, or more. It’s hard for strategics to make shifts in less than three years without looking unserious – without the data to make decisions – but three-year time windows are usually enough for portfolio rationalization to occur. Not to mention that effective corporate godfathers often move up or out within three years.”

The WM reorganization

In the last week of July, Waste Management announced a decision to eliminate 700 positions – 2 percent of its overall workforce – and a flattening of its management structure as well as reductions in corporate support staff.

The plan was announced after WM profits fell to 45 cents per share for Q2 (down from 50 cents in Q2 2011) and well down from consensus analyst expectations, pegged at 53 cents. It was the fifth quarter in a row of falling margins at WM, and a second consecutive quarter of missing analyst expectations.

At the same time, WM maintained its shareholder dividend – putting presumed pressure on capital outlays such as represented by the investing activities of the Organic Growth Group, tasked with finding growth opportunities synergistic with the WM’s objective of maximizing value from waste, including converting them into biofuels, renewable chemicals and energy.

WM’s representative on the Terrabon board, WM Senior Vice President Carl Rush – chief of the company’s organic Growth Group, took early retirement in the corporate restructuring.

Other financing options at Terrabon

Terrabon quietly laid off 40 staff in late August in an attempt to reduce the cash burn and buy more time for refinancing. Other investors in Terrabon were sympathetic, but unable to fill the void on short notice. Valero, for example, had faced a similar situation at Qteros in the past year – while stepping up at Mascoma with increased investment aimed at helping that company proceed to complete its first commercial plant. Last summer, Valero announced that it OK’d the financing of the Diamond Green renewable diesel project off its balance sheet, and pulled out of the DOE loan guarantee program.

A flutter of hope

In the last week of August, hopes grew that Waste Management would be able to continue to support its complete set of planned investments, when WM and Renmatix announced a joint development agreement to explore the feasibility of converting post-consumer waste into affordable, sufficient-quality sugars for manufacturing biobased materials. At the time, it was reported that WM had joined global chemical giant BASF and Kleiner Perkins Caufield & Byers in Renmatix’s Series C raise, now totaling $75M. More on the WM, Renmatix deal is here.

In addition, WM continued to participate in Genomatica, joining the $41.5M Series D round that was announced August 3rd, and which included Alloy Ventures, Draper Fisher Jurvetson, Mohr Davidow Ventures, TPG Biotech, and VantagePoint Capital Partners – with WM as the chief strategic. But Terrabon was unable, ultimately, to secure another round of WM support.

Reaction at Waste Management

On Friday, Waste Management issued the following statement: “Waste Management has invested over several years in a diverse portfolio of conversion technology platforms to determine if they are scalable and economic. With the prospect of converting organic energy into biofuels still in various stages of development, not every initiative in our range of investments is certain to succeed. We will continue to nurture, evaluate and scale up the most viable conversion technologies that match our ongoing strategy of extracting more value from waste.”

The company also confirmed that former McKinsey partner Bill Caesar, who joined WM as chief strategy officer in 2010 and subsequently became president of Waste Recycling Services, had taken over responsibility for the Organic Growth Group, and the company said that OGG “definitely remains a part of our company post-restructure.”

Reaction at Terrabon

“It is with great disappointment we announce Terrabon has been unable to obtain additional financing and must suspend operations,” said Gary Luce, CEO of Terrabon. “This is a sad day for Terrabon’s employees, partners, suppliers and vendors who never wavered from their robust support of our company and the technology we deeply believe in. We want to thank them and convey how deeply we appreciate their steadfast loyalty during our journey to become an additional source of alternative energy for the United States.”

The company had been aiming for a 5 million gallon small commercial facility by 2013 based on 220 dry tons of feed per day. The copnay had intended to move to 500 ton and 1000 ton per day designs. At 1000 tons per day, they projected $1.00 per gallon operating costs and capital cost per annual gallon is between $6.00 and 8.00. Accounting for the BTU difference between ethanol and gasoline, on an ethanol-equivalent basis that equated to $0.67 per gallon operating cost and $4.00 – $5.33 per annual gallon capital cost.

More on the technology and data here.

Who else is in the WM portfolio?

Besides Terrabon and Renmatix – there are quite a few. Among them: Fulcrum Bioenergy, Enerkem, Agilyx, Agnion, Genomatica, and InEnTec. In the near term, Fulcrum Bioenergy and Enerkem are the closest to fuels commercialization (and the big capital calls).

In the case of Enerkem, they also have parallel investments from Valero and Waste Management (Enerkem Senior VP for Business Development, Tim Cesarek, was until last year the manageing director of the WM’s Organic Growth Group and served for more than a year on the Terrabon board.)

One-off or trend?

We see this as a one-off. WM had a wide range of investments, and though the timing was awful, portfolio rationalization is inevitable for strategics. Terrabon had not have a completed engineering package at commercial-scale – despite being founded in 1995 – and clearly was “a bridge too far” for WM.

Last week, we wrote: “Here’s the problem with big strategic partners for small, early-stage companies – and one of the reasons that, for many years, VC firms didn’t want strategics along for the ride in venture development: strategics change strategy, and small changes at big companies result in big changes for small companies. What is a ripple in the water to a giant is a tsunami to a fly.

“Often, strategy must shift as the result of weak earnings, weak economies, or large-scale acquisitions that come with collateral businesses that must be rationalized, cleaned up, or otherwise fitted under the corporate umbrella. Personnel changes at strategics can have colossal impact on small companies, too. Or just painful rounds of rationalizing investments, after the pleasant couple of years making them.”

The impact on other WM investments?

Too soon to tell. Certainly the company continues to be on a strategic path towards unlocking higher value from waste through advanced technologies that produce fuels and chemicals. With landfill volumes flat (and not helped by a sluggish economy, WM is determined to invest in new markets and higher-value product streams.

We continue to expect WM to take investments on a one-by-one basis – though the patience for long development timelines and the appetite for new technologies may have been reduced by increased capital constraints at WM in the nearer-term.

The bottom line

The company’s assets will be sold by the trustee. Absent a completed engineering package, it will be difficult to easily separate the technology from the laid-off team that had been built up to shepherd it towards commercialization. We’ll wait to see who picks up the Mix-Alco technology – both in terms of Terrabon’s improvements and the technology originally licensed out of Texas A&M. Also, we’ll wait to see the fate of the aforementioned Logos project to design a more economical and renewable jet fuel production solution for the Defense Advanced Research Projects Agency.

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.

Posted by Guest Contributor at 09:07 AM | Permalink | Comments (0)

Jim Lane

Codexis, Shell redefine relationship; Codexis gains global rights; will lay off 133 staff; adopts anti-takeover measures; what does it mean for Shell, Raizen, Iogen, Codexis and Dyadic?

What does it say about strategic investors in advanced biofuels?

In California, Codexis (CDXS) announced that Shell has granted Codexis a royalty-bearing, non-exclusive license to develop, manufacture, use and sell cellulase enzymes developed under the companies’ Amended and Restated Collaborative Research Agreement. The scope of the New Agreement is worldwide, except Brazil, for enzymes used in the biofuels field. Codexis already has exclusive rights to commercialize its cellulase enzymes in other fields.

Codexis rights, Shell royalty

In exchange for these new rights, Codexis will be obligated to pay Shell a low single-digit percentage royalty on net sales of CodeXyme cellulase enzymes to customers other than Shell and its affiliates. Codexis will also be obligated to pay Shell a low single-digit percentage royalty on Codexis’ own use of cellulase enzymes in the biofuels field. Shell is also entitled to preferential pricing on purchases of cellulase enzymes from Codexis should the companies mutually agree to enter into a future supply arrangement.

Codexis and Shell have agreed to an early termination of the Shell Research Agreement, effective now, and Shell will pay Codexis approximately $7.5 million in satisfaction of remaining R&D payments. Codexis also remains eligible to receive a one-time $3.0 million milestone payment upon the first sale or use by Shell of such enzymes in the biofuels field in Brazil, or in other fields of use previously specified in the Amended and Restated License Agreement between Codexis and Shell.

The Shell Research Agreement would have expired on November 1, 2012 if not for the early termination effected by the New Agreement.

Shell’s 10-year rights

Shell has also agreed under the New Agreement not to sell any cellulase enzymes to third party biofuel customers using technology developed by Codexis. Shell retains its right to use and manufacture such enzymes, including those enzymes that result from Codexis improvements during the ten-year period beginning on August 31, 2012, for Shell’s own use and use by Shell affiliates, as well as to sub-license the right to manufacture such enzymes to third parties for Shell’s own use.

Codexis to lay off 133 employees

Codexis today announced a workforce reduction of 133 employees effective October 30, 2012. All affected employees will receive advance notice of their employment loss in accordance with applicable law. Codexis estimates that it will incur total charges of up to $3.6 million in the second half of 2012 as a result of this workforce reduction, including $2.9 million in continuation of salary and benefits of the affected employees until their work is completed and their positions are eliminated and $0.7 million of one-time termination and miscellaneous costs, all of which will result in future cash expenditures.

Codexis shareholder rights plan

The Board of Directors of Codexis announced today that it has adopted a short-term shareholder rights plan, which is scheduled to expire on September 2, 2013.

The rights plan is intended to enable all of Codexis’ stockholders to realize the underlying value of their investment in Codexis by guarding against inadequate or unsolicited takeover offers. The rights are not being distributed in response to any specific effort to acquire control of Codexis. The rights are designed to ensure that the Board of Directors has sufficient time to consider any proposal and make sure that all stockholders receive fair and equal treatment in the event of any proposed takeover of Codexis.

In addition, the rights plan will guard against partial tender offers, open market accumulations and other coercive tactics aimed at gaining control of Codexis without paying all stockholders a full control premium for their shares.

Under the plan, one preferred stock purchase right will be distributed for each share of common stock held by stockholders of record on September 18, 2012. Subject to certain exceptions, the rights will be exercisable if a person or group acquires 15% or more of the Company’s common stock or announces a tender offer for 15% or more of the common stock.

More on the rights plan, here.

Reaction from Codexis

“Codexis has developed some of the most cost effective and competitively advantaged cellulase enzymes in the world. Securing the rights to market these enzymes to advanced biofuel companies outside of Shell is a major milestone for the company,” said John Nicols, President and CEO of Codexis. “We also remain focused on the Brazil market, where our discussions with Raízen continue regarding commercialization of our cellulase enzymes for second generation ethanol production.”

Analyst reaction

Piper Jaffray’s Mike Ritzenthaler writes:

Shares of CDXS are down 50% since February 21st, and at this point we believe that most of the news around the new relationship with Shell has been priced in. Over the next 2-3 years, we expect essentially all of the value of the company to be derived from pharma sales. With the lack of clearly defined catalysts (either positive or negative), we have elected to take a Neutral stance. As a result, we have elected to upgrade shares to Neutral, while maintaining our $2 price target. The new agreement stipulates a ‘low, single-digit’ royalty percentage to be paid to Shell out of any future net sales of CodeXyme to third-parties, with no apparent sunset. However, winning new business for CodeXyme will be very difficult, in our view, given the nature of the enzyme supply agreements already in place for current cellulosic biofuel projects.

• New agreement eliminates Shell backstop. Codexis announced yesterday that, as of August 31st, they are free to pursue global opportunities for fuel applications of CodeXyme, and have agreed to pay Shell a percentage of all future net sales. The royalty payments are a mechanism for Shell to recoup their approximately $375 million investment in the development of cellulase enzymes, though it is yet unclear whether the royalty provision has a sunset. We have revised our model to include a final $7.5 million FTE/milestone payment from Shell in 3Q12, and ~$1 million in one-time expenses related to the workforce reduction in 4Q12. In 4Q12 through the end of FY14, we have included revenue contribution only from the pharmaceutical segment.

• Although Codexis can now pursue global fuel opportunities, there are likely no more prospects with or without exclusivity with Shell. As far as Raizen goes, we believe the 2-year development window for 1st gen technology speaks volumes about the conservative nature of Raizen’s management and operations. Cellulosic biofuels could take 2-3x the time to implement (at best) due to the complexity, the need for an intermediate scale, and Raizen’s cautious approach. Projects outside Brazil may take even longer than those with Raizen, since the cellulosic ethanol plants currently under construction already have a contracted enzyme producer, and the next slate of projects likely won’t come on-line until 2016 at the very earliest.

Biofuel Digest’s reaction

We have two thoughts to add – one on the nature of strategic partners and strategic partnerships as a whole. A second, some thoughts on where we believe Shell, Raizen, Iogen, Dyadic and Codexis are headed – in lieu of the companies being able to offer a comprehensive roadmap at this time. We think this does not signal that Shell is abandoning the field – rather, that it is centering its efforts on sugarcane bagasse.

On Shell, Raizen, Iogen, Codexis and Dyadic

The second, first. Our thesis is that, rather than abandoning cellulosic ethanol and the enzymatic path to advanced biofuels, Shell is advancing from supporting R&D to supporting commercialization, via Raizen, its joint venture in Brazil with Cosan (CZZ).

We note, for example, that Codexis can assign rights to an acquiror. However, “any such assignee is required to undertake a certain level of effort to further develop CodeXyme cellulase enzymes, make certain payments to Shell, or otherwise elect to give up its cellulase enzyme license grant from Shell.” We see that as clear evidence of Shell’s intentions to have someone else take up the long-term R&D effort while Shell focuses on commercialization.

(We also note, in another signs of its intentions in Brazil, that Shell built its own pilot plant in Houston to work with Virent’s technology. Now, Virent has its own pilot, so why build one? Our take is that Shell is unwilling to stand in line as Virent juggles campaigns for a variety of investors and clients, such as Coca-Cola)

We expect that Raizen will announce that it will utilize (presumably Codexis-based, and expressed through the Dyadic (DYAI) C1 platform) a C6 enzyme for sugarcane bagasse – and that Raizen and Iogen will ultimately build a plant to support that technology path in Brazil. We further expect that there will be a second path announced with respect to C5 sugars – and that additional partners may well be involved.

Ourselves, we don’t see conservatism in the Brazilian market or at Raizen in particular – we see all kinds of urgency, tempered only by the fact that they are hard-nosed business people who work in two brutally competitive commodity markets.

First order of urgency, sugar prices are high – producers would like to maximize output. But the Brazilian government has lately, through ANP, acquired substantial regulatory influence over biofuels, and that means that to extent that it has acquired some influence over the global sugar trade. Brazil is the world leader in sugar production, and that production occurs at integrated sugar/ethanol facilities.

Diverting as much production to sugar as possible? That’s not the solution that Brazil wants to hear. It puts pressure on oil imports and fuel prices – unpopular.

Long-term, Brazil needs cellulosic production and producers need it too if they are to take advantage of good sugar prices and meet the home fuel needs, too – and make a case that production expansion is a good thing not only for producers, but the country as a whole.

Codexis as acquisition target

Let’s face it – Codexis has invested $375 million in developing cellulase enzymes, the company has a small but lively business in pharma enzymes – it now has freedom to operate anywhere excepting Brazil where it has a mighty partner/investor in Raizen. Management has been rebuilt. Painful steps to maintain liquidity have been taken. All that, and the company’s market value is $81 million. If ever there was a ripe takeover target in biofuels enzymes, this is it.

On strategic partners

Here’s the problem with big strategic partners for small, early-stage companies – and one of the reasons that, for many years, VC firms didn’t want strategics along for the ride in venture development: strategics change strategy, and small changes at big companies result in big changes for small companies. What is a ripple in the water to a giant is a tsunami to a fly.

Often, strategy must shift as the result of weak earnings, weak economies, or large-scale acquisitions that come with collateral businesses that must be rationalized, cleaned up, or otherwise fitted under the corporate umbrella. Personnel changes at strategics can have colossal impact on small companies, too. Or just painful rounds of rationalizing investments, after the pleasant couple of years making them.

You can see it with Shell, for example. There were the fun years. Shell invested in Cellana, Iogen, Codexis, and Virent, just to name several high-profile advanced biofuels ventures. We’ve seen big changes with the first three – that end up causing headaches for the other partners, or management, trying to explain why the relationship has changed – constrained by confidentiality, disclosure rules – often, a highly beneficial change is practically impossible to explain in the positive light it can and should be seen in.

For the last couple of years, strategics have been the darlings of biofuels companies – who have been waving them like crazy at investor and industry presentations. Well they should be proud of them, as those relationships are hard to gain, hard to sustain. They have brought not only dollars, but access to markets, and validation of the technology.

But we expect that we have not seen the last round of rationalization by a major strategic – perhaps not even the last major announcement this month. Watch those companies that have had their strategics on board for three-years or more. It’s hard for strategics to make shifts in less than three years without looking unserious – without the data to make decisions – but three-year time windows are usually enough for portfolio rationalization to occur. Not to mention that effective corporate godfathers often move up or out within three years.

For the smaller company, it is often a blessing in disguise. Though as Winston Churchill was wont to observe, “as a blessing, it is very effectively disguised.”

The most vulnerable of strategics – generally, upstream.

Strategics who are investing because they wish to provide new technologies and products to their existing customer base – well, that is a little like a financial investor, isn’t it – the decision to invest is driven by customer demand than can be readily monetized.

Strategics who are investing because they see opportunities to commercialize their feedstock – these would be broadly more vulnerable to shifting strategy based on a) finding other technologies, or b) feeling that downstream markets, which involve other partners, are not evolving as fast as envisioned, putting a strain on the ROI case for the ongoing investment.

So – it is a double-edged sword. Broadly, it is near-to-impossible to complete a Series C or D venture round these days without a solid strategic partner in the mix. But, companies might well watch that three-year window.

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.

Posted by Guest Contributor at 09:05 AM | Permalink | Comments (0)

Jim Lane

Algae powered plane photo via BigStock

We look back on a big summer for biofuels development: There have been many recent algae biofuel developments, the drought, and the policy fight over the Renewable Fuel Standard.

But in many respects, its been a summer about aviation biofuels – starting with the demonstration of the US Navy’s Green Strike Group and continuing to announcements of projects right through the summer. The story has internationalized, the technologies are broadening, and more and more blue-chip players are making serious steps towards commercial deployment.

Here are 10 milestones you might have missed.

1. At the beginning of the summer, the Green Strike Group got underway at RIMPAC. The United States Navy may be laboring under a congressional ban on biofuel purchases that cost more than bargain basement fossil fuels, but no one said the Navy can’t burn the biofuel it’s already got. Nothing would bring that day closer than the naval exercises held off the Hawaiian islands starting June 29, known as the Rim of the Pacific Fleet Exercises, or RIMPAC War Games. The setting of the movie “Battleship”, RIMPAC is a competitive war simulation in which participating fleets and naval vessels attempt to outmaneuver and “sink” each others’ ships, winning or losing tactical points in the RIMPAC scoring system.

Why a big deal: Critics carped over the per-gallon cost, but the demonstration was all about technical performance, and the Green Strike Group performed spectacularly. Next stop for the Navy: parity-performance, parity-cost military biofuels by mid-decade.

2. In mid-June, the DOE released details of a long-awaited funding opportunity announcement for advanced biofuels for aviation and military applications, titled “Innovative Pilot and demonstration-scale production of advanced biofuels.”

According to the DOE, “the intent of this FOA is to identify, evaluate, and select innovative pilot- or demonstration-scale integrated biorefineries that can produce hydrocarbon fuels that meet military specifications for JP-5 (jet fuel primarily for the Navy), JP-8 (jet fuel primarily for the Air Force), or F-76 (diesel).”

Why a big deal: That’s major dollars these days at the budget-squeezed DOE.

3. Right before (US) Independence Day, the Air Force tested Gevo’s (GEVO) alcohol-to-fuel jetfuel made from isobutanol in an Air Force A-10 Thunder Bolt on June 28 at Elgin Air Force Base. The flight on a 50/50 blend was hailed has a great achievement because of the fuel’s alcohol base rather than oils.

Why a big deal: The testing and certification effort for alcohol-to-jet fuels is making big strides. It’s hoped that these fuels can provide a low-cost path in the near term.

4. In early July, Canada’s National Research Council funded test flights in May and June of a Dassault Falcon 20 to test renewable aviation fuel produced from domestically-produced brassica carinata feedstock. The plane was followed by a Lockheed T-33 vintage jet trainer to measure emissions in real time.

Why a big deal: Canada’s strides towards aviation biofuels are gaining momentum – note that a new Canadian-focused feedstock, carinata, is in the mix here.

5. Also in early July, General Electric(GE) committed to buy 5 million gallons of biofuels annually for its aviation division, starting in January 2015. The commitment totals half of the 10 million gallons used at the company’s jet engine testing facilities near Cincinnati. Many Ohioans see a kickstart for the crop economy, which already has the capability to grow and process miscanthus, camelina, soy, and switchgrass, among other more traditional feedstocks.

Why a big deal: That’s a ton of testing, indicative of a major effort at GE

6. In mid-July, Lufthansa said that it believes that A1 jet fuel will remain the main aviation fuel for the next 20 years but does expect renewable jet fuel to replace up to 5% of the market in the next five to seven years. With the European economic climate no longer interesting for investors, the airline believes that agricultural investments—for feedstock for aviation biofuel, for example—is an area not yet fully exploited.

Why a big deal: 5 percent may sound small, but its a 60 billion gallon market – that’s 3 billion gallons.

7. In the first week of August, Amyris (AMRS) announced the signing of an amendment to its collaboration agreement with Total. Under the enhanced collaboration, Total reaffirmed its commitment to Amyris’s technology and dedicated its $82 million funding budget over the next three years exclusively for the deployment of Biofene, Amyris’s renewable farnesene, for production of renewable diesel and jet fuel. Total’s commitment includes a $30 million payment to Amyris this year.

In related news, Amyris announced a Q2 loss of $46.8 million on revenues of $19.0 million, with revenues down from $32 million for Q2 2011.

Why a big deal: Total aims to take Amyris-based jet fuel all the way.

8. Last month, Boeing and COMAC opened a joint Aviation Energy Conservation and Emissions Reductions Technology Center, a collaborative effort to support commercial aviation industry growth. The Boeing-COMAC Technology Center’s first research project aims to identify contaminants in “gutter oil” and processes that may treat and clean it for use as jet fuel. Waste cooking oil shows potential for sustainable aviation biofuel production and an alternative to petroleum-based fuel because China annually consumes approximately 29 million tons of cooking oil, while its aviation system uses 20 million tons of jet fuel. Finding ways to convert discarded “gutter oil” into jet fuel could enhance regional biofuel supplies and improve biofuel’s affordability.

Why a big deal: Can you say China?

9. Aemetis announced a license agreement with Chevron Lummus Global for the inexpensive, rapid production of renewable jet and diesel fuel by the conversion of existing biofuels and petroleum refineries.

The license agreement grants Aemetis Advanced Fuels Inc., a wholly-owned subsidiary of Aemetis, the use of the Biofuels ISOCONVERSION Process for the production of 100% drop-in renewable jet fuel and diesel in Aemetis biorefineries throughout North America.

Why a big deal: This is 100 percent drop-in fuel, rather than 50/50 blends that biofuels are currently limited to because they lack aromatics

10. The Australian Initiative for Sustainable Aviation Fuels (AISAF) was inaugurated on 08 August 2012. It has funding for 12 months in the first instance. The Steering Committee held its first meeting on 20 August 2012. AISAF is a public-private initiative that aims to facilitate sustainable growth of the aviation industry by bringing together Australian leaders in the aviation industry and in the components of the developing supply chain for sustainable aviation fuels, promoting and driving the development of the SAF industry in Australia, undertaking collaborative work under the Memorandum of Understanding on SAF signed by Australian and the USA on 13 September 2011, and undertaking collaboration work with other international partners.

Why a big deal: Australia makes a huge stride towards an aviation biofuels industry

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.

Posted by Guest Contributor at 09:05 AM | Permalink | Comments (1)

Jim Lane

With the US drought, food vs fuel has returned as an issue.
What alternatives are scientists, entrepreneurs developing to take us beyond the old debate?

With the US drought, food vs fuel has returned as an issue.

What alternatives are scientists, entrepreneurs developing to take us beyond the old debate?

In the past week we published a report that the chairman of Nestle, Peter Brabeck-Lemathe, has called anew for a ban on making biofuels from feedstocks that can also be used in food production.

The backdrop for Brabeck’s comments is the US drought, which is causing sharp falls in corn yields.

Now, there are bound to be those who shrink from taking direction on how best to feed the world from the makers of Chocapic breakfast cereal, Wonka bars and Hot Pockets – who will regard the Nestle message as self-serving and transparently aimed at shifting product margins.

But many others agree that food producers should have the first (or only) call on these feedstock – a popular meme this week on Twitter has been “why should people go hungry so rich men can have fuel for their cars?”

It’s an intuitive concern for most Westerners, who are highly urbanized, and exposed to agriculture via the grocery store. They experience the impact of rising prices in terms of their costs, not their returns on investment.

Not so, for the least developed countries. There, the most exposed portion of the global population, in terms of nutrition and all the ills of extreme poverty, tend to be subsistence farmers who are driven into misery not by low US crop yields, but low commodity prices.

What has driven many of them off the land, and into the cities where they are badly exposed to US grain cycles, is the poor returns from subsistence farming that low producer prices bring, by making technology improvements difficult if not impossible to make cost effective.

As a result – we are usually at an impasse. Agriculture pointing to the benefits of rising prices for key feedstocks, consumers pointing to the pitfalls. Hence, the food vs fuel debate.

And so the debaters debate, and debate, and debate. Meanwhile, entrepreneurs and scientists are giving us something even more precious than resolution of that debate. Which is to say, options and alternatives.

Today, we look at 6 technologies and strategies that address food vs fuel, and offer alternatives.

1. Feedstock diversification.

In biofuels, it is more talked about – the push beyond corn starch and cane sugars into corn stover, sugarcane bagasse, woods and forestry residues, animal wastes, algae, municipal solid waste, and energy grasses as well as new inedible oilseed crops such as jatropha, carinata and camelina.

But there are opportunities for food manufacturers as well.

Take for instance Solazyme (SZYM) Roquette Nutritional’s whole algalin flour. According to the makers, it provides “an outstanding solution for improving nutritional profiles in many applications, such as bakery, beverages and frozen desserts. Acting as a whole food ingredient, Whole Algalin Flour is very low in saturated fat, is trans-fat free, cholesterol free, and considerably reduces calories, as well as provides fiber and protein, while providing the same overall mouthfeel and consistency as a full fat food.”

Much of the underlying problem of food vs fuel is that multiple sectors have fallen in love with the same feedstock – frankly, that’s Nestle’s problem, and the problem of many biofuels producers. If the US is addicted to oil, many producers are addicted to corn or cane, and both sides benefit from diversifying where possible.

2. Increasing yield per ton.

There are low-yield biofuels technologies – and high-yield, in terms of productivity per ton of biomass. At the high end, consider for example Coskata’s 105 gallons per ton, and ZeaChems 135 gallon per ton yields. Compared to a technology that yields, for example, 60 gallons per ton (and they are out there), that can reduce feedstock requirements by half.

But there is more than just picking the right technology. Great technologies are those that optimize their yields. For example, the US ethanol industry used to have yields in the 2.5-2.7 gallons per bushel range. Today, 2.9 gallons per bushel is state of the art at many facilities, and POET has found ways to increase that to 3.0 gallons in some cases.

Continuous improvement is what has analysts excited over KiOR (KIOR), too – when first deployed at demonstration scale, the technology was yielding in the mid-60 gallons per ton, based on Southern Yellow Pine. But the company expects to reach 92 gallons per ton by mid-decade – nearly a 40 percent improvement.

3. Reducing water intensity.

When drought comes, water is more precious than ever. That’s why it was big news this week when Syngenta announced that it has signed trial agreements with Golden Grain Energy (GGE) of Iowa and Siouxland Ethanol of Nebraska to demonstrate the value of Enogen grain. Both ethanol plants will complete a three-month trial with the specialized corn grain bio-engineered to allow ethanol production to be more efficient, cost effective and better for the environment.

Golden Grain Energy and Siouxland Ethanol will begin their trials in the spring of 2013 with Enogen grain harvested from acres planted this past growing season. Following the trial, each plant will analyze data to discover the efficiencies created from Enogen trait technology. Pending trial results, each plant will then enter into negotiations with Syngenta to sign a commercial agreement.

As we wrote last year in profiling the technology:

“So, you get around a 10 percent lift in total capacity (from the speed-up), plus energy, water and carbon savings.

For example, in a 100-million gallon plant, efficiency improvements enabled by Enogen grain can save 450,000 gallons of water, 1.3 million KWh of electricity and 244 billion BTUs of natural gas, and carbon dioxide emissions by 106 million pounds.

That works out to around 8-10 cents per gallon in savings – that can be shared by the grower, the plant, or the customer.

4. Supertraits and super yields.

As we pointed out in 7 paths of the New Agriculture:

If new crops are unavailable, and residues exhausted, why not try to get more productivity out of the overall plant. In the old agriculture, there was double-cross hybridization to put more vigor into a plant, and there have been additional inputs such as added nitrogen, to assist with the growing cycle.

But in the new agriculture, there are traits that confer drought-tolerance, heat-tolerance, pest- or pesticide-tolerance.

Just last week, the U.S. Department of Agriculture deregulated MON 87460, Monsanto’s first-generation drought-tolerant trait for corn.  Drought-tolerant corn is projected to be introduced as part of an overall system that would offer farmers improved genetics, agronomic practices and the drought trait. Monsanto plans to conduct on-farm trials in 2012 to give farmers experience with the product, while generating data to help inform the company’s commercial decisions.

The drought-tolerant trait is part of Monsanto’s Yield and Stress collaboration in plant biotechnology with Germany-based BASF.

In specific bioenergy crops, companies such as Ceres (switchgrass, energy cane in the Blade energy crop family) and Mendel Biotechnologies (miscanthus) have been garnering the most attention as they bring new traits forward for the new integrated biorefineries utilizing energy crops.

5. Utilizing Waste Lands.

If all the above strategies are already used, or unavailable, why not bring lands into production that have previously be un-productive. This is closely related to the “super traits” pathway – in fact, many of the same companies, such as Ceres (CERE), are hard at work on traits such as salt-tolerance that will open up lands with previously unsuitable soils or water sources. But there are also companies such as SG Biofuels, working on developing non-food, extremophile crops like jatropha that can better handle poor soils and low rainfall, through its JMAX portfolio.

And, there’s microalgae from the likes of Sapphire Energy and solar fuels from the likes of Joule Unlimited. Yields in the 3,000 to 15,000 gallons per acre range – compared to around 400 this year for US corn ethanol yields (or closer to 500 in a normal rain season).

As we profiled in Natural Gas and electrofuels: one-stop shopping for energy independence:

Electrofuels use microoganisms — typically bacteria — to directly utilize energy from electricity and do not need solar energy to grow or produce biofuels. ARPA-E’s Electrofuels program is seeking to take advantage of those properties to create processes that are up to 10 times more energy efficient than current biofuel production methods. Back in 2010, they funded 13 projects that will attempt to bring a feasible technology forward to achieve those productivity levels.

The gallons per acre range – the numbers could be truly astronomical given that these can be produced them in three-dimensions to achieve efficiencies of acreage. Given that they utilize electricity rather than photosynthesis, production units can be stacked. The limiting factors are in the costs of engineering and constructing stacks, not in available light per acre.

6. Improving results from photosynthesis.

One of the more exciting entries in recent years is the recent class of technologies funded in the ARPA-E PETRO project.

PETRO aims to create plants that capture more energy from sunlight and convert that energy directly into fuels. ARPA-E seeks to fund technologies that optimize the biochemical processes of energy capture and conversion to develop robust, farm-ready crops that deliver more energy per acre with less processing prior to the pump. If successful, PETRO will create biofuels for half their current cost, finally making them cost-competitive with fuels from oil. Up to $30 million will be made available for this program area.

More on the PETRO project here.

The bottom line

Food vs fuel, for most, comes and goes with price cycles. We see it as a transitory debate, usually focused on a handful of feedstocks that producers of food or fuel have become overly dependent on. We see it in oil, too.

To us, diversity is the solution – and diversification the strategy, and scientists and entrepreneurs must ultimately solve the debate by ending the need for it.

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.

Posted by Guest Contributor at 12:12 PM | Permalink | Comments (0)

Jim Lane

Analysts are bullish as KiOR’s (KIOR) drop-in biofuels technology transitions to commercial phase – what factors are driving all the good vibes?

There are a lot of Eeyores around the advanced biofuels space these days – well, around the United States and to a great extent the EU as a whole, really. Gloomy, pessimistic, chronically depressed.

Investors have been, in a similar mood, hammering advanced biofuels and biobased material stocks – in some cases to within a few bucks of cash on hand.

KiOR, by contrast, has been generally able to create and sustain its own weather, and has become a rare oasis for analyst optimism. In today’s Digest, we look in depth at the data behind the cheers.

In Texas, the company this week announced a second quarter 2012 net loss was $23.0 million, or $0.22 per share, compared to a net loss of $16.8 million, or $0.16 per share, for the first quarter of 2012 — but it was hardly the financials that prompted a wave of bullish reports from a once-bitten, twice-shy set of equity analysts who rarely hand out lollipops these days for early stage, publicly-held, advanced biofuels companies.

More about KiOR

KIOR has developed a proprietary process, biomass fluid catalytic cracking. BFCC rapidly produces renewable crude oil, which is converted via standard refinery equipment (hydrotreating) into gasoline, ultra low sulfur diesel, and low sulfur fuel oil.

In many ways, KiOR’s technology resembles a time machine – compressing the timeline by which Mother Nature accomplishes the transformation of biomass into fossil crude oil over millions of years, into a couple of seconds.

As a thermochemical technology, it has optionality on feedstock – initially, the plant will use southern yellow pine, which according to analyst option has a sustainable surplus at this time of 59,000 tons per day – enough at 90 gallons per ton to support – all by its onesey – 1.9 billion gallons of fuels. The other main input? Abundant (and highly affordable) natural gas.

Moreover, the Renewable Fuel Standard (RFS2) mandate of 36B
gallons by 2022 should support premium pricing. Scale is up 400x, to 10 TPD, and a 500 TPD plant should be on line in H2:12. We model thirty six 1,500 TPD plants from 2014 to 2021, and licensed partners should add 12 more.

A next-generation catalyst – boosting nameplate capacity by up to 20 percent?

The process produces liquids – which are hydrotreated into fuels; gases, which are burned to help provide process electricity; and coke, which is burned to provide process heat and regenerate the catalyst. However, a new catalyst, KiOR, said, may change the ratios and allow plant to produce up to 20 percent higher throughput. More about that before year-end.

Yields, now and later

In early 2009, yields were in the 17 gallons per ton range, but have improved to 67 at the present time and are targeted to reach the high 80s by 2014 en route to an eventual target of 92 gallons per ton.

Costs, now and later

For 2013, feedstock is modeled by analysts Rob Stone and James Medvedeff at Cowen & Company at $0.29 for natural gas (per gallon produced), with an expected price of $0.52 per gallon by 2022. Yellow pine is modeled at $1.07 per produced gallon in 2013, dropping to $0.89 per gallon in the long term – that equates to a $70-$80 range in the per-ton cost of wood.

Bottom line – today at plant #1 with 250 tons per day of wood biomass arriving at the time of commissioning, costs will be in the $16.27 range per gallon, according to Cowen & Company, of which the marginal costs are $8.97 per gallon.

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.

Scale, now and later

For now, KiOR is commissioning its first commercial-scale facility, which each ultimately have a 62.5 million gallons capacity (based on 1500 tons per day).

Production this year is expected to be in the 800,000 gallon range as plant #1 commissions, rising to 10.2 million gallons in 2013, and rapidly scaling up to 273 million gallons by 2016 en-route to 2.3 billion gallons by 2022, according to Cowen’s ramp-up thesis.

When will we know?

There are three key inflection points for KiOR to watch.

This year – plant #1 is expected to complete commissioning this year – watch that for a confirmation that the technology works as planned at scale.

2014 – plant #2 is expected to be up and running by the end of 2014 – watch that for confirmation of the company’s proposed timeline for new plant construction and financing, and ramp-up towards the 2 billion gallon marks by the early 2020s.

2016 – the company is expected to go sub-$3.00 in terms of cost per gallon for its fuels – thereby reaching the expected parity point with fossil fuels. If it reaches that milestone – essentially, as an infrastructure-compatible, made-at-home, drop-in fuel it should be fully independent of the Renewable Fuel Standard in terms of needing a mandate to assure a market.

Analyst opinion

Rob Stone and James Medvedeff, Cowen & Co.: “A next-generation catalyst may boost nameplate capacity up to 20%, reducing future fixed and operating cost. However, potential start-stop operations and ASP discounts during the initial ramp reduce our estimates. First Columbus revenue, more yield details, Natchez capex and offtake agreements should provide substantial triggers to support fundraising in Q4. We see 80%+ upside potential in KIOR rel. to the mkt in 12 months.”

Mike Ritzenthaler, Piper Jaffray. On the call, management stated that they expect Columbus to cost ~$213 million, 4% below the estimate on the 1Q11 call in May. The company has set its sights on completion of the design package for Natchez by the end of FY12, and has set aside $13 – $14 million for that purpose. Management affirmed that Natchez is tracking for a late 2014 startup. In addition, management announced that they expect lower coke production with improved catalysis, enabling 20% more throughput and lower capital intensity. We maintain our Overweight rating and $20 price target.

Pavel Molchanov, Raymond James: “Within the context of our broadly favorable view on Gen2 biofuels, KiOR provides investors with a pure-play on cellulosic biofuels. As such, 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 company’s technology platform with scale-up and project financing risks, we reiterate our Outperform rating. Shares are currently trading at 63% of our DCF estimate, and our target price of $11.00 is based on a 90% multiple of DCF. Despite the more than 50% upside to our target, KiOR’s distant outlook for profitability (late 2014 at the earliest) keeps us from a Strong Buy rating.

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.

Posted by Guest Contributor at 09:00 AM | Permalink | Comments (0)

Jim Lane

Codexis expects to lose all of Shell funding, win freedom to operate globally (excepting Brazil). Pyrrhic victory or the necessary price of freedom?

In California, Codexis (CDXS) announced that it expects to obtain rights from Shell to market its CodeXyme cellulase enzymes to other cellulosic biofuels developers, (excluding Brazil) and that Shell will discontinue its $60 million enzyme R&D program, which will result in the loss of 116 full-time jobs, or a third of the company’s staff. Raizen, the Shell-Cosan JV, will remain Codexis’ largest shareholder.

Yesterday, as the company reported Q2 earnings, Codexis CEO John Nicols said that “given the recently announced Exclusive Negotiation Agreement we entered into with Shell, we are expecting and are planning for Shell to deliver notice of a reduction in funding under our collaborative agreement by 48 FTEs effective September 1,” said Nicols. “In addition, although we have not received any formal notice from Shell, we do not currently expect any continued Shell FTE funding after October 31.”

At the same time, the company reported Q2 revenues of $22.9 million, a 12% decrease from $26.1 million in the second quarter of 2011. Product revenue in the second quarter of 2012 was $6.8 million, down 19% Q2 2011 on a change in the timing of pharmaceutical product orders.

Overall, the company reported a new loss of $5.5 million, or ($0.15) per share, compared to a $5.0M loss in Q2 2011.

Let’s look at the impact.

The financial assets.

The company has $50 million in cash and cash equivalents, and has set for itself a course to reduce operating expenses to limit its cash burn to a maximum of $10 million per year. That will keep the company sustainable, financially – however, severe changes in the R&D team and structure will result, as the company transitions from an R&D focus to commercialization.

The technology.

In total, Shell has invested $300 million in the CodeXyme cellulase enzyme platform. The claims around the performance of the platform are, basically, three.

Cost. So far as observers have been able to discern, Codexis enzymes currently are less cost-effective than, for example, Novozymes (NVZMY) CTEC3 or Genencor Accellerase Trio, but the company contends that the gap has narrowed sharply since Codexis licensed the Dyadic (DYAI) C1 enzyme production technology in 2010.

There’s high confidence at Codexis (and Dyadic) that that cost advantage can be eliminated by the time the major enzyme producers reach the kind of costs – around $0.25 per gallon of cellulosic biofuels – that are expected to catalyze major capacity building and big enzyme orders.

Performance. Dyadic has been particularly active in emphasizing that, even today, enzymes produced via its C1 technology perform better in the higher pH ranges. Motley Fool contributor Maxxwell Chatsko observed earlier this year that “Trichoderma enzymes Duet (Genencor) and Ctec2 (Novozymes) cannot compete with C1’s CMAX (Dyadic) at a pH of 6.5 – the most common fermentation pH in the biofuels industry.”

Onsite production. C1 enzymes can be produced onsite, eliminating the need for a transport system to receive a whale of a lot of off-site produced enzymes. Abengoa is heading down this route, for example, using its own enzymes produced by the C1 platform.

Potential new dance partners.

The number of available major partners available is not huge. While Codexis was a captive of Shell, POET and DSM hooked up, Abengoa (ABGOY), Sud-Chemie, TMO Renewables, and Mascoma went with their own enzymes, Petrobras went with BlueSugars, Dupont (DD) acquired Genencor, and most of the remainder (COFCO, Chemtex, Shengquan, and Fiberight) lined up with Novozymes. Inbicon has been working with both Novozymes and Genencor, and has tested DSM. The others working in the space are generally still at pilot stage or in the lab.

So, here are some potential scenarios.

1. Codexis drums up a substantial business with Raizen.

Why it’s possible. The Cosan(CZZ)-Shell JV remains Codexis’ largest shareholder, but has not yet articulated its cellulosic biofuels plans. In this scenario, the enzymes will be trained upon already aggregated sugarcane bagasse at Raizen’s formidable network of sugarcane ethanol distilleries in Brazil.

The problem. There remains much uncertainty regarding the future of the Iogen processing technology.

2. Codexis wins a waiver to work elsewhere in Brazil.

Why it’s possible. Raizen, if it decides not to compete in cellulosic arena, may well wish to realize some value from its Codexis holdings by having Codexis supply to other sugarcane bagasse technologies – or may sell its interests in Codexis outright to other interested parties.

The problem. Assumes that cellulosic biofuels will not cut in to Raizen’s existing ethanol market share in Brazil.

3. Codexis wins cellulosic biofuels business with Abengoa or Chemtex.

Why it’s possible. Abengoa has already licensed the Dyadic C1 platform itself, and may simply choose to go with CodeXyme cellulase enzymes based on performance and future potential. In turnn, Chemtex is already a Codexis customer for renewable chemicals.

The problem. Moving out the incumbent is always tougher in practice than on paper.

4. Codexis goes into partnership with Praj.

Why it’s possible. Since the wind-down got underway at Qteros, Praj has been essentially dancing without an enzyme solution, and there is an awful lot of sugarcane bagasse in India. Sud-Chemie’s processing.

The problem. South Asia has no developers on an advanced track towards production any time soon, and Praj had sets its sights on a consolidated bioprocessing solution, which may lead it to switch, ultimately, to Mascoma and its CBP technology.

5. Other wildcards emerge.

There’s TMO Renewables, developing for the China market; there are some Novozymes clientele that may not be locked down for their Nth plants; it is possible that one of the existing players like Inbicon might add CodeXyme to their mix, or that companies like Lignol might advance substantially in their journey towards commercialization.

The bottom line.

This is the hour where Codexis pivots from R&D towards commercializing what it has got. There are some questions that remain on how much of its R&D momentum it will be able to maintain, post-Shell, and its prospects in the key market of Brazil.

That said, the company is in for a rough rise over the next few months – but may well emerge as a leaner, fitter fighter in what is expected to become a multi-billion dollar market for cellulase enzymes.

More on the Shell-Codexis outlook in Known/Unknown, Black Swans and Yellow Cranes, here.

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.

Posted by Guest Contributor at 11:12 PM | Permalink | Comments (0)

Jim Lane

As Solazyme, Gevo and Amyris report on results for Q2, update forward guidance – what does the data reveal about demand, supply of advanced biofuels and co-products?
We digest down analyst reports, company comments into a 5-minute summary of “news you can use”.

In California and Colorado, the newswires have been working overtime this week in advanced biofuels, as several industry titans reported their latest quarterlies and subjected themselves to public scrutiny, which sometimes resembles the Puritan practice of mounting minor offenders in the public stocks and pelting them with rotten eggs and tomatoes.

But it was all quite civil this week in biofuelsland, as the companies generally reported that they remain generally on track in terms of the direction and timing of their long-term journeys toward cash flow, and strategic partners continue to provide help with capital and offtake.

Cash, production quantity, offtake and price/margin – these have happily become the new metrics, instead of government R&D contracts, VC financings, and MOUs for future developments.

General themes: as expected, early markets remain focused on higher-value opportunities, fuels (road, aviation or other) are an aspirational goal awaiting the construction of larger capacities and the lower per-gallon costs and assurance of supply that comes with maturity and scale. Analysts are in general agreement on Amyris (AMRS); Gevo (GEVO), all are generally bullish, some more so than others; with Solazyme (SZYM), Piper Jaffray is somewhat pessimistic but overall the consensus is broadly quite positive.

Future capital raises for capacity expansion are expected this year and next for Solazyme and Amyris, with Gevo just completing a raise. Strategic partners continue to arrive with impressive balance sheets: Totral for Amyris, Toray and Sasol for Gevo, Bunge for Solazyme.

Let’s look at the companies one by one for signs in their individual journeys, and some review of the state of play as a whole. Analysts in the mix include the estimable Rob Stone and James Medvedoff from Cowen & Co, Mike Ritzentheler from Piper Jaffray and Pavel Molchanov from Raymond James.

Amyris key takeaways.

Cash. $30M from Total was totally welcome; ultimately, “our cash burn projections imply another equity raise around year-end 2012. The new Total funding package may push that out, so our updated model reflects equity issuance in 2Q13.”

Production quantity. Numbers are small now, Pariso plant is mechanically complete, startup in Q1 2013 remains critical.

Offtake: “Building on their long-standing partnership, Amyris and French oil major Total (TOT) are amending their diesel collaboration to firm up and accelerate R&D funding. The new provision is Total’s commitment to fund up to $82 million over three years, including a $30 million down payment in 3Q, via convertible debt (1.5% coupon, due 2017). To be sure, this project – like Amyris’ overall business plan – is behind schedule. Last year, the aim was full-scale production start-up in 2013-14. While that’s no longer realistic, Total’s reaffirmed commitment is encouraging.”

Price/margin: Owing to start-up during cane off-season, “It may be mid-2013 before performance/cost data at scale can be reported” based on the primary feedstock.

Timeline to cash flow positive: “We project operating cash flow turning positive in late 2014, as the Sao Martinho facility starts up.”

The bottom line: ”Progress On Opex; Cash Needs, Production Cost Remain Hurdles.” No upgrades or downgrades from analysts. Despite “lower revenue and wider gross loss,” Amyris is “behind schedule” but signs are “encouraging”.

For investors: Price targets range from $4 to $4.76.

Gevo key takeaways.

Cash. “Gevo reported cash and cash equivalents on hand of $38.6 million as of June 30, 2012. The concurrent public offerings of common stock and convertible senior notes generated net proceeds of $98.8 million in July 2012.”

Production quantity. “Management announced product shipment, and reiterated their expectation to exit FY12 at a 1 million gallon per month run rate.” ”We still expect Redfield to be up and running in Q4 2013, about a year behind the original plan. However, in order to do so, construction must begin within the next few months (Luverne took 12 months, but was less than half the size).”

“Weak ethanol markets are clearly driving interest in Gevo’s technology – the problem remains capitalization of potential licensees, in our view.”

In addition, Gevo COO Chris Ryan commented to the Digest. “we are not going to get into seriously investing capital at Redfield until there is more data from the Luverne facility.”

Offtake: “The company shipped about 50,000 gallons of isobutanol”… “to both chemical and non-automobile fuel customers.” “Toray has made an upfront capital investment [for a] Gevo pilot plant to produce renewable bio-paraxylene…Toray [will] purchase initial volumes from this plant [for] renewable PET fibers, films and plastics.”

Gevo’s Ryan adds: “On the chemical side, it’s very positive. Within the speciality chemicals that Sasol will be serving, there is lots of demand, positive feedback. In the paraxylene market, we continue to see an increase in momentum there and now talking to others in that supply chain to develop the process, but it will not be commercialized in the next year or two.”

Price/margin: “Gevo’s fixed margin offtake deals largely insulate it from corn cost risk. This summer’s record-high corn prices and awful ethanol economics can actually give Gevo greater leverage in signing up ethanol producers as joint venture partners. That said, Gevo is still focused on transitioning to cellulosic feedstocks.”

Litigation: ” Regarding the IP dispute with Butamax, we continue to believe that Gevo will be able to operate unencumbered…and perhaps the new preliminary injunction filed by Gevo will catalyze a settlement.

Timeline to cash flow positive: “We now model 2012-15 EPS of ($2.06), ($1.15), (50c) and 17c vs. prior ($1.98), ($1.10), 29c, and 84c on lower revenue assumptions”.

The bottom line: “Cutting Estimates On Rollout Pacing; Long Term Intact; Redfield: Construction Needs To Get Started. ” No upgrades or downgrades from analysts.

For investors: Price targets remain widely dispersed, from $5.50 to $17.

Solazyme key takeaways

Cash. Solazyme ended 2Q with cash of $195 million…Solazyme should exit 2012 with cash of $140+ million, and we assume a round of equity issuance in mid-2013, ahead of a likely acceleration in capital spending. “Management reiterated their expectation that their contribution to the 50/50 Bunge (BG) JV would be $72.5 million, and are hopeful that the BNDES will fund 60% or more of the Moema capex, but the visibility won’t come until mid-2013.”

Production quantity. ”In April, Solazyme finalized its JV with agribusiness giant Bunge  for its first Brazilian production facility to be co-located at Bunge’s Moema sugar mill…The plant, with capacity to produce 100,000 metric tons of tailored oils annually, is expected to come on line in 4Q13.”

Offtake: Algenist sales continue to impress, with 1H12 sales exceeding the total of 2011. Other than a 3Q dip in Pentagon-related fuel sales, there is no change in outlook. Ritzenthler adds: “Underweight rating reflects our view on…building capacity ahead of firm demand [for volume products].

Price/margin: “No surprises in 2Q12. Revenue of $13.5 million, flat sequentially, was within 1% of our estimate, and the mix between product sales and R&D/licensing also stayed consistent. ”

Timeline to cash flow positive: “On track for positive cash flow by mid-2014.Our projections indicate that Solazyme’s operating cash flow will turn positive once Moema fully ramps up, which could be as early as late 2014.”

The bottom line: Management guides down revenues for FY12, primarily on the loss of government-funded projects. No upgrades or downgrades from analysts.

For investors: Price targets range from $9 to $14.00.

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.

Posted by Guest Contributor at 09:36 AM | Permalink | Comments (0)

Jim Lane

Arch-critic of the cost of military biofuels — Oklahoma Senator James Inhofe — comes under scrutiny over earmarks for natural gas-based military fuels that cost 29 times more than conventional fuels.

In Washington, the battle over advanced military biofuels took a turn for the bizarre this week, amidst revelations that a leading Senate sponsor of legislation to restrict Navy purchases of advanced biofuels, James Inhofe of Oklahoma, had previously secured earmarks for Syntroleum Corporation (SYNM) to produce natural gas-to-liquid alternative fuels which were priced 29 times higher than conventional fuels.

Overall, Syntroleum reported receiving nearly $6 million from 2002, 2004 and 2006 joint development contracts with DoD, stemming from the earmarks by Inhofe. Syntroleum also reported a 2006 contract for $2.3 million for the sale of 104,000 gallons of gas-to-liquid jet fuel to DoD, for testing in Oklahoma-based B52s.

According to the most recent disclosures at opensecrets.org, Senator Inhofe is an investor in BlackRock, which is the largest shareholder in Syntroleum as of March 31, according to SEC filings, through BlackRock Institutional Trust and BlackRock Fund Advisors.

Paying 29 times for natural gas fuels than conventional fuels

Adjusting for inflation, the $2.3 million contract in 2002 dollars equates to $2.93 million in today’s dollars, or $28.21 per gallon. Back in 2002, jet fuel was selling at considerably less than today – at an average price of 75 cents per gallon in the second half of the year, according to indexmundi.com.

Overall, the cost of the natural gas-based alternative fuel was 29 times more than the cost of conventional fuels at the time, and cost more, per gallon, in today’s dollars than the Navy’s advanced biofuels program.

At the time, the Senator said “Syntroleum’s gas-to-liquids barge project holds great promise for alternative fuel production in a way that has both civilian and military applications. The benefits of this kind of technology to our country are substantial and I am confident that these funds will aid in the further development of this process for the benefit of our nation.”

The Senator took a different line on the benefits of the military advanced biofuels program.

“A fiscally responsible amendment that I authored in the FY13 NDAA,” he wrote, “prohibits the DOD from purchasing high-cost alternative fuels if traditional fuels are cheaper. I pledge to continue working with my colleagues to ensure that President Obama’s far left agenda does not impact military readiness and our national security.”

In a letter to Navy Secretary Ray Mabus last week, Inhofe wrote, “requiring the Navy to spend exorbitant amounts of an already stretched budget on alternative fuels is impacting our near and long term readiness.”

Alternative fuels: good for military readiness then, bad for military readiness now

At the time of the initial $3.5 million grant to Syntroleum to develop alternative fuels from natural gas, Inhofe took a different line on the impact that developing alternative fuels would have on military readiness and national security.

“Tulsans can be very proud that Syntroleum’s advanced technology is now poised to make a significantly increased contribution to military readiness and national security,” Inhofe said at the time of the 2002 award. “I especially applaud all the workers at this company. Their efforts have been recognized, and their future endeavors are going to make a real difference for America.”

By 2012, Senator Inhofe was no longer applauding all the workers at the company, and predicting that their future endeavors would make a real difference for America.

One of Syntroleum’s future endeavors, as it happens, is its Dynamic Fuels joint venture with Tyson Foods that won the Navy contract for advanced alternative biofuels that attracted such strong criticism from the Senator.

“Sen. Inhofe’s concern in this particular case as it deals with the Department of Defense is that the alternative is cost prohibitive,” Inhofe spokesman Jared Young told CNSNews.com last December. “The Department of Defense should not purchase alternative fuels that are priced 9 time higher than conventional fuels –$26.75 per gallon to approximately $2.85 per gallon — because those extra costs will further eat away at other necessary budget items such as operations, maintenance, training, and modernization.”

The program for Syntroleum’s proposed Flexible JP-8 (single battlefield fuel) Pilot Plant program was remarkably similar in structure to the advanced biofuels program later undertaken by the US Navy with Dynamic Fuels. Joint development grants were given to the company to design a marine-based fuel-production plant, and funding was provided to test synthetically-made (gas-to-liquids) JP-8 fuel in military diesel and turbine engine applications, and a production contract for small batches of alternative fuels was issued to the company.

The bottom line

Well, clearly there’s a credibility gap here.

There seems to be ample evidence that Senator Inhofe is intimately aware of the costs of developing and testing alternative fuels in small quantities. It appears to be a simple case of playing political games, by criticizing Dynamic Fuels for selling advanced biofuels for $26 per gallon, when the Senator himself won an earmark requiring the military to purchase even more expensive natural gas-based fuels from Dynamic’s parent.

Paying nine times as much for test quantities of advanced biofuels? “Far-left agenda.”

Paying 29 times as much for test quantities of alternatives to fossil fuels made from, ahem, more fossil fuels? “A real difference for America.”

Hmm.

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.

Posted by Guest Contributor at 10:39 AM | Permalink | Comments (1)

by Debra Fiakas CFA

Source:  Chicago Board of Exchange

Two months ago GreenShift Corporation (GERS:  OTC) ambitiously promised to introduce by the end of 2012 an improved corn oil extraction system.   The company has developed technology to extract oil more from corn used as feedstock by ethanol producers.  GreenShift claims its first system is recovering an incremental 0.8 pounds of oil per bushel of corn in current installations.  The new system  -  called COES  II  -  is expected to increase the oil yields to 1.3 pounds  -  a 62% improvement that will put more profits in ethanol producers’ pockets.

Incremental profits can make a difference in the economics of ethanol plants that are squeezed between the costs of natural gas required to fuel to the distillation process and corn feedstock on the one side and ethanol selling prices on the other.  Recently ethanol producers have benefited from low natural gas prices.  However, corn selling prices have spiked in the last couple of weeks on the apparent loss in corn crop due to the 2012 drought. Any hope of lower corn feedstock prices this fall have been pulverized to dust right along with the huge corn plantings farmers had pledged at the 2012 season start.

Those profit-sapping conditions might seem favorable for selling GreenShift’s performance enhancing technology.  However, the system requires capital that some ethanol producers might find hard to come by.  Last year Valero Energy (VLO: NYSE) announced it would be installing corn oil extraction equipment at four of its plants by the end of 2012.  Valero plans to sell the higher-value corn oil into animal feed markets.  It expects to cover the capital expenditure with incremental earnings within two years.

A short payback period may still not be enough to ensure adoption of corn extraction technology.  Besides Valero, the largest ethanol producers  -  Archer Daniels Midland (ADM:  NYSE); POET of Sioux Falls, SD;; GreenPlains Renewable Energy (GPRE:  Nasdaq); and Flint Hills Resources, Inc. of Michigan  -  have balances sheets of varying strengths and can easily pay for the equipment.    However, smaller ethanol producers such as Pacific Ethanol (PEIX:  Nasdaq) or privately-held Patriot Renewable Fuels may not have ready access to resources under current capital market conditions.

Even after ethanol producers gather together enough capital to buy the equipment Greenshift faces a bit of competition. Those four corn oil extraction systems Valero is installing this year are coming from ICM, Inc., which offers a menu of technologies to ethanol producers and grain processors.  GEA Westfalia Separator (a subsidiary of GEA Group AG) specializes in liquids separation across a variety of industries. Likewise Flottwegg AG sells equipment for corn oil extraction among a selection of equipment for the process industries.  Greenshift is sensitive to the competition and has been in legal tussles with all three companies since the U.S. Patent Office awarded GreenShift a patent for its COES I system in 2009.

A legal victory may come too late for GreenShift.  At the end of March 2012, the company reported less than a million dollars in cash on its balance sheet.  GreenShift is not profitable and has an accumulated deficit of $161.9 million.  Its operations appear to need approximately $500,000 in cash support per quarter.  GreenShift has indicated it plans a capital raise this year to make that bridge to the more competitive COES II system.

GreenShift shares are quoted near a penny on an over-the-counter listing service.  It is an illiquid stock and often has no quoted bid or ask price.  Any investor taking a position in the stock on the new product introduction should do so with their eyes wide open and a willingness to risk all.  On top of capitalization issues, both target markets and capital markets present challenges for GreenShift.  

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. GERS is included in the Ethanol Group of our Beach Boys Index for alternative energy sources.

Posted by Debra Fiakas at 09:24 AM | Permalink | Comments (0)

Jim Lane

Money trap photo via Bigstock

 $104 million Elevance private financing round larger than last two IPOs; puts IPOs in focus; do the benefits outweigh the costs?

Do advanced biofuels companies really need to be “thinking IPO”, industry leaders were asking this week after Elevance Renewable Sciences announced that it has raised $104 million in its Series E financing round.

Lacustrine Limited via Genting Genomics Limited, wholly owned by Genting Berhad, based in Kuala Lumpur, Malaysia led the round with Total Energy Ventures International, based in Paris, France also participating in the financing.  Elevance also announced that Tan Sri Lim Kok Thay, Chairman and Chief Executive of Genting Berhad, will join the Elevance board of directors.

Elevance produces high performance ingredients for use in personal care products, detergents, lubricants and other specialty chemicals and fuel markets from renewable feedstocks.

Reaction from Elevance

“The investment will support Elevance’s strategic growth plans, including the continued development of biorefineries in Asia and North and South America,” said K’Lynne Johnson, CEO of Elevance. “The addition of the Genting Group via Lacustrine Limited, compliments the strengths of our existing investors and further emphasizes the key potential that Malaysia and Asia play in our global footprint.”

Are early IPOs necessary?

The Yes view.

In addition to the IPO event itself, IPOs enable companies to tap the broad and liquid public finance channel for follow-on equity raises that enable construction of first- and second-commercial plants- and allow the company to tap the bond market at sharply reduced rates compared to the rates enjoyed by private companies.

Recent public raises

Earlier this month, Gevo (GEVO) announced that it has agreed to sell 12.5M shares of its common stock at $4.95 per share. The gross proceeds to the Company from this offering are expected to be $61.87M. The Company also announced the pricing of its public offering of $40M aggregate principal amount of 7.5% convertible senior notes due 2022.

Last week, Pacific Ethanol (PEIX) announced it has closed its previously announced underwritten public offering of 28.0 million units at a public offering price of $0.43 per unit, for gross offering proceeds of $12.0 million. The warrants are exercisable immediately.

In February, Amyris(AMRS) completed a $58.7 million private placement of its common stock and placed $25 million in 3% senior unsecured notes due in 2017. The purchase and sale price for the shares was $5.78 per share.

The No view.

Industrial biotechnology companies should not be in the IPO markets until they have completed their first commercial plants; the value of their technology can be fairly assessed in dollar terms, and the company is generating meaningful revenues and is on a firm path to profitability.

In addition, premature IPOs cause confidence losses for the companies and the sector as a whole when shares do not hold up well in the secondary market – and industrial biotech stocks have taken a drubbing there. Early IPOs cause companies to “go quiet” and lose visibility in their run-up to IPOs – visibility that is critical to their capital and human capital aggregation. Finally, private placements and venture rounds still offer, for those companies that can access strategic investors, attractive pools of capital that, in many cases, exceed those pools raised in IPOs.

Recent private raises

In April, Sapphire Energy announced that it has secured the final tranche of a $144 million Series C investment funding. The Series C backers include Arrowpoint Partners, Monsanto, and other undisclosed investors.  All major Series B investors have participated.

Last month, Myriant announced that it closed a $25 million private bond placement for the construction of its flagship commercial bio-succinic acid plant located in Lake Providence, Louisiana.

In May, EdeniQ announced it has raised over $30 million in additional capital in the form of both an equity investment and a debt facility. The equity investment was led by both existing investors, including Kleiner Perkins Caufield & Byers, Draper Fisher Jurvetson, Cyrus Capital, The Westly Group, Angeleno Group, I2BF Global Ventures and Element Partners as well as a new investor, Flint Hills Resources Renewables LLC.

In March, Virdia announced $30 million in its latest round of financing, raising over $20 million from insiders, Khosla Ventures, Burrill & Company and Tamar Ventures. In addition, the company closed a $10 million in a venture debt deal with Triple Point Capital.

In February, BioAmber raised $30 million in its Series C round of financing with $20 million invested in November by Naxos Capital, Sofinnova Partners, Mitsui & Co. Ltd. and the Cliffton Group, and a second tranche of $10 million on February 6th, 2012 closed with specialty chemicals company LANXESS.

In January, LanzaTech announced that it has closed its Series C round with new investment totaling US $55.8 million led by the Malaysian Life Sciences Capital Fund. New investors include the venture arm of Petronas, the national oil company of Malaysia, and Dialog Group, a Malaysian technical services provider to the oil, gas and petrochemical industry.

In January, BASF announced plans to invest $30 million in the US technology firm Renmatix, as part of a new $50 million Series C investment round announced by Renmatix.

Five recent IPO raises

Ceres (CERE), $65M
REG (REGI), $72M
KiOR (KIOR), $150M
Gevo (GEVO), $123.3M
Solazyme (SZYM), $227M

Abandoned IPOs

Enerkem
Luca Technologies

Still in the IPO queue

Elevance Renewable Sciences
BioAmber
Parabel
Fulcrum Bioenergy
Genomatica
Myriant
Mascoma
Coskata

The Malaysian wave

The Malaysian surge in biofuels is becoming more and more apparent.

The Elevance financing featured the entrance of Lacustrine Limited into the field, a wholly owned subsidiary of Genting Berhad, the holding company of the Genting Group. Genting is one of the largest multinationals, and invested in leisure & hospitality, power generation, oil palm plantations, property development, biotechnology and oil & gas business activities.

Earlier this year, there was the investment in LanzaTech in January by Petronas, the Malaysian state oil company; also in January, an announcement of a joint venture between Japan’s Toyo Engineering Co, Glycos Biotechnologies and Malaysian developer Bio-XCell to build a 10,000 ton per year ethanol plant in Johor Baru by Q2 2013.

Plus, the announcement last month that Gevo signed a collaborative agreement with the intent to site a cellulosic biomass isobutanol facility in Southeast Asia, with the Malaysian government’s East Coast Economic Region Development Council (ECERDC), Malaysian Biotechnology Corp (BiotechCorp) and the State Government of Terengganu.

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.

Posted by Guest Contributor at 09:12 AM | Permalink | Comments (0)

Jim Lane

Mud/salt formations on the Badwater, Death Valley plain. Image by Daniel Mayer.

What makes a winner in advanced biofuels? Five companies – Abengoa (ABGOY), INEOS Bio, Mascoma, Gevo (GEVO), and American Process reflect on the essential ingredients for success.

“We are industrial technology businesses, making a commodity, we have to control costs everywhere and learn, learn, learn.” – American Process CEO Theodora Retsina

You could call it VODville, VOD for valley of death that is – a stretch of hard desert that every project and developer must cross, and, according to conventional wisdom, in the biggest hurry possible.

There are ox skulls along the side of the road to remind you of what happens to those who linger too long, and the bright lights of some Las Vegas ahead to tempt you ever forward, like the kleig lights attending a Hollywood opening.

But is racing across the desert in the fastest possible manner always the best policy? Are there reasons to stage it as a slow, methodical journey, despite the hardships and the boardroom heartache? And, if so, what makes a journey of that nature work.

In Washington this week, the US Department of Energy’s Biomass Program, has gathered together the companies developing advanced biofuels projects in partnership with DOE, and yesterday five companies took the stage to reflect on lessons learned from the pioneering journeys in building demonstration and first commercial advanced biofuels projects.

Christopher Standlee, Executive Vice President, Abengoa Bioenergy

“Cellulosic ethanol for us at Abengoa (ABGOY) – it;’s been a long journey with the DOE, starting back with a pilot that we built in Nebraska, using wheat straw as a feedstock, back in 2007. Then, we built our demonstration plant in Salamanca, Spain in 2009 and started construction on our first commercial scale plant in Hugoton, Kansas, in September 2011. We’ll be operational at the end of 2013.

“In first generation, there were challenges – in technology, financing and it took a long time to persuade lenders to take risks. In 2nd generation ethanol, project financing is an even greater challenge. Aside from the technology risk, there’s the feedstock risk, and the offtake risk – especially because in this commodity market, there aren’t 20-year power purchase agreements and pricing visibility can be, by lending standards, very short term.

“And then there are the RIN values, which are somewhat unproven as yet in the cellulosic area.

“So, it took time to assemble the $133 million loan that we needed for the project. And it’s a loan, its going to be paid back, its backed by the full faith and credit of Abengoa and our company has never failed to repay a loan since it was founded many years ago.

“for us, the primary driver has been the Renewable Fuel Standard,” adding that none of Abengoa’s efforts would have been made without the long-term stability that RFS2 brought, to ensure that there would be a market for the fuel.

“The economic impacts are not insubstantial, even for a first commercial facility. In addition to hundreds of construction jobs, and 65 full time jobs after construction is completed, there is the $17M in biomass that we will acquire from growers in a 50 mile radius around the plant – and that feedstock never really had much of a market before.”

Peter Williams, CEO, Ineos BIO

“The most important lesson learned? Team is the most important factor. Team is every aspect of the operation, from design and construction through to operation.

Williams added that the second most important factor was, in their view, to have a technology that could take advantage of a diversity of feedstock, and a diversity of geography, to ensure the widest possible customer base for the commercialization and licensing phase, after the first commercial plant was completed.

Bill Brady, CEO, Mascoma

Brady emphasized the importance of products that could drive revenue for a company in the early stage, noting how Mascoma’s MGT yeast technology had landed seven customers for the company among traditional ethanol producers, in the years while it was developing its technology and moving from its Rome, NY demonstration to its first commercial plant in Kinross, Michigan, which is expected to be operational in 2014.

“A major lesson learned? First of kind projects usually have a second phase when design flaws a fixed. So, its been important for us to recognize and learn that our journey ought to be completed in two phases. A first phase, where we take out as much risk as we can and save as much capital as we can, and run that project for 24 months, and then make improvements. Making design changes without operating experience can result in real disappointment.

“For us, on the finance side, the power of clear market signals is absolutely critical – signals like tax policies and RFS2.

“You see, in companies there are generally four types of projects that could get funded, once you have shown that you can exceed the company’s basic internal hurdle rate of return.

“There are the low risk, high return projects, which are really rare. There are the projects which have low risk and low return, generally business as usual expansions. Then there are the high risk, high return investments, that generally represent new technologies deployed in existing businesses. Then there are projects like first of kind, advanced biofuels, which are high risk and low return.

“To get projects funded in that kind of environment, you need all the help that policies like RFS2 and tax policies can provide.”

Chris Ryan, President and COO, Gevo (GEVO)

“The most important thing, in our view, is when you find the product that you can make and for which there is a market, you have to find the most economic route of production. You have to understand what the best of biology can give you, and what good chemical engineering can do with that to realize it in the lowest cost way. Some projects get too focused on the biology or the chemistry, and the opportunity of the market, and they overlook the importance of engineering in terms of delivering that lowest-cost product.”
Theodora Retsina, CEO, American Process
“For us, there are five important lessons learned. First, leverage co production wherever you can, and don’t build anything you don’t have to. Second, understand that there is real risk, and perceived risk, and only operating a large demonstration that you keep as simple as possible, will allow you to understand the risks.

“Third, there’s the execution risk, and we have found that it is paramount to keep in-house control of basic engineering and construction management.

“Fourth, a lack of stable policy has great impact. Fifth, in financing, you have to look everywhere, conventional and unconventional.

The Bottom Line

Theodora Retsina put it well, “We are industrial technology businesses, making a commodity, we have to control costs everywhere and learn, learn, learn.”

Shaking out the cost, and de-risking projects, is the abundantly clear message. Whether it is in using bolt-on technologies that leverage existing production, or developing in multiple phases to learn as much as possible at the minimal engineering scale.

Team and experience – whether it is experience gained from multiple stages of development, or the experience that the team brings from projects in the past – was commonly cited.

And the group was clear on the transformational impact of clear, long-term market signals such as the Renewable Fuel Standard – paramount, in their view, to risk mitigation for lenders and project developers.

Is there a market? What’s the best team? How to shake out the costs? Those are the lessons from the grizzled pioneers, the veterans of VODville.

Would-be crossers of the Valley could highly profit from their experience.

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.

Posted by Guest Contributor at 11:15 AM | Permalink | Comments (0)

Jim Lane

Dire US media headlines abound: “Drought!”

What’s real, what’s hype, and what are the impacts?

More importantly, what alternatives does science give us now, and in the future, with more drought-tolerant energy and food crops?

The Reuters report could not have been more stark this week from a field in Illinois.

“We’re in a critical point, could be the beginning of the end,” said Dave Kestel, a farmer, in a Reuters report that ran yesterday. Kestel’s plants in Manhattan, Illinois, the news service reported, “are almost two feet shorter than they should be at this point in the season and the next two weeks are critical.”

A Yahoo report that ran last night and was in the Top Story feed July 6 brought more bad news:  “Just under 56 percent of the contiguous United States is in drought conditions, the most extensive area in the 12-year history of the U.S. Drought Monitor. The previous drought records occurred on Aug. 26, 2003, when 54.79 percent of the lower 48 were in drought and on Sept 10, 2002, when drought extended across 54.63 percent of this area.”



Here’s a drought animation, that gives you a sense of the spread of drought conditions over the past 6 weeks.

Time to panic? The Yes and No arguments

So, should we be hugely worried that – for example, the corn harvest will be massively affected, prices will skyrocket, and food vs fuel concerns will breakout even as US ethanol distilleries, facing escalating feedstock prices and static fuel prices, cuts back on production? Is a disaster in the making?

The Yes argument. In New York, a Reuters report, based on the latest ethanol production numbers, advises that it is so. “The ethanol industry is bracing for its worst spell since the bankruptcy-ridden days of 2007 and 2008,” the news service opined, after US ethanol production dropped to its lowest levels in 10 months. US blend wall issues, corn prices, and falling corn stocks in the face of a persistent hot, dry spell in the US Midwest are among the causes of concern. US ethanol production fell to 857,000 barrels per day as three ethanol plant shutdowns affected production results. Meanwhile, a Linn Group analyst told Reuters that ethanol margins are 20 cents below the minimum viability point. More on that story.



The No argument. So far, the drought is highly regionalized, especially with respect to corn. For example, in terms of corn condition, 50 percent of Indiana corn is rated very poor or poor, while only 10 percent is rated thus in Iowa and 4 percent in Minnesota. The average is 9 percent. This according to the latest weekly publication from USDA, here.

And again, let’s look at last year’s report from NDMC on conditions, just to calibrate that data against a not-so-bad year. How much worse is this year? Well, so far, its better.

“Nearly 12 percent of the contiguous United States fell into the “exceptional” classification during the month, peaking at 11.96 percent on July 12. That level of exceptional drought had never before been seen in the monitor’s 12-year history, ” said Brian Fuchs, UNL assistant geoscientist and climatologist at the NDMC, in assessing July 2011 conditions.

And, last year, the US Drought Monitor warned that “The percent of contiguous U.S. land area experiencing exceptional drought in July reached the highest levels in the history of the U.S. Drought Monitor.”  More on that story.

Stay tuned

“The recent heat and dryness is catching up with us on a national scale,” said Michael J. Hayes, director of the National Drought Mitigation Center. “Now, we have a larger section of the country in these lesser categories of drought than we’ve previously experienced in the history of the Drought Monitor. So far, just 8.64 percent of the country is in either extreme or exceptional drought. During 2002 and 2003, there were several very significant droughts taking place that had a much greater areal coverage of the more severe and extreme drought categories,” Hayes said. “Right now we are seeing pockets of more severe drought, but it is spread out over different parts of the country. It’s early in the season, though. The potential development is something we will be watching.” More on the story.

The corn and soy impact

Overall, the corn crop projection is a mixed bag, with high acreage offset by poor crop condition.

2012 Corn planted is 96.4 million acres, up 5 percent from 201, with projected harvest at 88.9 million acres, up 6 percent. Soybeans planted are at 76.1 million acres,  up 1 percent, while harvest is projected at 75.3 million acres, up 2 percent. Wheat planting is at 56 million acres, up 3 percent. 48 percent of the US corn crop is rated in “good to excellent” condition,  down 8 points from last week and 21 below 2011, in what is the lowest rating since 1988.

Useful links to keep an eye out for

Drought Monitor.
The USDA’s WASDE report is due out July 11.  That will address the impact of conditions on yields.

What’s being done in crop R&D about drought-tolerance

Nature reports new drought tolerant maize strains released by Pioneer. “Last week, DuPont (DD) subsidiary Pioneer Hi-Bred International, headquartered in Johnston, Iowa, announced plans to release a series of hybrid maize (corn) strains that can flourish with less water…Pioneer says that field studies show its new hybrids will increase maize yields by 5% in water-limited environments.” More on the story.

Improvements in plant stress response. “When a plant encounters drought, it does its best to cope with this stress by activating a set of protein molecules called receptors. A team of plant cell biologists — led by Sean Cutler, an associate professor of plant cell biology at the University of California, Riverside — has discovered how to rewire this cellular machinery to heighten the plants’ stress response. It’s a finding that brings drought-tolerant crops a step closer to becoming a reality.” More on the story.

Plants subjected to a previous period of drought learn to deal with the stress thanks to their memories of the experience, new research has found. “This phenomenon of drought hardening is in the common literature but not really in the academic literature,” said Michael Fromm, a University of Nebraska-Lincoln plant scientist who was part of the research team. “The mechanisms involved in this process seem to be what we found.” Working with Arabidopsis, researchers found that pre-stressed plants bounced back more quickly the next time they were dehydrated. Specifically, the nontrained plants wilted faster than trained plants and their leaves lost water at a faster rate than trained plants.” More on the story.

Biofuels and energy crop developments in drought tolerance

Super-performing corn hybrid. In February, University of Illinois researchers developed a new maize hybrid that they report will produce as much as 15% to 20% more biomass given the same amount of fertilizer as commercial hybrids.  The hybrid is a mix of both tropical and temperate maize, with increased drought resistance and sugars in the corn stalk, while lowering vulnerabilities to pests and diseases.  The researchers state that the increased stalk sugars will increase ethanol production. More on the story.

Drought-tolerant corn trait. Last December, the U.S. Department of Agriculture deregulated MON 87460, Monsanto’s first-generation drought-tolerant trait for corn.  Drought-tolerant corn is projected to be introduced as part of an overall system that would offer farmers improved genetics, agronomic practices and the drought trait. Monsanto plans to conduct on-farm trials in 2012 to give farmers experience with the product, while generating data to help inform the company’s commercial decisions. The drought-tolerant trait is part of Monsanto’s Yield and Stress collaboration in plant biotechnology with Germany-based BASF. More on the story.

Stress-related hormones enable plant response. In December, researchers at UC Riverside reported a way to heighten a plant’s cellular response to drought.  Plants under drought stress produce abscisic acid, a stress hormone to help the plant survive.  The research, conducted at the laboratory of Associate Professor Sean Cutler, has now succeeded in supercharging the plant’s stress response pathway by modifying the abscisic acid receptors so that they can be turned on at will and stay on.  This could bring drought-tolerant crops a step closer to becoming a reality. More on the story.

Genetic mutation enables drought endurance. Last year, researchers at Purdue University found a genetic mutation that allows a plant to better endure drought without losing biomass. During drought conditions, a plant might close its stomata to conserve water which also reduces the amount of carbon dioxide it can take in, limiting photosynthesis and growth, but the discovery shows plants with a mutant form of the gene GTL1, did not reduce carbon dioxide intake nor lose biomass. It did have a 20 percent reduction in transpiration, however. More on the story.

Who’s working on drought-resistance energy crops?

In specific bioenergy crops, companies such as Ceres (CERE, switchgrass, energy cane in the Blade energy crop family) and Mendel Biotechnologies (miscanthus) have been garnering the most attention as they bring new traits forward for the new integrated biorefineries utilizing energy crops. SG Biofuels are also working on traits related to jatropha, which has a history of low-water tolerance.

The bottom line

For now, expect panic – more investors will be reading Reuters and Yahoo than Biofuels Digest or AltEnergyStocks, and can be expected to freak out. Impacts may include – corn ethanol production shutdowns, rising corn prices, rising RIN prices as obligated ethanol blenders look around for alternatives, or rising ethanol prices as the blenders chase product with price. Corn stocks may fall as hoarding commences and high prices bring out all the sellers.

It’s real, but not yet dire. For now, know that drought is real and widespread, but not as exceptionally severe today, across the US, as even last year’s more limited drought conditions.

It’s regional, so far. The drought has kept away from major ethanol producing states, by and large, like Iowa, South Dakota, Minnesota – but is hitting Illinois and Indiana hard.

July is key. July always is key – it’s just a critical rain and heat month, for crop yields. This year more than ever.

Science is advancing. Keep in mind that crops are more resistant than in the past to environmental stress.

Be vigilant, investor! When panic and worry spreads, and information is scarce, there’s money to be made in the markets, but it requires nerves of steel to keep your cool when everyone around you in losing theirs.

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.

Posted by Guest Contributor at 10:09 AM | Permalink | Comments (0)

Jim Lane

Independence Day Celebration photo via BigStock

 Yesterday, in the United States the bands and bunting were on display, because it was Independence Day. But is freedom really sustainable, without energy independence too?

It would be a sweeter thing, political independence, if it were accompanied by more energy independence. For examples, choices at the pump that didn’t involve wealth transfers to people who oppose the principle of ballot boxes.

But before there is energy independence, there has to be more freedom from the entropy that afflicts the energy business, and especially the bioenergy business.

Hmm, entropy, er, what’s that again?

Well, there are millions of tons of gold in the oceans, so why aren’t fisherman all millionaires? That’s entropy, the tendency of everything to reduce from useful concentrations to a smooth distribution. In the case of gold in seawater, the concentrations are so low, in parts per million,  that the extraction cost exceeds the value of the metal.

The entropy problem in feedstocks

In bioenergy, it’s the chief reason, for example, that otherwise perfectly acceptable fruit waste from citrus harvest is a difficult feedstock for energy production. The process for cellulosic conversion was discovered in the 1990s – so what’s the hold up?  Just not enough fruit waste in a given target area, and the proposed stand-alone refineries are limited so far to an unprofitable 4 million gallons.

Think of what a different world it would be if certain residues were sufficiently concentrated. For example, there is 2 billion tons of MSW produced each year, according to a Columbia University estimate. Right there, you have the means to produce some 160 billion gallons of biofuels.

The entropy problem in capital

So, why is the world not awash in cellulosic biofuels from MSW? Well, capital is subject to its own entropy – it never seems to be in the right hands at the right time, never concentrated enough in the hands of those who can afford big risks. Instead, it is distributed across lots of smaller portfolios that, generally, take much smaller risks. Greenfield biorefineries are a tough sell in tough times. There’s entropy, again.

Which brings us to corn stover and cobs – these days, generally just left in the field.  POET Biomass estimates that you can acquire enough cellulosic feedstock, from the area serving a 100 million gallon corn ethanol plant, to add 25 million gallons in capacity. Right there, you have, in the form of corn ethanol biorefinery bolt ons, the capacity to add 3.5 billion gallons of cellulosic capacity.

Now, that’s entropy at work, again – because about 22 percent of the US corn harvest goes to corn ethanol – meaning there’s an awful lot of cobs and stover lying around, that simply is not near enough to an existing corn ethanol plant. Applying the POET Biomass math, it’s a fair estimate that there is perhaps another 15 or 16 billion gallons in capacity available, by finding ways to aggregate cobs and stover.

Which brings us around to in-field pre-processing. It’s simply going to have to become a given, in combine harvesting, to pick up the cobs and stover in a one-pass system. Which makes it sad to see  small businesses, like the team behind the FARM MAX biomass harvesting technology, struggle for investor attention and support.

Piloting an integrated bioeconomy

Now, that’s something the Midwestern Governors Association, which has a task force on biorefining and biofuels, might usefully tackle. Instead of handing out incentives for plant construction, why not incentivize lower costs for biomass collection, and help put in the pumps. By concentrating demand and supply, you can open up markets – by fighting entropy.

It doesn’t have to be a big government hand-out. Hand-outs, as we have discovered, rarely solve market problems and create new perceptional ones. As if states were awash in money, anyway. It means using the organizational power of government, as opposed to the taxing power.  Organizing one, small area to become an exemplar to a wider world.  Car dealers, growers, processors, financiers and state government, all have a stake in a positive outcome, and could and should be counted on to bear some of the cost.

Not too long ago, Greensburg, Kansas embarked on a hugely ambitious experiment in green living – too ambitious, probably, though many good things have come of its commitment, which followed the devastation wrought by an F5 tornado. The principle of picking out one or two towns, or a small region, is a good one.

Why, towns might vie for such an honor, with a resulting local organization that produces the kind of cooperation and cost-sharing that we see in, say, cities that have organized an Olympics or a world’s fair. Doesn’t have to be a major metropolitan city, as in the case of an Olympics. Blair, Nebraska…Shenandoah, Iowa…well, a lot of small towns could work this kind of magic.

Of course, it’s not something restricted to the United States. Towns from Canada to Denmark, South Africa to China, India to Brazil could mount such an effort.

Been done before

Two hundred years ago, a similar approach – a pilot scheme, using a fledgling, underpopulated United States – worked wonders for the principles of freedom of opportunity and political independence. Whole swathes of the wide world are today organized along the principles established by Washington, Adams, Jefferson, Franklin et al, back in 1776. Democracy and freedom won a worldwide following, once it was proven that liberty, in fact, is a driver of happiness and prosperity.

We suspect a similar effort on energy independence might reap a similarly impressive harvest.  A new birth of energy freedom, my what a good outcome that would be. Especially for all those small towns that have borne such a heavy burden to establish those political freedoms that we enjoy today.

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.

Posted by Guest Contributor at 09:20 AM | Permalink | Comments (0)

by Debra Fiakas CFA

One year ago biofuel developer KiOR, Inc. (KIOR:  Nasdaq) raised $150 million in through its initial public offering.  The anniversary seems like an appropriate time to revisit the company’s progress  -  and valuation of KiOR shares.

KiOR’s claims its demonstration plant proves its proprietary catalysts dramatically accelerate the conversion of biomass into hydrocarbons.  KiOR’s bio-crude can then be put through conventional “cracking” processes to transform the bio-crude to gasoline and other petroleum products.  The company claims yields of 67 gallons of fuel per bone dry ton of biomass such as wood chips.

Management indicates they expect to incur losses through the end of next year.  This is a tough situation to be in with only $152.2 million in the bank and a cash burn rate of about $4.0 million per month.  KiOR also needs another $40 million to complete construction of a commercial-scale plant in Mississippi and $16 million to launch operations there.  They are apparently still optimistic the company can realize initial revenue in the second half of 2012, which means the cash burn rate should begin to decline.  Nonetheless, positive cash flows are not expected until the end of next year.

A bit of math reveals that KiOR management must watch their budget if they expect to deliver on promises without raising additional capital.  One of the company’s major investors, Khosla Ventures already lent KiOR $76.5 million and I do not expect that fountain to bubble up additional cash.

The tightening cash situation might be one of the reasons KIOR is trading nearer its 52-week low than the high in the same period.  Even that price might be too high given mounting losses  -  $147.2 million since inception  -  and dwindling capital strength.  However, when crude begins to flow in Mississippi, the depressed share price might seem more compelling.  A positive fundamental development could trigger a buy-in by bears who have bet against KiOR’s success.  Investors have already shorted over a quarter of the float.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Posted by Debra Fiakas at 08:58 AM | Permalink | Comments (0)

Jim Lane

Commemorative plaque at Burned Wagons Point, Death Valley. Photo by Philippe Pierre

As bio-based companies race across the Valley of Death, in the dash for scale, who’s getting financing now, and how?

The path to financing success in bio-based project development used to be a little less complicated.

Raise seed money from friends and family.  Series A and B with your friendly local VC, to prove the concept and build a pilot. Bring in a strategic for the Series C and D and the demo plant, then over to NASDAQ for plant one at commercial scale.

These days, financing comes with plot twists and a cast of characters that Charles Dickens would have been proud of, as “Great Expectations” have given way to a plaintive “more please, Sir?” right out of Oliver Twist, or a “bioenergy is a humbug!” right out of A Christmas Carol.

Yet we’ve seen a number of creative financing efforts getting traction. From the story of Myriant’s unrated bonds, to Gevo leaping into the secondary share offering market. Over in California, Pacific Ethanol is working on a new issue of shares, notes and warrants; yesterday, the DOE announced its Phase II SBIR grants; meanwhile, the USDA is beginning to unveil its strategy of integrated public-private supports.Let’s take a look.

The Gevo financing gambit

In Colorado, Gevo (GEVO) announced this week that it intends raise up to $100 million through a secondary offering of common stock and convertible senior notes, due 2022.

Gevo said that it will use the net proceeds from the offerings to repay a portion of its outstanding long- term debt obligations, to fund the cash consideration payable to complete the retrofit of its Luverne, Minn. plant, and to partially fund the Redfield Energy retrofit. To the extent that the net proceeds are not used for these purposes, the Company intends to use them to fund working capital and for other general corporate purposes.

The move was expected – as the company had signaled earlier this year that it would seek to raise up to $100 million to cover the completion costs at its Redfield project site.

In connection with the offerings, UBS Securities and Piper Jaffray & Co. are acting as joint book- running managers. Robert W. Baird is serving as co-manager for the common stock offering.

Over at Pacific Ethanol

Meanwhile, Pacific Ethanol (PEIX) announced that it intends to offer units consisting of shares of common stock and warrants in an underwritten public offering. The company also expects to grant the underwriter a 30-day option to purchase additional shares of common stock to cover over-allotments, if any. Lazard Capital Markets is acting as the sole book-running manager for the offering.

The company did not cite a specific financing goal, but did describe a hypothetical sale of 24 million shares in the prospectus, and also disclosed that it had signed an agreement to increase its interest in its New PE Holdco subsidiary for $20.0 million, payable at least $10.0 million in cash and the balance in principal amount of Senior Unsecured Notes, or Notes.

The $10 million in cash required for the deal is broadly consistent with the sale of some 24 million shares, given the company’s current share price of $0.53.

Over at the DOE

Aerodyne Research and Lygos were among the winners in the DOD’s Phase II Small Business research awards.

Aerodyne, based in Massachusetts, was a winner for its Biomass to Hydrocarbons by Catalytic Fast Pyrolysis project. “This work will develop technologies that target direct conversion of inedible, waste components of biomass into chemicals that can be used as additives or replacements to gasoline or to synthesize plastics,” the company said in describing the project.

Lygos, based in California, was a winner for its Microbial production of dicarboxylic acids project. “This project will develop renewable routes to produce commodity and specialty chemicals currently made from petroleum. Lygos’ processes can be applied domestically to convert waste agricultural material into chemicals that are predominantly manufactured abroad today,” the company said in a project outline.

Over at General Electric (GE)

In Ohio, in a project cooperation with USDA Rural Development, the Ohio Aerospace Institute, air carriers and producer groups, GE Aviation confirmed that it expects to purchase up to 5 million gallons of renewable-jet fuel beginning in 2015in support of production engine testing at GE Aviation’s sprawling Cincinnati-area facilities.

In a statement on the collaboration, Agriculture Secretary Tom Vilsack today highlighted the efforts to develop a Midwest-regional strategy for renewable-jet fuel. “We have an incredible opportunity to create thousands of new jobs and drive economic development in rural communities across America by developing innovative ways to use agricultural products to help reduce our reliance on foreign oil,” said Vilsack.

USDA recently awarded a Value Added Producer Grant to the Ohio Soybean Council to help initiate a pilot project through Ohio State University’s Bioproducts Innovation Center to refine bio-jet fuel from soybean oil produced by farmer-owners of Ohio’s Mercer Landmark cooperative in western Ohio.

In addition, USDA’s Farm Service Agency also has a groundbreaking energy crop production initiative underway in northeastern Ohio and northwestern Pennsylvania through the agency’s Biomass Crop Assistance Program (BCAP). About 115 contracts are signed to grow nearly 3,700 acres of the energy crop Miscanthus, a perennial grass that grows on previously underutilized lands in the area.

The Bottom Line

Death Valley days don’t have to end with bleached skulls by the side of the road. Sure, when crossing, hardiness and innovation count for a lot – it was ever thus.

But, slowly, surely, projects are starting to get across, to the sunny uplands on the other side.

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.

Posted by Guest Contributor at 05:21 PM | Permalink | Comments (0)

Jim Lane

Gevo signs agreement for cellulosic biomass development in Malaysia, as the company secures a crucial win in preliminary injunction battle with Butamax over IP.

In Colorado, Gevo (GEVO) signed a collaborative agreement with the intent to site a cellulosic biomass isobutanol facility in Southeast Asia, with the Malaysian government’s East Coast Economic Region Development Council (ECERDC), Malaysian Biotechnology Corp (BiotechCorp) and the State Government of Terengganu.

The company is in the final stages of evaluating additional partners to complete the biomass to isobutanol value chain. The collaboration offers a diversified feedstock, organized approach and the opportunity to develop an economically advantaged business plan to meet this expanding market.

The current plan under consideration is to construct a fermentation facility to produce bio isobutanol made from cellulosic biomass. The proposed site is in the State of Terengganu at the Biorefinery Complex in Kerteh. Specific feedstocks were not disclosed by the parties – but palm waste opportunities abound in Malaysia, to name one option.

More on Malaysia

Kerteh, a small town on the northeast coast of Malaysia, is the base of operations for state oil giant Petronas in the state of Terrenganu, which itself has been lately revived through a combination of oil and gas discoveries offshore, and rising agricultural prices. Kerteh and nearby Paka have become petrochemical production hubs, and the Biorefinery Complex in Kerteh has become a signature effort in Malaysia’s integrated biotechnology strategy.

“The technology for a sustainable cellulosic feedstock is expected to be commercially viable this year, so now is the appropriate time to begin our cellulosic platform,” said Ryan. ” Our ambition is to move toward definitive agreements by the second half of 2012 with a target of having a cellulosic plant operational by late 2015 or early 2016.”

“The establishment of a Gevo facility in East Coast Economic Region Malaysia is further testament to investors’ confidence in the Region and we look forward to facilitating Gevo’s investment in Malaysia,” said Chief Executive Officer of the ECERDC, Jebasingam Issace John.

Key ruling in Gevo-Butamax IP dispute

In Delaware, last night a federal court judge denied a request by Butamax for a preliminary injunction in its IP dispute with Gevo.

In her ruling, Judge Sue L. Robinson, concluded “the court finds that irreparable harm would exist assuming defendant were infringing. Because, however, the court has concluded that plaintiff does not hold a valid patent, nor would the defendant infringe if it did, this factor is neutral.”

In the court opinion, Robinson concluded that the parties’ infringement dispute is, essentially, one of claim construction. The parties dispute the meaning of the term “acetohydroxy acid isomeroreductase enzyme,”also known as a “KARI,”4 the enzyme utilized in step two of claim 1.”

On the ’889 patent originally issued to Butamax, Robinson wrote, “The court concludes, therefore, that defendant has raised a substantial question concerning the validity of claims 1 and 14…the fact that the ’889 patent has been rejected on reexamination, combined with the finding by the court that plaintiffs likely claim construction is too narrow, demonstrate that defendant’s invalidity defenses do not lack substantial merit.”

Robinson adds: “In light of the court’s construction, and the fact that defendant uses an NADH dependent enzyme to catalyze its step two reaction, the court finds it unlikely that plaintiff will prevail on its claim of infringement.”

Butamax responds

Swiftly following the ruling, Butamax responded that “there are strong grounds for making this request”, and that the company “plans an immediate appeal.”

“The court’s decision is not a final determination of infringement or invalidity concerning the 188 and 889 patents as it is merely a determination that the extraordinary remedy of a preliminary injunction is not available at this time. This is an early step in a long and complex litigation process,” commented Paul Beckwith, Butamax CEO. “We remain highly confident in the ultimate outcome of this case and our other cases against Gevo.”

Butamax noted that request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent. At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. Full trial in this case is scheduled for April, 2013. Additionally, Butamax has several other patents and patent applications it will seek to enforce as appropriate.

Analyst view

Piper Jaffray equity analyst Mike Ritzenthaler wrote, “Within the ruling that was posted this evening, the judge tested the conclusions of the Patent Office, and agreed that Butamax’s technology was obvious & non-novel, and therefore not worthy of protection.

“The ruling on the preliminary injunction is essentially a preview of the final resolution. We view the length of time the judge spent considering her ruling on the preliminary injunction as an indication that she was more or less considering the full case between Gevo and Butamax – including the various counter suits. We believe that the final ruling (from the April 2013 court date) will be consistent with the ruling on the preliminary injunction – Butamax does not have viable technology – and will add to it Butamax’s infringement on Gevo’s IP, essentially nullifying their largest competitor.

“We expect Butamax to appeal,” Ritzenthaler adds, “and to be clear there are several other turns left in this dispute – but this case was meticulously considered, and the 27 page ruling is an impressive amalgamation of science and patent language that confirms the outcome we had expected. We maintain our Overweight rating and $17 price target.”

Cowen & Company’s Rob Stone noted: “GEVO should be free to pursue R&D and sell any product to any customer, pending the trial next spring. New IP since the hearing could create key business advantages. Separately, GEVO plans to build a plant in Malaysia to process sugars from locally grown cellulosic materials. We see 40% upside rel to mkt in 12 months. Upgrading to Outperform from Neutral.

Stone added: “GEVO recently received patents on technology that cuts off isobutyrate, a material that renders the DDG co-product worthless. Selling DDG as animal feed lowers net cash cost by about 20%. Together with previous IP that increases yield by 20%, we believe GEVO has built a significant cost advantage.

On the Malaysia development, Stone noted: “Cost is preliminarily seen at $100-$150MM for a 20MGPY plant, with startup timing in late 2015/early 2016. The plan is to build/own, but use local operators.”

The bottom line

The trial, as Rob Stone said, could go either way, but Gevo’s rights to operate between now and the April 2013 trial date are cleared.

As Ritzenthaler says, the ruling is unexpectedly swift, given the issuance of a temporary ruling only last week, but Gevo has won this round, resoundingly. Though IP disputes are, like boxing, measured in rounds, and this is but one of several on the path towards final resolution.

As Butamax notes, “request for the preliminary injunction was only based on a select number of claims of Butamax’s ‘889 patent.” At trial, Butamax’s case on all the claims of both the ‘188 and ‘889 patents will be heard. So, there is far to go in this case.

Meanwhile, the announcement that Gevo will expand beyond corn starch fermentation to cellulosic, and now has a timeline in place to do so, dramatically expands the company’s potential scope of operation: to date, n-butanol developers such as Cobalt Technologies and Green Biologics have been the ones that have been more overtly focused on cellulosic biomass, while isobutanol developers such as Gevo and Butamax have been focused on corn starch.

Combined with the news on opening up opportunities with DDGs, Gevo has surely acquired Big Mo’ this quarter.

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.

Posted by Guest Contributor at 11:03 AM | Permalink | Comments (0)

Jim Lane

Next-gen, commercial scale biofuels debut in Minnesota – is the deck cleared for the isobutanol pioneer to soar?
Not quite yet, with litigation and production ramp-up pending, but there’s light at the end of the tunnel.

In Colorado, Gevo (GEVO) announced it has begun startup of the world’s first commercial biobased isobutanol production plant located in Luverne, Minn.

“At 1 p.m. MDT yesterday we made history by initiating production of biobased isobutanol at commercial scale,” said Dr. Patrick Gruber, CEO of Gevo. “One year ago, we broke ground with a startup goal of less than 12 months and we’ve succeeded. It’s an extremely proud moment for Gevo and a tribute to the drive and ambition of our scientists, chemical engineers and production team.”

Gevo retrofitted the Luverne plant to incorporate its proprietary yeast and Gevo Integrated Fermentation Technology (GIFT) system to produce biobased isobutanol. Through initial operation of the Luverne plant, Gevo expects to advance its learning of large-scale production of renewable isobutanol at the site maintaining a goal of producing isobutanol at a run rate of approximately 1 million gallons per month by year-end 2012. Per its previous guidance, Gevo expects to reach full-capacity run rates by year end 2013.

Ramp-up rate

“This ramp up in production is actually fast for a new technology,” said Gruber. “It would be much longer and present more execution risk if this were a greenfield plant. I like this retrofit approach.”

“This is only the beginning for Gevo as we work toward our first shipment to Sasol (SSL) and increasing production over the coming months,” added Gruber. “As with all plant startups we will face challenges. However, we have an outstanding team, many of whom have been through similar startups before, to address and meet these challenges. We look forward to growing into a very large business.”

The Elephant in the Room, pending IP litigation

Cowen & Co’s Rob Stone writes, “The court has not yet ruled on the potential injunction that could shut GEVO down. The hearing was held in early March and a ruling could come at any time. It would be effective until the trial, which is scheduled to start in April 2013. The injunction could be imposed, denied, or imposed partially. For example GEVO could be stopped from its work on fuels, but allowed to make and sell solvents. In our opinion, the legal battle represents a more significant risk than initial startup and ramp pace.

Next stop – another capital raise for further expansion

Pavel Molchanov, writing about the company’s share price drop (40% off since the beginning of May), commented, “We think this reflects the market’s expectation of near-term equity issuance – and, to be clear, management has said publicly that another capital raise is planned over the next few quarters. We understand that dilution risk causes investor concerns, but we would point out that the stock is currently trading at just 47% of our DCF/share estimate of $11.55, an estimate that already incorporates equity issuance in each of 2012, 2013, and 2014.”

Upcoming advanced biofuels openings

Amyris (AMRS) – Paraiso plant, Sao Paulo, Brazil, start-up in mid-2012
KiOR (KIOR) – Columbus plant, Mississippi – mechanically compete, production commencing by year-end 2012.
Solazyme (SZYM)-Bunge (BG) – Moema plant, Sao Paulo plant, start-up scheduled in the second half of 2013.

Reaction from the investment community

Mike Ritzenthaler, Piper Jaffray: Maintain Overweight rating and $17 price target.

“While every novel process startup contains some uncertainties, we believe Gevo has an outstanding team in place with the optimal expertise needed to understand and mitigate risks – and meet or exceed important production milestones between now and the end of the year. In our view, the startup of Luverne also underscores management’s conviction that the ruling on the preliminary injunction will positive for Gevo, and we are unconcerned that the ruling (that we expected mid-May) has not yet been issued.”

Robert W. Stone, Cowen & Company: Maintain Neutral.

“The Luverne plant has started making isobutanol a little ahead of schedule. However, the pace of ramp to full production remains to be demonstrated. Meanwhile, the Butamax IP battle remains a significant risk. Construction began on May 31, 2011 and was expected to last twelve months. Guidance from the May 1 earnings call suggested a late June startup, leaving time for contingencies during final cutover. It appears that the cutover went smoothly, as it took three weeks or less. Guidance also suggested initial shipments to Sasol would be in July; it now appears possible that shipments could begin in Q2.”

Pavel Molchanov, Raymond James: Maintain Outperform, DCF estimate of $11.55

“Here is a specific, concrete example of actual Gen2 scale-up. Gevo’s first commercial production facility.  Gevo is now working towards its goal of shipping its first product to Sasol (SSL), one of its anchor customers, and management previously indicated shipments should begin by July. Our current assumptions are for sales of 0.9 million gallons in 3Q12, 1.8 million gallons in 4Q12, and up from there.

“We don’t rule out the possibility of delays in scaling up output, and of course, key performance metrics – yield, etc. – still have to be demonstrated. Management has also consistently pointed out that there is plenty of execution risk. That said, we look at Luverne as an encouraging datapoint. In fact, of all the recent IPOs in the space, Gevo becomes the first Gen2 producer to bring a fully commercial plant online.

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.

Posted by Guest Contributor at 03:02 PM | Permalink | Comments (0)

Jim Lane

The Wilmington Express

Dupont (DD) is accelerating, after acquiring Danisco in a $6B 2011 takeover.

Next stop – expansion in cellulosic biofuels and biobutanol.

They’re bullish on biofuels and getting more so as their technology and vertically integrated strategy comes together.

More than a year ago now, Dupont took a giant additional leap into industrial biotechnology with the acquisition of Danisco and its star subsidiary, Genencor.

Immediately on the bioenergy front, the Dupont Danisco joint venture in cellulosic ethanol, memorably named Dupont Danisco Cellulosic Ethanol, dropped the “Danisco” in its moniker.

But despite its position as one of the world’s leading purveyors of paint, Dupont’s ambitions run a lot deeper than making surface-level changes. One aspect that new division chief Jim Collins is bringing to Dupont’s adventures in cellulosic biofuels is in communicating the company’s optimism, focus and purpose regarding the sector.

You see, the company has traveled far in its journey, from the days when DDCE and others were struggling to put the image of “commercialization is five years away…forever,” behind them.

Emphatically, that’s now done, and the company’s metrics in cellulosic biofuels are starting to look compelling. Not only is commercialization a lot less than five years away – a massive breakout in capacity building looks feasible within that time frame as well.

Let’s take a closer look.

First commercial project.

The company expects to have its 25 million gallon first commercial facility operating within 18 months. It’s writing the check on this one – based up in Nevada, Iowa, adjacent to the first-gen Lincolnway corn ethanol plant.

Following launch.

The company’s corn stover demonstration will shut down and come back up in Tennessee with a demonstration of switchgrass.

System.

Dupont is touting an integrated approach – software and hardware combined, if you will – from seed through to understanding the harvesting of biomass, enzymes and the processing technology.

The rationale.

Jim Collins says, “If you want to build 100 of these, you have got to have the lowest-cost system.”  In Dupont’s case, its a $7 per installed gallon cost, or a $200 million capital investment to build a 28 million gallon plant.

The corn stover projections.

Nice to own Pioneer Hi-Bred in this case – you can imagine the detailed knowledge the company has assembled on what is planted where, in Iowa and elsewhere – the yields that can be expected, and the resulting assets in corn stover.

The model moving forward.

It will be based on licensing, although Dupont suggested that the first two or three plants will probably take the form of JVs as the technology is proved out.

Geographies and feedstocks.

Dupont is emphasizing the availability of stover in Iowa, Illinois and Indiana, driving the decision to deploy based on corn availability first. For Tennessee, North Carolina and Georgia, as a second cluster, an emphasis on switchgrass, which is being developed in partnership with Genera Energy. So, for now, its a two-hun strategy.

International prospects.

Dupont is rethinking Brazil, which it had put in a backseat while focusing on switchgrass and stover. In this case, the company has been watching the Brazilians go through a wrenching consolidation in the sugarcane industry, and a pivot from the burning of waste in the field to a mechanical harvest which will bring the tops and leaves into the plant in order to get them off the field. “It’ll be piling up,” Collins noted of the tops and leaves, “and with bagasse, they are already getting more than they can efficiently burn for power.” Bottom line, Dupont has “renewed interest” in Brazil.
Partners.

“Partnership is in our DNA” former CEO Chad Holliday used to say, and the company has been building on partnerships with Tate & Lyle, Goodyear for bioisoprene, BP for the Butamax biobutanol technology as well as wheat ethanol in the UK, and recently with Fagen as it works through opportunities with biobutanol conversion. Expect that roster to stay strong.

Biobutanol.

Speaking of biobutanol, Dupont noted that it has Highwater Energy in its early adopters group, already, and has added Corn LP. Colins sees isobutanol conversions, from corn ethanol production, as being more attractive to the larger, more modern facilities, ;ess with the smaller, older, more marginal facilities.

Tax and mandate policy.

Dupont is, traditionally, welcoming of cellulosic tax credits, particularly because the production tax credit rewards actual production, and is a “winners only” system. But, Collins noted, those programs “have to stimulate a sector, then quickly go away.” With the Renewable Fuel Standard, the company emphasizes that it is not looking for any handouts, no new help, but stability with the RFS will be invaluable in helping the company to move from first commercial to breakout expansion.

The Bottom line

100 plants? Now, that’s talking real business. The $7 per gallon capex is a compelling figure – to date, the USDA has been looking at $8 per gallon, and a number of companies have been deploying at numbers well north of that. With 21 billion gallons of capacity scheduled to be built, that’s not an inconsequential amount of money.

Expectations? For now, a lot of add-on facilities in the heartland of corn ethanol, the Midwest. How many plants are in the Iowa, Illinois, Indiana, South Dakota and Nebraska base? According to the RFA, 143 plants – say, around 100 of them candidates for cellulosic add-ons in terms of project size and modernity. POET is of the belief that you can add around 25 million gallons of cellulosic capacity per existing 100 million gallon corn ethanol plant.

So, let’s figure that there is 2.5 billion gallons of capacity, right there, in cellulosic biofuels. Add in around 6 billion in potential capacity for biobutanol. That’s an awful lot of work for the folks for Wilmington.
Perhaps one of the reasons why analyst Mike Ritzenthaler, at Piper Jaffray, wrote in a recent note to clients: “Maintain Overweight rating and $62 price target… We are incrementally more confident in our above-guidance FY12 estimate of $4.45, versus consensus of $4.30. Companies exposed to the strong ag cycle seem to be somewhat out of favor in the current market environment – amid fears that fundamentals cannot get any better than in FY12 – but we believe this is unwarranted. With such robust performance delivered in 1Q and expected through the end of 2012, as well as the portfolio of new products scheduled to roll out over the next two years on the seed and crop protection platforms, we see solid potential to outperform expectations over the next several years.”

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.

Posted by Guest Contributor at 06:53 PM | Permalink | Comments (0)

Jim Lane

Emerald Biofuels announces new 85 million gallon, drop-in renewable diesel project in Louisiana. Why is renewable diesel scaling up so effortlessly?

Today, the Digest’s round-up on new capacity, R&D, testing, distribution and new feedstocks for renewable diesel.

In Louisiana, Emerald Biofuels announced that it will build an 85 million gallon renewable-diesel refineries at a Dow Chemical (DOW)site in Plaquemine, Louisiana. The company will use Honeywell’s (HON) UOP/Eni EcoFining process technology for the production of Honeywell Green Diesel Fuel.

Emerald and Dow are finalizing a site lease and a site services agreement for Dow to provide a number of services and utilities to support Emerald’s operation. The site has ship, barge, rail and truck access, and Emerald will be capable of both receiving and shipping by all four modes of transportation. The UOP Ecofining process, developed in conjunction with Italian refiner Eni SpA, uses catalytic hydroprocessing technology to convert natural oils and animal fats to Honeywell Green Diesel Fuel.

The product is chemically indistinguishable from traditional diesel fuel, features a high cetane value, excellent cold-flow performance and reduced emissions over both biodiesel and petroleum-based diesel. Green diesel can be run without blending and offers value as an upgrading stock for petroleum refiners seeking to enhance their existing diesel fuels while also expanding their diesel pool.

Emerald has retained Fieldstone Private Capital Group, Inc. to assist in completing the financing of the Plaquemine refinery and expects to have the financing closed later this year. Final engineering and the construction cycle are to begin immediately upon financial closing.

The Impact

What is it with Louisiana? It seems like at-scale renewable diesel projects have never found a a better home. There’s the Dynamic Fuels project – 75 million gallons in Geismar; the 137 million gallon Diamond Green Diesel project under construction in Norco, as a JV between Valero and Darling, and now this one, clocking in at 85 million gallons.

If and when all three are completed, that’s 297 million gallons of capacity in the one state.

Ah, well its that mother of inland transport, the lower Mississippi, that really is the story here. All three plants find themselves in the heavy shipping corridor between Baton Rouge and New Orleans.

One side note. Emerald Biofuels, Diamond Green Diesel, Sapphire Energy. I think we’re done with the precious stones now, though ruby’s still out there. Cubic Zirconia is available.

Renewable diesel – 3 reasons it really, really matters.

1. It’s a drop-in biofuel, requiring no infrastructure change – and there are generally no limits on its distribution except those imposed by cost and geography, and the size of the global diesel pool itself, which could absorb capacity from  hundreds of advanced biofuels projects.
2. It’s renewable, here now, made at home, and at-scale today. No need to wait for the promise of algal biofuels, or other hot technologies still in the process of commercializing at scale. More than 600 million gallons of capacity already exists – Dynamic Fuels plant in Louisiana, and three from Neste Oil in Rotterdam, Singapore and Finland.
3. In the case of Dynamic Fuels, Diamond Green and Emerald Biofuels, all three projects can utilize animal waste residues – a classic case of turning low-value, noxious feedstocks into high-value molecules.

Around the Horn: Let’s look at the latest from around the world in renewable diesel.

New Capacity

In Texas, Darling International (DAR) announced that Diamond Green Diesel LLC, its previously announced joint venture project with Valero Energy Corporation, has secured financing for the planned construction of its renewable diesel facility in Norco, Louisiana.  Financing will be provided internally by a subsidiary of Valero Energy Corporation.

According to the project’s sponsors, the facility will be capable of producing over 9,300 barrels per day or 137 million gallons per year of renewable diesel on a site adjacent to Valero’s St. Charles refinery near Norco, Louisiana.  The facility will convert grease, primarily animal fats and used cooking oil supplied by Darling, and potentially other feedstocks that become economically and commercially viable, into renewable diesel. Completion of the facility is anticipated just as 2013 gets underway.

KiOR (KIOR) began construction of its first commercial scale facility, located in Columbus, Mississippi, in the first quarter of 2011.  The approximately $190 million facility is expected to create several hundred direct, indirect, and induced jobs during operation, and over 500 jobs on site during peak construction. Production is scheduled to commence in the second half of 2012. KiOR’s process produces refinery intermediates for the production of renewable diesel.

In New Mexico, Joule Unlimited announced last November it is ready to start construction on a biofuels demonstration plant in New Mexico. Joule Unlimited Inc. plans to convert sunlight and carbon dioxide waste into biofuel at the planned facility in Hobbs, which is expected to begin operations in 2012. New Mexico state officials say Joule has the potential to expand its operations to create 500 new jobs in Hobbs by producing up to 75 million gallons of renewable diesel and 125 million gallons of ethanol per year.

Last September in the Netherlands, Neste Oil (NEF.F) inaugurated Europe’s largest renewable diesel facility in Rotterdam with an annual production capacity of 800,000 metric tons that was built at a cost of $913 million. The facility uses the company’s NExBTL technology that allows it to use a wide variety of oils, greases and fats as feedstock.

Key distribution deals

In Finland, Neste Oil (NEF.F) reports that they sold their first batch of NExBTL renewable diesel to the US market.
“We are very pleased to see that legislation on renewable fuels and our ability to meet the import regulations for these types of fuels are progressing in various markets,” said Matti Lehmus, Neste Oil’s Executive Vice President.  The release did not specify who they sold to, or any financial details such as volume or the amount of sales.  The fuel was produced at the company’s Porvoo refinery in Finland from waste fats.

In Virginia, Dynamic Fuels and Mansfield Oil Company have signed an agreement to supply renewable diesel to Norfolk Southern Corporation, one of the nation’s largest transporters of coal and industrial products. Norfolk Southern has primarily been using a 100% pure Dynamic Fuels renewable diesel at its Meridian, Mississippi rail yard since early January.

R&D

In Washington, the DOE is making up to $15 million available to demonstrate biomass-based oil supplements that can be blended with petroleum.  These “bio-oil” precursors for renewable transportation fuels could be integrated into the oil refining processes that make conventional gasoline, diesel and jet fuels without requiring modifications to existing fuel distribution networks or engines.

In February, Royal Dutch Shell announced that it has built a next generation biofuels pilot plant at Shell’s Westhollow Technology Center in Houston, USA, to produce drop-in biofuels rather than ethanol. It uses a thermo-catalytic process technology licensed from its commercial partner Virent, which is similar to the process being used at the Virent pilot plant in Madison, Wisconsin, USA. The Westhollow plant will explore the use of a range of feedstocks, starting with sugars and with the completion of an expansion currently under way, non-food cellulosic alternatives, leading to the production of a range of products, including gasoline, diesel and jet fuel.

Market expectations

Among fuels, 50 percent of executives said they expect cellulosic ethanol to reach 1 billion gallons by 2020, down from 67 percent in the last survey. Other fuels that were expected to break the billion gallon barrier by 2020: renewable diesel (down sharply from 67 to 51 percent), and aviation biofuels at 48 percent.. Algal fuel was flat at 28 percent, compared to 29 percent in the previous poll.Vehicle and ship testing

In California, Volkswagen of America announced partnerships with Solazyme (SZYM) and Amyris (AMRS) to evaluate emissions reductions and demonstrate the performance of TDI Clean Diesel technology when powered by advanced biodiesel and renewable diesel fuel.

Under the respective agreements, Volkswagen will provide both companies with two products each—the new 2012 Passat TDI and 2012 Jetta TDI—in order to closely examine the effects that the fuels produced by Amyris and Solazyme will have on Volkswagen clean diesel technology and the environment.

The 12-month evaluation period will equip Volkswagen engineers with valuable data that will aid in the ongoing enhancement of TDI Clean Diesel technology and help the brand to develop more efficient, cleaner burning diesel powertrains for future products.

In California, Solayzme (SZYM) says the USS Ford, a U.S. Navy Frigate fleet ship, successfully journeyed from its home port in Everett, WA to San Diego, CA using Soladiesel HRD-76, Solazyme’s 100% algal derived renewable marine diesel fuel. The voyage was fueled using 25,000 gallons of a 50/50 blend using Soladiesel and petroleum F-76 in the ship’s LM 2500 diesel turbines, and marks the first demonstration of the alternative fuel blend in an operational fleet ship.

Feedstocks

In California, Ceres (CERE) reports their sorghum hybrids were successfully processed into renewable diesel by Amyris (AMRS), under a U.S. DOE grant. The pilot-scale project evaluated both sugars and biomass from Ceres’ sweet sorghum hybrids grown in Alabama, Florida, Hawaii, Louisiana and Tennessee.

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.

Posted by Guest Contributor at 06:20 PM | Permalink | Comments (1)

Jim Lane

Is evidence mounting that advanced biofuels companies need to tout their defensive schemes as much as their offense? Markets jitters suggest so.

Kevin Quon wrote recently in Seeking Alpha, “the most essential attribute to the fuels market is the ability to scale the technology to the desired level needed.”

Well put. In biofuels terms, that’s playing offense.

Now, making sure that you are making an environment that’s safe for your target molecules and organisms, and as hostile as possible for everything else? That’s playing defense.

Meanwhile, some evidence is piling up that advanced biofuels companies, especially those involved in fermentation systems, will need to be more articulate now, than in the past, in detailing their defensive schemes.

Heretofore, it’s generally been all about the offense, message-wise, all about path to scale, steel in the ground, about ‘getting there’. Less about staying there.

What can these pesky contaminating microvarmints do? They can eat your highly-engineered magic bug. Or, sugar hogs, they can eat all the food. They can slow down your process. Or, they can have so many children that they crowd out everyone else. Or, they can poison the well with a waste by-product that dilutes your critical titers and yields.

In the end, they can eat your company alive too, by causing companies to fall short of their scale-up production targets. Or, a problem in one company can become the presumed potential risk at another.

Hence, why we can expect a lot more interest – after years of “offense, baby, offense”, to see a lot more interest in who’s running the defense.

Jitters in the markets

Call it the Amyris (AMRS) effect – after the company that has struggled with the issues more than any other, in its pursuit of world-class scale. Why is it important? For one, poor post-IPO performance by the handful of companies that have made it through the IPO gate, is bound to impact the chances of others to come through later.

The decline in advanced biofuels share values, post-IPO, is a well-told story. But let’s look at it in some depth.



Here, you see the story. Collectively (though at different times) the seven companies that got out in this IPO wave started with a cumulative market cap of just under $5 billion, and quickly rose to a cumulative high-point of just over $7 billion. All good news. But then the rose came off the bloom, and a long slide started last summer, that has brought the collective value to well under $3 billion.

Hence a lot of questions amongst US institutional investors about whether advanced biofuels are ready, despite their impressive developmental record, for the public markets.

Let’s look at it in some depth though, by looking at the four fermentation stocks versus the three that are not fermentation based.



There, we see that the fermentation technologies had about 55 percent of that initial, IPO market cap. Today, they have just 42 percent share. So, there’s a sharper discount on the fermentation stocks than the non-fermentation equities.

One last chart.



Here, we see that, initially, amongst the fermentation stocks, that Solazyme (SZYM) at IPO had about 40 percent of the collective value. Today, that figure has risen to around 56 percent – increasingly, the fate of the sub-sector is hanging on the boys from South San Francisco.

Ask the leaders

There’s a meeting this week – part of the MIT Club’s “Energy & Clean Tech Series” that will be held tomorrow in Menlo Park, CA, that may well see a raftful of tough questions on the subject. On the program tomorrow evening – Amyris CEO John Melo, Solazyme CEO Jonathan Wolfson, Cobalt CEO Bob Mayer and LS9 Chairman Noubar Afeyan. Key intersecting point of those technologies – they’re hot, they’re fermentation-based, and all of them are on the march towards scale. It’s a $45 ticket for non-members – could be one of the hottest tickets this spring.

What about Solazyme and scale? In his Seeking Alpha note, Quon goes on to add, “Solazyme has been running at a commercial scale through contract manufacturers since 2007 reaching a level of 75,000-liter fermentation tanks. The company’s Peoria facility has 128,000-liter tanks. The company’s ramped-up production has thus far been linear across the 4 levels it’s achieved. The company is slated to eventually scale up to a range in the ballpark of 750,000-liter tanks.”

Then, the vital contention, “Most of the technology risk usually occurs at much earlier levels than what Solazyme (SZYM) has already achieved,” Quon wrote.

Is that true, for Solazyme or any fermentation technology?

Broadly put, that’s real – there are a hundred bombs that can sink a technology while still in the lab, only a handful that can plague it moving through that last critical 10X step-up from, say, 75,000 liter fermenters to 750,000.

A year ago last February, we reported an announcement on scale-up from Amyris (AMRS). They indicated that they had completed multiple runs of its fermentation process using its engineered yeast to produce renewable farnesene, in 100,000 and 200,000 liter capacity fermentors. These runs were completed through contract manufacturing operations in North America and Europe. The results of these fermentation runs, including yields, were consistent with previous runs at smaller scale.” The company had pointed towards the use of 600,00 liter fermenters in the future at its Usina São Martinho project.

By December of last year, though, problems with the ramp-up in capacity became highly apparent at Amyris, which struggled to reach its intended throughput volumes.

Why clarify?

Worries about the scalability of fermentation-based technologies are beginning to circulate – a direct contamination of the space, based on the jitter effect created over at Amyris.

A friend of the Digest writes: “I was in Brazil last month and got an earful about that from a very high up there on [Amyris]. If their shiny high grade fermenter was not up to snuff they are really in trouble…having worked in nice university labs and clean room pharmaceuticals they did not know what was awaiting them in the down market dirty world of biofuel. You can’t make biofuels with anything you got to keep that clean.”

There are two polar views one can take of that comment: Panicked alarmism, or a lonely voice in the wilderness leading us back to real expectations. Perhaps, and probably, the truth lies between those extremes.

But, regardless of merit, the comment can be taken as a general one that scrutiny is going to increase on technology risks inherent in the last few scale-up steps for fermentation technologies.

Contamination – that’s our educated guesstimate on what is going wrong at Amyris. The fermenters – or elsewhere in the tangle of pipes and liquids that form an integrated biorefinery – may well be able to start-up, and stay running for a while – but unanticipated critters make an appearance, and gain a foothold. Causing, at the least, yields to come down – in some cases, causing the crash of a system.

It’s a risk that is widely understood with outdoor, “open” systems, such as growing micro algae in ponds, at scale, and at costs that make sense for the fuel markets.

Opportunistic, invasive critters have been around for a long, long time. In macro-scale agriculture, they are called things like weeds or pests – and herbicides like Roundup have been deployed for years to control weed levels. At the micro-level, micro-agriculturists haven on the whole, a lot less experience in the Defense against the Dark Arts.

That’s proving worrisome for investors. It could well be the case that all this is a case of early-stage company shareholder jitters. But it does indicate that companies need to communicate, even more effectively than ever, how they are running their defensive schemes.

For example, in advanced biofuels companies – you see a lot of roles related to scale-up. VP, Manufacturing, VP, Business Development, CTO, and so on. But that’s changing quickly. Who specifically is the master of the Defense against the Dark Arts – and what and how are they doing? That might go a long way to calming investor jitters.

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.

Posted by Guest Contributor at 12:11 PM | Permalink | Comments (0)

Management shake-up en route to execution, profit

Jim Lane

The hammer drops in Emeryville. Company president Portela, CTO Renninger, general counsel Tompkins out; new CFO, reshuffle and promotions within.

After an 90% stock plunge, Amyris responds. We look at the drama of who’s in and who’s out – but also beyond – to execution and profitable production.

In California, Amyris (AMRS)  announced a major management reshuffle as the company contends with its ambitions for growth, difficulties in ramping up production to meet the goals originally set after its IPO, and a share price that has dropped from a high of $30.78 to yesterday’s $2.83.

Who got the sword?

In the reshuffle announced days prior to the company’s Q1 earnings call on Tuesday, three key executives are out: Mario Portela, President of Global Operations and Chief Operating Officer; Tamara Tompkins, Executive Vice President, General Counsel and Corporate Secretary; and Neil Renninger, Chief Technical Officer. Dr. Renninger will remain as a member of Amyris’s Board of Directors. Amyris CFO Jeryl Hillerman was also replaced this week by Steve Mills in a long-contemplated move.

“We are realigning our management team as we pursue our current production ramp up. We are committed to achieving profitable, predictable operations,” said Amyris CEO John Melo.

New management roles

Peter Boynton will lead business development activities;  Gary Loeb will serve as Amyris General Counsel and Corporate Secretary;  Mark Patel is being promoted to Senior Vice President of Commercial Operations, responsible for leading products strategy and sales growth; Ramesh Raman is being promoted to Senior Vice President of Global Manufacturing, responsible for manufacturing and supply chain; and Christine Ring will lead legal technology strategy and intellectual property.

Continuity in R&D, Science, strategic partnerships, and corporate affairs

Joel Cherry will remain as head of R&D; Joel Velasco will continue his role leading external communications and policy as well as strategic partnerships;  Paulo Diniz will continue to lead Amyris Brasil while expanding his responsibilities in strategic partnerships; and Jack Newman will remain as the Chief Science Officer.

The View from the Street

Raymond James equity analyst Pavel Molchanov, wrote an evocative note on the shake-up.

“Having withdrawn production guidance in February and announced a dilutive ”emergency” equity raise in March, Amyris is in rough shape. The stock’s year-to-date decline of over 70% makes it by far the worst performer in our alt energy coverage universe. In this context comes news that Amyris is reshuffling its executive ranks, with the head of operations, chief technical officer and general counsel leaving the company. Concurrently, Steven Mills becomes the new CFO, though the CFO change had been in the works since last year. CEO John Melo appears to retain the board’s support at this point.

“While management changes (and we suspect layoffs too) are probably inevitable given the company’s current condition, ultimately the solution to the recent scale-up difficulties needs to be a technical/operational one, not just cost-cutting. The stock’s recent meltdown suggests that the market may see bankruptcy as a realistic scenario. While in no way minimizing the challenges faced by the company, we think that there is ample cash on hand to sustain operations into 2013 – but the stock could remain in the penalty box until there are clear signs of progress in commercialization.

The cast changes, the show must go on

It’s a sweeping announcement, right before the earnings call, but there’s little to be gained by focusing on the drama of who’s in and who’s out. Worth pointing out that the dancers now out in front were all promoted out of the Amyris chorus line.

The pressure is on CEO John Melo to articulate – to investors, and as soon as possible – what the specific problems are at the fermenters. If there is a basic flaw in the technology platform, firing the general counsel won’t solve anything. If there’s no basic flaw, then as a public company, Amyris will be expected to resume guidance to Wall Street and meet those forecasts, or John Melo will certainly be the next to mount the guillotine.

It is fair to note that the company, judging from share price, is facing an extinction-level threat in investor confidence based on its scale-up difficulties. Faced with similar circumstances, other boards have prepared whole layers of management for atonement via the hara-kiri. By contrast, the Amyris board has taken a “salvation lies within” approach, blessing a change in the technical team leadership consisting of one promotion and one co-founder exiting a management role but retaining a seat on the board. That takes cojones. Let’s hope their faith proves out.

Melo and the team certainly know all this better than the Digest, and are doubtless going to tackle this task, starting next week with investors via the company’s quarterly earnings call. Expect Melo to put the ‘night of the long knives’ quickly behind the company, and focus the message on products, technology and partners, which remain impressive – and on a streamlined, execution-oriented management team.

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.

Posted by Guest Contributor at 11:14 AM | Permalink | Comments (0)

Dyadic International's (PINK:DYAI) technology looks like the real deal.  Does that make Dyadic a good investment?

Dyadic International (PINK:DYAI) announced yesterday that Abengoa (MCE:ABG, PINK:ABGOY) has expanded its exclusive license agreement for a payment of $5.5 million.

History

I last wrote about Dyadic back in October 2009, when I called it "A Stock to Avoid," based on the facts that the company

• was not then publishing financial statements,
• was unprofitable and had insufficient reserves when it had last published financials,
• had had a dispute with the SEC over security law violations, and
• I did not like their business plan, as I've long been skeptical about the cost-effectiveness of cellulosic biofuels.
  

I caught some flack from company management over that. It's funny, companies never complain when I say something nice, even if I'm wrong.  In this case, the stock is down significantly since I said to stay away, but not more than other cellulosic players, so you could say I was right to say stay away from cellulosic biofuels in general, but not in singling out Dyadic.

The Agreement

I have not really looked at the stock since then, but thought it might be interesting to review, given the announcement.

 The expansion of the Abengoa agreement is a validation for Dyadic's technology. The expanded license agreement allows Abengoa to "use Dyadic’s C1 platform technology to develop, manufacture and sell enzymes for use in second generation biorefining processes to convert biomass into sugars for the production of fuels, chemicals and/or power" worldwide. The previous agreement was limited to certain territories. In addition to the $5.5 million payment for the expansion,

Dyadic is entitled to receive royalties on the commercial production and use by Abengoa, its affiliates and third party sublicensees, as well as royalty fees on the sale of products by Abengoa and its affiliates. Abengoa will have the right to work with third party sublicensees to further develop C1 enzymes.

Codexis (NASD:CDXS) also has a non-exclusive licensed agreement with Dyadic to use the C1 platform in a number of areas, although that is unlikely to lead to significant future revenues, as it was structured as a one-time payment.

According to Jeff Cianci, CEO and CFO of greentech-focused asset manager Green Science Partners, the announcement is big for Dyadic.  "Abengoa really wants to roll out a lot of [cellulosic ethanol] plants.  This should validate the technology for others."

Financial Strength

While the technology validation is great, the $5.5 million will also come in very handy.

Dyadic had revenues of $10.25M, and lost $4.74 million in 2011. With only $3.7M cash on hand at the end of 2011, the new cash should allow Dyadic the ability to operate for another year without raising funds from the market. They had raised $3M in convertible debt in 2011, and compensate management with millions of dollars worth of options at exercise prices well below the current share price. The associated dilution is probably the main reason for the stock price decline over the last few years.

Dyadic will release first quarter results and hold a conference call on May 10th. Given the payment from Abengoa, I would expect Dyadic to report something on the order of $14 million in current assets and a little over $4 million in current liabilities, if recent revenue and expense trends continue.

I don't think that will be enough to get them to profitability, but without the immediate need to raise funds, they may be able to do so without significant dilution, and it may not be necessary if the Abengoa agreement gives other players the confidence to adopt Dyadic's technology.

Governance

The Litigation, Claims and Assessments section of the annual report is quite long, and includes disputes with former auditors which the company lost in arbitration. The auditor's report contains no opinion on the company's internal controls. As a pink sheet company, Dyadic is not required to have such controls, but without them, I'd want to have a lot of confidence in management's honesty before I considered investing.  The company's history of SEC rule violations and disputes with auditors may not be relevant, however: There has been a management change since the last time I covered the company.  One of the legal disputes is with the former CEO. 

Conclusion

In 2009, I thought Dyadic was toxic. Although much is improved, both in the company's reporting, and in validation of the technology.  Cellulosic technology is also making headway, and I'm less pessimistic about it than I was three years ago.  The company's balance sheet is not strong, but the $5.5 million from Abengoa will do a lot to remedy that.

Dyadic's technology in particular receives high praise from industry insiders.  Jim Lane, Editor of Biofuels Digest, calls Dyadic "a company with a compelling technology platform whose time has come."  Dyadic has interest from a reputable and well funded player in the biofuels industry, and may achieve outstanding revenue growth and earnings if commercialization is successful.

However, I don't expect cellulosic biofuels will ever be a high-margin industry.  Just like first generation biofuels before them, I expect cellulosic biofuels to create their own commodity squeeze once they are successfully commercialized.  Dyadic's technology licensing model might still be profitable in such an environment.  Like most companies in the industry, they talk about applying their platform to produce higher value products, such as chemicals and pharmaceuticals. 

Although technology enthusiasts may disagree, I see no reason to rush in.  Picking a winning cellulosic technology always seemed like a chancy proposition to me, especially when there are simpler ways to get exposure to the potential for cellulosic biofuels.  I still prefer to invest in the companies which own the feedstock, particularly Municipal Solid Waste.  Waste Management (WM) is once again beginning to look attractive after a price decline on a disappointing first quarter.

Disclosure: Long WM

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 09:18 AM | Permalink | Comments (0)

Jim Lane

IPOs are struggling, all across cleantech – and the biofuels IPO queue is long and tiring.
Why Kiwano countries may be in your future. And, what is a Kiwano country, anyway?

So, amidst all the legislative and policy hoopla last week for advanced biofuels, including winning funding for an energy title in the US Senate’s Farm Bill and the release of the US Bioeconomy strategy, Enerkem’s IPO skidded to a halt and was withdrawn.

Sure, it was very early stage – their first commercial wasn’t complete, the company wasn’t producing much in the way of revenue, profits are a long way off. They were producing methanol, not yet ethanol, at demonstration scale.

But the MSW-to-ethanol path was so attractive, and with partners like the DOE, the state of Mississippi, and the Alberta provincial government, and strategic partners and investors like Waste Management, Enerkem was widely considered one of the gems in the IPO queue.

Tough month for clean tech IPOs.

It was a really tough month for clean tech in the IPO market. A solar thermal technology, BrightSource, pulled out on April 11th. Luca Technologies, with its natural gas harnessing microbe, pulled out April 23rd after earlier revising its target downward from $125M to $100M. Only Enphase (ENPH), a solar microinvester technology, went ahead and raised $51 million in an offering it has filed hooping for $100 million.

So, four technologies from different sub-sectors of clean tech – all falling well short of goal, three of the four pulling out and the fourth raising half of its target.

What went wrong for Enerkem?

According to the Digest’s sources, the Enerkem offering had three key targets – the retail sectors, the Canadian institutional investors and the US institutional investors, with the last being the most important. Our information is that the first two sectors came forward generally in line with tempered expectations, but that the US institutions, by and large, shut the door on the clean tech IPOs.

Concerns? Well, the usual concerns about technologies that are essentially pre-revenue and burning cash. Added to that, a poor elongated post-IPO performance by a number of heavily-promoted and subscribed offers that came out earlier. And, what perhaps was the coup de grace, rampant policy uncertainty in the key US market over supports for the emerging clean tech markets such as renewable power and fuels.

Enerkem’s methanol to ethanol step

Enerkem, of course, has the added challenge of showing that its methanol-to-ethanol pathway can work, feasibly and at scale. It’s real chemistry – processes have been known for a long time – but they have a novel pathway that was supposed to open up potential for bringing down the costs to work for making fuels, which are sold for a lot less than chemicals, on the whole.

Back in 2009, a patent app from the Enerkem team showed the path they may be taking. The patent summary reads:

A process for converting methanol to ethanol which comprises reacting methanol and carbon monoxide in the presence of a catalyst to produce a product comprising at least 25 mole % methyl acetate and, in some instances, acetic acid. The acetic acid then is reacted with at least one alcohol to produce at least one acetate selected from methyl acetate, ethyl acetate, and butyl acetate. The at least one acetate (if produced) and the methyl acetate produced as a result of reacting methanol and carbon monoxide then are hydrogenated to produce ethanol. Syngas may be produced from biomass to produce all or a portion of the methanol, hydrogen, and carbon monoxide requirements for the process.

In other words, a path is there, but its somewhat more complicated than “please pass the catalyst, Mom.”

Is the window closed? Shut tight?

Elsewhere in the IPO queue, companies backed by Waste Management (WM) with catalytic processes, like Fulcrum Bioenergy — or Mascoma, backed by Valero and a host of prominent VCs — might well be quaking. There’s not a huge amount of added wind in their sails, compared to Enerkem. Yes, Fulcrum produces ethanol without the methanol step. Yep, Mascoma is a fermentation technology with a lot of demonstration hours to support its economics.

But those lousy post-IPO experiences with the likes of Amyris (AMRS) and Codexis (CDXS) are haunting the market, and US policy uncertainty will now not be resolved until, at least, the Presidential elections in November. The kind of confidence-inducing investment that might push these technologies over the line would be a strategic investment that probably would finish off the first-commercial financing anyway, making it possible for the companies to come back to the market after they were revenue-producing and at-scale proven, if not yet cash positive.

Post-IPO performance for advanced biofuels

Here’s the chart of the big six advanced biofuels IPOs.

Overall, pretty dismal, but some trends to note. The big disasters are in the class of 2010 – Amyris, which withdrew guidance, and Codexis, which has changed out CFO and CEO in recent months. After repairing their houses, they may well zoom back.

Class of 2011? Well, nothing pretty, but each of Solzyme (SZYM), Gevo (GEVO) and KiOR (KIOR)can address the risks inherent in their technologies through completing first commercial plants over the next 18 months. Gevo and KiOR, we’ll likely have the snarers before year-end, Solazyme probably in 2013.

Class of 2012? Overall, not doing all that badly. We’ll know more after the insider lock-up period expires – can the companies stimulate enough aftermarket demand to accommodate all the insiders who want or need to leave.

Meanwhile, Ceres’ (CERE) performance has been OK enough that companies like seed-oriented SG Biofuels and Mendel Biotechnologies, not to mention Chromatin, must have just a little hope left in them that the IPO windows remains open for them later in the year and when they have advanced their stories and are market-ready.

Next steps for advanced biofuels

For sure, back to the strategics for help. Whether it is more capital from current investors like Valero or Waste Management, or added government funding (unlikely in these budget-constrained times) adding in help from other downstream investors who see the potential for the fuels in their own markets, that’ll be a question for the companies to explore over the next weeks and months.

Best bet – downstream markets with big ethanol targets, lots of waste, no grain to spare, organized capital, policy certainty, and oil companies that obey the policy center rather than spending as fast as they can to topple the government.

The Kiwano - red on the outside, green on the inside.

Kiwano countries – red on the outside, green on the inside

Where to look in these policy uncertain times? Think kiwano countries. Ah, the African horned melon, the kiwano or horned cucumber. Red and prickly on the outside, but green on the inside.

Our post-IPO market simplified course in Mandarin

Hello nǐhǎo Where is a taxi? chūzūchē zài Nǎlǐ I like China very much wǒ hěn xǐhuan Zhōngguó Do you know an investor? nǐ zhīdào yígè tóuzīzhě ma

Red on the outside: Looking for state interventionalists, or even agrarian socialism, where you have a capital and policy in lockstep formation. Green on the inside -  clean tech focused and replete with cash.

Not a bad idea to look at countries where commodities and agriculture loom larger in their imaginations than in the industrial democracies in North America and the EU, where hardly an investor out there has stepped on a farm since grade school field trips.

Sovereign wealth-backed funds in those districts? A likely next step for the big bucks, for those ventures whose existing investors are fully tapped and needs large pools of liquidity.

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.

Posted by Guest Contributor at 10:03 AM | Permalink | Comments (0)

Codexis chief out, Ceres IPO delayed

Jim Lane

Ceres delays IPO (again); Codexis CEO and enzyme guru Alan Shaw resigns.

In California, visionary industry leader Alan Shaw resigned as CEO of Codexis (CDXS) and the Ceres IPO, scheduled for last Thursday, did not occur and has yet to be rescheduled as of press time. The Ceres IPO remains on the NASDAQ calendar.

At the same time, Ceres said that current shareholders had indicated that they would purchase up to 1 million shares in the company’s upcoming IPO, and the company warned that severe drought conditions in south-central Brazil will adversely affect sweet sorghum crop yields.

The changes at Codexis and delayed IPO at Ceres are indications that life in the public markets remains a rough one for early-stage industrial biotech companies. The changes at Codexis come after the company’s shares fell 65% off their initial IPO price of $13.00 in 2010, despite the company’s relatively steady performance in its fuels business and a fork into the renewable chemicals business, including a landmark deal with Chemtex.

At Ceres: confidence from insiders, drought in Brazil

The company reports: “We are receiving reports that while some of the 2011/2012 sweet sorghum crops being produced from our seeds are growing quite well, others are suffering from the adverse weather conditions. As a result, we expect that this drought will likely lead to overall reduced yields for the 2011/2012 sweet sorghum crops and may adversely affect the demand for our seeds for the 2012/13 growing season.

Ceres: still a good IPO deal?

IPO Candy writes in Seeking Alpha: “If Ceres succeed, the newly discounted share offering of $16 to $17 might be a bargain…The long-term financial model of the company aims at operating margins of 47% to 63%. To put these in context the gross margins at Monsanto are 51%. If one believes these margins to be achievable and applied to a $400M revenue level in 2016 the company supports a per-share intrinsic value of $65.”

Changing of the Guard at Codexis

Over at Codexis, the company reported that Peter Strumph, formerly Senior Vice President and Business Head of Pharmaceuticals, was appointed as the company’s interim Chief Executive Officer, after CEO Alan Shaw resigned “to pursue other interests”, though the company said that Shaw will continue to serve as a special advisor to the Board of Directors.

Shaw served as President of Codexis since its inception and Chief Executive Officer since 2002, and led the company development and 2010 IPO, which was the first in the current wave of industrial biotech initial public offerings.

As interim CEO, Peter Strumph brings more than twenty years experience in senior manufacturing and operations management in the biopharmaceutical industry, including executive leadership positions for ten years at CV Therapeutics where he managed their operational, development and commercial activities.  He joined the company in 2010 and oversaw a 49% annual increase in pharmaceutical product sales in 2011.

Rumors that the board of directors were getting antsy about the company’s dismal share performance began to circulate last fall, and the company set out to beef up its management team with, among other appointments, the tapping of longtime Coskata executive Wes Bolsen as the company’s CMO.

In recent weeks, CFO Bob Lawson announced that he would leave the company as soon as the annual report filing season was concluded, in order to join an earlier-stage Silicon Valley software firm. On Friday, the news broke that Shaw would leave the company.

The fatal blow?

Slow progress on cellulosic biofuels was usually cited as a problem with visibility on profits at Codexis. As Shaw mused late last year to the Digest, “We’re late to our own party.”

Investors and board directors may well have been ultimately dismayed not only by the lack of visibility with Shell, or progress in renewable chemicals, but by the collapse of the company’s efforts to develop an enzyme-based carbon capture business at coal-fired power plants.

After signing a 2010 collaboration agreement with Alstrom, and investing in CO2 Solution, Codexis announced quietly in its annual report that its carbon-capture ventures were being wound down.  The timing was a surprise. Alstrom initially signed a 16-month research deal with Codexis and CO2 Solution in December 2010, but would the venture down unexpectedly less than 12 months into the announced R&D effort. It was symptomatic of the company’s struggles to find near-term, lucrative markets for its transformational technologies.

Where will Codexis go?

The company’s prospects in the fursl area are limited to and by its relationship with Shell and Raizen, the Shell-Cosan JV in which Shell deposited its Codexis shares. Shell has not yet fully declared its long-term biofuels strategy, although it has focused its renewable strategy broadly around biofuels. Delays in its cellulosic biofuels deployment – operating a pilot plant through Iogen since the early 2000s but not yet committed to a commercial-scale deployment, have severely limited visibility on Codexis’ future.

In biofuels, the company expects to participate with its CodeXyme cellulase enzymes in a pilot scale cellulosic ethanol plant in 2013 at a Raizen plant in Brazil, with commercial-scale operations scheduled for no sooner than 2015. In renewable chemicals, the company has said that it expects to commence pilot scale production of its new line of CodeXol detergent alcohols this year, with demonstration scale production in 2013 and commercial-scale deployment in 2014. The timelines and upside, apparently, proved too slow for Codexis investors as they unneeded management at the firm.

The Bottom Line

Worth remembering that the road to biofuels heaven is paved with stones that impatient investors occasionally use to pelt industry CEOs into oblivion.

Woe betide the early-stage industrial biotech company that regards the public markets as a Get Out of Jail Free card, suitable for adding capitalization to companies, replenishing the  depleted funds of a company’s venture capital backers, and offering a risk-free exit for trapped insiders.

What is clear from the performance of industrial biotech company sin the IPO after market – where it is selling shares, or pricing its stock, not according to the deep understanding of early-stage investors or even the roadshow-level understanding achieved with institutional investors through the IPO. In the aftermarket, the companies have struggled to find investors among more retail-oriented value investors, who value visibility and cash flow above all other considerations, and sellers continue to be in decent supply even as buyers have proven elusive, driving down prices.

In the case of Ceres, the market hasn’t even waited for the IPO post-lockup period to show a certain level of uneasiness with the commercial timelines of industrial biotech. Based on the company dropping its expected IPO price from a midpoint of $22 to a midpoint of $16.50, and enduring two missed pricing dates, it would be fair to speculate that the company is having one heck of a time finding buyers for the 4 million shares that will be sold for around $66 million to new investors.

Only last year, Solazyme (SZYM) sold some 14 million shares into the same market at roughly the same price, more than tripling the haul that Ceres is looking at. Now, Solazyme has been the #1 ranked company in the 50 Hottest Companies in Bioenergy two of the past three years, but Ceres has been solidly among the top echelon of that poll for several years. and the company has largely delivered on the development timelines it has shared with the market.

Public markets supply capital, they do not supply patience, and the long-term commercialization timelines for companies such as Ceres and Codexis are proving to be deeply-discounted by retail investors for the market, policy and technology risk that long timelines impose on otherwise fine companies. In short, companies need to provide nearer-term cash flow stories in order to support the valuations they seek.

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.

Posted by Guest Contributor at 11:11 AM | Permalink | Comments (0)

Jim Lane

BlueFire Renewables (BFRE.OB) low-cost sugars subsidiary, SucreSource, announces a major project in Korea backed by oil refiner GS Caltex.
Who else is gaining traction in the race to provide low-cost sugars? A generation of magic bugs — who turn sugars into renewable fuels, chemicals, flavors, fragrances and more — await them.

In California, SucreSource, a wholly owned subsidiary of BlueFire Renewables (BFRE.OB), has signed agreements with GS Caltex, a Korean petroleum company and oil refiner jointly owned by Korean conglomerate GS Group, and Chevron, to build a cellulosic sugar plant in Korea. GS Caltex provides over 50 percent of Korea’s oil needs.

“This agreement validates SucreSource’s business model of selling its cellulosic sugars and, as in this case, sugar producing process to synergistic back end proprietary chemical companies to produce high value products,” said Arnold Klann President & CEO. “As a major petroleum producer, GS Caltex is a perfect partner with which to initiate the business build out. Korea, like the U.S., China, and several other nations, is moving away from food-based sugars to produce high-end products such as biobutanol, ethanol, ethyl levulinate and various other chemicals.  SucreSource is a first mover in this space and has the proven technology to meet this increasing cellulosic sugar demand head-on. This facility will be the first of many to be built.”

The facility will process 2 tons of construction and demolition debris per day into cellulosic sugar, which will be converted into a high value chemical by GS Caltex’s proprietary technology. The facility will be owned and operated by GS Caltex with SucreSource providing the process design package, equipment procurement and technical and engineering support. Once the initial facility is validated, SucreSource will work with GS Caltex to develop and build larger commercial scale facilities in Korea and throughout the world.

“Both parties agree that this is the first step towards commercial deployment of cellulosic chemicals in South Korea and, potentially, their trading partners,” said John Cuzens, CTO for BlueFire Renewables.

SucreSource and GS Caltex have already commenced work on the project. SucreSource is actively pursuing other partnership opportunities and hopes to announce more relationships soon.

More about BlueFire

BlueFire Renewables, Inc. was established to deploy a commercially ready, patented and proven Concentrated Acid Hydrolysis Technology Process for the profitable conversion of cellulosic waste materials (“Green Waste”) to renewable fuel sources, including Cellulosic Ethanol, Biodiesel, BioJet Fuel, and Drop-in Directs.  BlueFire received an increase to its Grant totaling $88 million under the American Recovery and Reinvestment Act in December of 2009.  BlueFire’s biorefineries will be located near markets with high demand for ethanol and will use locally available biomass.

Advanced Biofuels as a system of systems

We see the announcement at BlueFire and GS Caltex as another sign that the industry is heading towards what we described in September as The Third Way.

At the time we wrote:

“Taking fungible, already aggregated crops and using them for industrial biotech may be an efficient way for a company to get into business, but it is fatally flawed for standing up an entire, at-scale industry. Just ask any US ethanol or biodiesel producer how much they loved 2008-09. Or ask “why there is an ethanol shortage in Brazil, and India?”

It is the problem of borrowing Dad’s carwax or Mom’s kitchen to start a kid-owned business in car-washing or selling lemonade by the roadside, and trying to take it to scale. Scale ruins relationships, when a feedstock is shared. It’s a variation on the Tragedy of the Commons.

Well, the Third Way is about providing alternatives through a systematic approach. Companies like Amyris (AMRS), Solazyme (SZYM) and LS9 are moving towards the Third as they begin to develop relationships  with companies that are developing dedicated, low-cost, at-scale sources of sugars.

Low Cost Sugars: The Contenders

There are companies like Proterro, Comet Biorefining, HCL Cleantech, Codexis (CDXS), and Renmatix that are avowedly all about low-cost sugars.

Then, there companies like Edeniq, BlueFire or KL Energy that can go all the way to cellulosic ethanol, but also have a particularly strong technology in pre-treatment and saccharification – that it, producing a cellulosic sugar.

The road to low-cost sugars can be divided into four pathways.

The Acid path

HCL Cleantech

The Bottom Line: Closest ties to date are with Coskata, LS9. Likes wood. New CEO Philippe Lavielle is expected to take the company through a major expansion into the US this year.

The latest: In July, the US Department of Energy awarded $9 million dollars to LS9 and its partner HCL Cleantech to improve and demonstrate an integrated process to convert biomass feedstocks into fermentable sugars and then into diesel and other biofuel and biochemical products. As part of the DOE grant, the two companies are combining their proprietary technologies to produce drop-in advanced biofuels and other valuable bio-based chemicals mainly from wood waste and other agriculture waste.

More on HCL here.

Weyland

The Bottom Line: Closest ties are with Elkem. Preferred feedstocks are woods and agricultural wastes.

The latest: In October 2010, Weyland commenced production of cellulosic ethanol at its pilot plant in Bergen. The plant, which was formally opened by State Secretary Per Rune Henriksen, has a 200,000 liter (53,000 gallon) annual capacity.
The Weyland process is based on concentrated acid hydrolysis with the company’s core technology being a method (patent pending) for recovering acid consumed in the process. Weyland’s can utilize a variety of different feedstocks, such as wood and agricultural waste, and wood waste from demolition

More on Weyland here.

The Enzyme path

Codexis (CDXS)

The Bottom Line: Closest ties to date are with Raizen (Shell-Cosan) and Chemtex. Likes bagasse. Expected to go through a major expansion in chemicals this year and in 2013, through the Chemtex partnership. Key tie-in with Dyadic (DYAI.PK) gives them massive manufacturing capabilities – Dyadic is also tied in with Abengoa (ABGOY.PK). Fuels await strategic directions from Shell.

The Latest: In California, Codexis announced a 16% year-over-year gain in 2011 revenues to $123.9 million,  and a loss of $16.6 million, or $0.46 per share, compared to a loss of $8.5 million in 2010. On a non-GAAP basis, Adjusted EBITDA was $4.3 million for fiscal 2011 compared to $9.9 million for fiscal 2010. Codexis management the drag on earnings represented investment by the company in developing its renewable chemicals business following purchase of technology rights from Maxygen. For 2012, Codexis forecasts revenues in line with or exceeding 2011 results, and a positive EBITDA.

Two key product lines were launched in 2011, CodeXyme cellulase enzymes and CodeXol detergent alcohols. CodeXol is going through the scale-up from pilot and is not expected to reach commercial scale before 2015. CodeXyme is based around unlocking low-cost sugars from, initially, sugarcane bagasse, on the fuels side through its partnership with Raizen, the Shell-Cosan JV, and via an expanded set of feedstocks and focused on renewable chemicals through a partnership with Chemtex – the latter included a projected 25 million gallon facility based in the US.  CEO Alan Shaw commented that he expects the company can generate as much as $1 billion in global revenue by 2020 through the commercialization of its enzyme platform.

More on Codexis here.

EdeniQ

The latest: This month, Edeniq advised that it is expanding as it plans to launch its new pilot cellulosic ethanol plant after receiving a $25 million grant from the Department of Energy.  The plant will produce up to 50,000 gallons/ year and will employ up to sixty people. Feedstocks for the plant will include wood, switchgrass, and corn stover.

Also, the company acquired SmartFlow technology, a Georgia firm, on undisclosed terms.

KL Energy

The Bottom Line: Closest ties are with Petrobras. Preferred feedstocks are corn stover and sugarcane bagasse.

The latest: Last year, KL Energy started testing its cellulosic ethanol production process using Brazilian sugarcane bagasse. Modifications have been made to allow for the physical and chemical differences between bagasse and woody biomass and, most importantly, a new fermentation process has been designed. Ultimately, the plant will switch to a clear mash fermentation process that is used in Brazilian sugarcane mills.

KL recently signed a development agreement with state oil giant Petrobras to bring its technology to Brazil.

More on KL here.

Comet Biorefining

The Bottom line: Closest historic ties are with Mascoma, via Comet CEO Andrew Richard.

The latest: In Ontario, Comet Biorefining announced that it has signed an exclusive agreement with Fulton Engineered Specialities Inc., a leading low cost manufacturer of modular process equipment and systems. Under the agreement, Fulton will provide turn‐key manufacture of Comet’s modular cellulosic sugar process systems on an exclusive basis. Fulton Engineered Specialties is a designer and fabricator of custom pressure equipment and skid mounted, designed, fabricated and tested chemical process systems.

Comet Biorefining has demonstrated its cellulosic sugar technology at pilot scale and is currently scaling up to commercial applications. Comet Biorefining’s goal is to license its Cellulosic Sugar Technology worldwide

Comet CEO Andrew Richard said, “The key to success for the biofuels and bioproducts industry is low cost sugar. A significant component of low cost sugar is low capital cost. Fulton is a world leader in low cost, custom equipment manufacture, with operations in several countries.”

More on Comet here.

Agrivida

The Bottom Line: Agrivida’s technology triggers enzymes inserted into plants, that begin to rapidly breakdown of cellulose, to produce lower-cost sugars which can be fermented into biofuels and renewable chemicals. Closest ties are with Syngenta to date.

The latest:  Agrivida plans to deliver three enzymes to bring down the cost associated with corn-based ethanol to $0.80 per gallon. After receiving $6.8 million in grants from the USDA and the Department of Energy’s ARPA-E program earlier this year, Agrivida plans to deliver these three enzymes for corn this fall.

“We are expressing all the cell wall degrading systems in the plant,” explains Agrivida CEO Michael Raab, “as the core part of our technology. We can control the activity of those enzymes so that in the plant we can express all the enzymes in dormant form. After harvest, we activate the enzymes in the material, so you don’t have to pretreat in the same way. It makes the process lower temperature, with a moderate PH, and takes out a lot of capital costs and those high costs of dilute acid pretreatment. Also, we really reduce the enzyme loading.”

More on Agrivida here.

The hydrolysis path

Sweetwater Energy

Through 2010, Sweetwater scientists concentrated on developing a new cellulosic sugar extraction technology, while the engineering team built a pilot facility to extract and sell sugar from corn silage—a type of whole-corn storage technology that is currently used predominantly to feed cattle. The pilot facility manufactured sugar through late 2010 and early 2011. The sugar was sold to two companies working with the Department of Defense in an effort to make bio-based jet fuel.

In the spring of 2011, with the experience gained from running the pilot facility and the advances Dr. Parekh made in the laboratory, Sweetwater laid out the plans for its first demonstration cellulosic plant, which will be completed in summer of 2012.

More on Sweetwater, here.

The Supercritical path

In supercritical, biomass is split into cellulose and sugar in supercritical water at high temperature and pressure in a two-step process.

Renmatix

The Bottom Line: Closest ties are with Amyris and BASF (Amyris CEO John Melo is a member of the Renmatix board). Favorite feedstock is wood.

The latest: The world’s leading chemical company, BASF, invested $30 million out of a $50 million investment round announced in January by Renmatix.  “The Plantrose technology could allow us in the future to broaden our use of renewable raw materials while improving the cost effectiveness of our value chains even further. In the partnership with Renmatix, BASF is pursuing a new direction while simultaneously underlining its corporate strategy of offering even more sustainable solutions,” said Dr. Josef R. Wünsch, Senior Vice President Modelling, Formulation Research and Technology Incubation at BASF.

Also, Renmatix announced last week that former Pennsylvania governor Mark S. Schweiker joined the company as Senior Vice President (SVP) and Chief Relationship Officer.

More on Renmatix here.

The Biosynthetic path

Proterro

The Bottom Line: Closest ties are with Solazyme. Very early stage, still.

The latest: The company is developing its solid-phase delivery system, at last report still on a bench-scale system.

Proterro’s biosynthetic process combines an engineered photosynthetic microorganism with a modular, solid-phase bioreactor to provide a fermentation-ready feedstock, called Protose. Produced by combining only water, carbon dioxide, sunlight and nutrients in the biosynthetic process, Protose is projected to cost less than such feedstocks as sugar cane and cellulosics, and can be used to produce a variety of commercial scale fuels and chemicals through standard industrial fermentation methods.

More on Proterro here.

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.

Posted by Guest Contributor at 11:04 PM | Permalink | Comments (0)

Jim Lane

33 equity transactions, averaging $40M – who got what, for what, from whom – what’s hot now?

In Florida, Biofuels Digest reported that advanced biofuels and biomaterials companies raised $1.374 B in equity financing in the past 12 months, based on deal flow reported in the Digest’s daily newsletter and online news service.

Overall, the Digest reported 33 transactions, including five successful IPOs, in eight categories.

The largest equity raise of the year was $227 million raised by Solazyme(SZYM) in its IPO. Other notable equity raises included $123M raised by Gevo(GEVO) and $150M raised by KiOR(KIOR) in their IPOs, a $72M raise by Renewable Energy Group (REGI) in its IPO last month, and private rounds of $75 million by Fulcrum Bioenergy, $70 million by Joule Unlimited, $60 million by Enerkem, $50 million by Elevance Renewable Sciences, and $50 million by Renmatix.

Among categories with more than one equity raise in the past year, advanced fermentation technologies recorded the highest raise per transaction, at $57.24 million, primarily owing to the two successful IPOs from Solazyme and Gevo. Thermocatalytic technologies, including KiORs large IPO, averaged $51.14 million in seven transactions.

Category	Raised	Deals	Avg.size
Advanced fermentation	$687.00	12	$57.25
Hybridgasification-fermentation	$39.00	2	$19.50
Thermocatalytic	$358.00	7	$51.14
Cellulosicsugars	$50.00	1	$50.00
Croptechnologies	$111.00	8	$13.88
XTL	$45.00	2	$22.50
Biocomposite	$12.50	1	$12.50
Transesterifcation	$72.00	1	$72.00

Advanced fermentation – $687M

In January, LanzaTech closed its Series C round with new investment totaling US $55.8 million led by the Malaysian Life Sciences Capital Fund. New investors include Petronas Technology Ventures Sdn Bhd, the venture arm of Petronas, the national oil company of Malaysia, and Dialog Group, a leading Malaysian integrated specialist technical services provider to the oil, gas and petrochemical industry. Specific investments in the round were not disclosed by the company. Existing investors Khosla Ventures, Qiming Venture Partners and K1W1 also participated in the round. To date, the company has raised more than $85 million

In July, OPX Biotechnologies announced that it raised $36.5 million in its Series C investment round. US Renewables Group led the C-Round investor syndicate, which also included new investor DBL Investors with participation by existing investors Mohr Davidow Ventures, Braemar Energy Ventures, Altira Group and X/Seed Capital. USRG managing director Jonathan Koch has joined the OPXBIO Board of Directors. To date, OPXBIO has raised $60 million with venture investors.

In May, BioAmber, a developer of bio-based succinic acid, raised $45 million in a Series B financing that will accelerate the commercialization of succinic acid and modified PBS (polybutylene succinate, a renewable, biodegradable polymer). The round was led by NAXOS Capital Partners and included Mitsui & Co, Sofinnova Partners, and the Cliffton Group. Proceeds will fund ongoing development work in the field of succinic acid, including the second generation organism being developed with Cargill, the technology licensed from DuPont that converts succinic acid to 1,4-butanediol (BDO).

In May, Cobalt Technologies announced that it had closed a $20M Series D funding round.  The round was led by The Whittemore Collection Ltd., the investment vehicle of Parsons & Whittemore, formerly one of the world’s largest manufacturers of market pulp and builder of some 60 pulp mills in 28 countries.
All of Cobalt’s current venture investors also participated, including Pinnacle Ventures, Malaysian Life Sciences Capital Fund, VantagePoint Capital Partners, Life Sciences Partners, @Ventures, Harris & Harris and Burrill and Company.

In July, Elevance Renewable Sciences raised $50 million in a Reg D capital round with undisclosed investors. The company, which last raised $100 million in a capital round completed in December, declined to state use of proceeds. But the company is scheduled to start construction later this year on a $225 million project in Natchez, Mississippi.

In June, Avantium completed a $36M million financing round with new investors Sofinnova Partners, Aster Capital and De Hoge Dennen as well as existing investors Aescap Venture, Capricorn Cleantech Fund, ING Corporate Investments and Navitas Capital.

In May, Solazyme netted $227M in their IPO.

In March, Gevo raised $123.3 million in their IPO.

In December, Alta Vista Securities announced they had closed a $7M joint venture for three biofuel plants in the Philippines with Pacific Biofuels.  Each plant will have a capacity to process 80,000 tons of agricultural waste per year, which will then produce about 37,800,000 liters of total biofuels products comprising of 30,240,000 liters of mixed alcohol and about 7,560,000 liters of LPG.

In December, TMO Renewables announced that it completed a £7.6 round ($11M) of financing. Taken in combination with £4.6m raised in January 2010, the proceeds will serve will serve as working capital as the company moves towards commercialization.

In January, Joule Unlimited announced the closing of a $70 million third round of funding, bringing its total to just over $110 million raised to date. The round included investments from both new and prior undisclosed institutional and private sources that joined Flagship Ventures, Joule’s founding venture capital investor.

In October, Plaxica raised a further £5m ($8M) in equity funding from Imperial Innovations, Invesco Perpetual and NESTA Investments. Plaxica has raised approximately £10m to date from its investors.

Hybrid gasification – fermentation – $39M

In October, ZeaChem announced it raised $19 million in Series C financing, led by Birchmere Ventures, and partner Sean D.S. Sebastian has joined the ZeaChem Board of Directors. Follow on investment was provided by existing investors Firelake Capital, Globespan Capital Partners, Mohr Davidow Ventures, PrairieGold Venture Partners and Spring Ventures.

In August, Coskata raised $20M in a Series D round of financing.  The major investors from previous rounds participated, including The Blackstone Group, Khosla Ventures, Total Energy Ventures International (part of Total, one of the world’s major Oil and Gas groups), ATV, Globespan Capital Partners, General Motors, Arancia, and Sumitomo. Coskata plans a final close of the transaction in Q4 of 2011.

Gasification – thermo-catalytic – Fischer-Tropsch – Pyrolysis – $358M

In July, InEnTec converted itself from an LLC to a corporation under the laws of the State of Delaware, and has filed a Form D with the SEC disclosing a $20 million capital raise, with a goal of $69 million.

In June, Enerkem had closed a $60 million financing round that includes Valero Energy Corp. who joins existing investors Waste Management (WM), Rho Ventures, Braemar Energy Ventures and Cycle Capital, who have each invested in the new equity round.

In June, KiOR raised $150 million in its IPO.

In April, Frontline BioEnergy announced that it has completed its Series B financing, and a set of transactions with SGC Energia that will bring new capital investment to Frontline, an agreement for SGC Energia to license Frontline gasification and gas conditioning technologies and a multi-year contract for Frontline to provide a range of engineering services to support SGC Energia.

In March, CoolPlanetBioFuels announced that Google Ventures has joined its $20 million Series B funding round. Google’s investment was undisclosed, though we note that previous reports focused on an $8 million Series B round, suggesting that Google Ventures invested as much as $12 million into the venture.

In February 2011, Fulcrum Bioenergy announced that it has closed a $75 million Series C financing. A portion of the financing will be used to fund the equity capital for the company’s Sierra BioFuels Plant, a commercial-scale production facility designed to convert household garbage to  ethanol, renewable electricity and other high value chemical products.

In February 2011, the Oxford Catalysts Group has raised £21 million ($33M) before expenses from the conditional placing of 26,250,000 new shares, which will be used to accelerate the Group’s ongoing transition from a research and development organisation to a commercial product company.

Cellulosic sugars – $50M

In January, BASF announced plans to invest $30 million in the US technology firm Renmatix, as part of Renmatix’ $50 million Series C investment round.

Crop technologies – $111M

In January, Algae.Tec announced that a A$5M ($5M) Placement through Patersons Securities Limited had been successfully completed. The company announced last week that it had signed a binding MOU for a 50/50 equity joint venture with Shandong Kerui Group Holding, for the construction, in Dongying (Shandong province) of an 8.7 million gallons (33 million liter) algae biofuels facility. The proposed project would also generate 33,000 tones of biomass per year.

In December, NexSteppe raised $14 million in Series B Funding.  The new round of funding was led by Braemar Energy Ventures, and as a result, Dennis Costello, Partner at Braemar, has joined the company’s Board of Directors. NexSteppe will use the proceeds from the round to scale up its sweet sorghum, high biomass sorghum and switchgrass breeding programs, and to advance its first products toward commercialization.

In October, Chromatin announced completion of a $10 million first closing of its Series D financing round that included two strategic investors — BP Ventures and Unilever Technology Ventures — as well as three investors who participated in earlier rounds of financing: Quantitative Investment Holdings, the Malaysian Life Sciences Capital Fund, and Illinois Ventures.

In October, Synthetic Genomics and Mexico-based Plenus announced the formation of a new company, Agradis. The privately held agricultural biotechnology company will focus on developing and commercializing products to sustainably improve crop production efficiency using new advances in genomics and plant breeding. Agradis has also announced the closing of a $20 million Series A financing round which will be used to establish the company infrastructure and to support product development and commercialization.

In August, Aurora Algae raised another $22 million, bringing its total fund raise to $72 million so far. The company has moved away from being a biofuels pure play to focusing on nutraceuticals. The newest funding round will go towards the building of its first commercial scale plant in Australia. The company is currently running trials at its pilot plant there. Greg Bafalis, Aurora CEO, stated, “Biofuels will eventually come, but they shouldn’t be your focus now.”

In April, seed breeding company Kaiima raised $18 million from Kleiner Perkins Caufield & Byers and current investors Draper Fisher Jurvetson (DFJ) and DFJ Tamir Fishman Ventures Ltd., bring in a total of $26 million in financing, to enhance its Clean Gene Multiplication technology.

In March, Solix Biofuels announced it had secured more than $16 million from Bohemian Ventures, The Southern Ute Alternative Energy Fund and I2BF Global Ventures, as the first part of its Series B financing round. The new funding will drive the commercialization of Solix’s industrial algae growth system, utilizing Solix’s proprietary, high-productivity photobioreactors.

In February 2011, Rosetta Green closed an initial public offering which raised gross proceeds of 21,900,960 NIS ($6.06 million).

XTL – $45M

In December, Agilyx raised $25 million in series-C funding led by Keating Capital, and the startup has already raised funds from Waste Management, venture firm Kleiner Perkins, French oil giant Total, and investors at Chrysalix Energy, Saffron Hill Ventures and Reference Capital.

In October, Siluria attracted $20 million for a technology platform to convert methane to chemicals, plastics, and fuels. Siluria’s Series B financing was led by the U.K. based  Wellcome Trust, joining Siluria’s founding investors Alloy Ventures, ARCH Venture Partners, Kleiner Perkins Caufield & Byers, Altitude Life Science Ventures, Lux Capital, and Presidio Ventures in this Series B.

Biocomposite – $12.5M

In June, Cereplast entered into a Securities Purchase Agreement with select institutional investors. Under the terms of the purchase agreement, the company will raise $12.5 million in an offering of 7% senior subordinated convertible notes due June 1, 2016.

Transesterification – $72M

In January, Renewable Energy Group raised $72 million in its IPO.

 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.

Posted by Guest Contributor at 03:27 PM | Permalink | Comments (0)

Jim Lane

In this two-part series, we look at the IPO market for industrial biotech stocks. Today, we look at 10 companies in the IPO queue right now.

Who’s been revising their prospectus, and what does that mean?

In Part II of our series, we look today at Ceres, Myriant, PetroAlgae (PALG.PK), BioAmber, Elevance, Genomatica, Enerkem, Mascoma, and Fulcrum Bioenergy.

In Part I, yesterday, we looked at the performance of the six IPOs to date in the aftermarket, and at important changes in Coskata’s recent filings.

Ceres: delaying its IPO

Headline news from the world of IPOs: a decision by Ceres to delay their IPO pricing for one week. The company did not offer an explanation, but its fair to assume, after the company cut its price targets from $21-$23 to $a range of $16 to $17, that the offering is encountering unexpected headwinds.

The complete coverage of the original filing, Ceres’s $100M IPO: The 10-Minute Version is here.

PetroAlgae: Changing its name to Parabel

One of the companies that has been in the queue for over a year now is PetroAlgae (PALG.PK), which responded to slow IPO going yesterday by announcing a name change to Parabel.

“In the past year, the company has significantly accelerated its commercialization as a result of key strategic changes,” said Anthony Tiarks, CEO of Parabel. “We have developed a scalable and flexible customer licensee model and our technology is now being implemented at pilot scale around the world. Our priority is to facilitate the commercial-scale production of animal feed and potentially human food ingredients, using non-genetically modified and non-algae micro-crops. We believe it is the right time for these important developments and achievements to be given expression through a new name.”

The complete coverage of the original filing, PetroAlgae’s IPO: The 10-Minute Version is here.

Mascoma: Adding More Valero, DOE support to the Mix

In december, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial-scale hardwood cellulosic ethanol facility. The combination of the $80 million from DOE and the remainder from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, with opening of the facility scheduled for year-end 2013. It will have an initial name plate capacity of 20 million gallons, expandable to as much as 80 million gallons. Kinross Cellulosic Ethanol LLC, a joint venture formed by Mascoma and Valero, will develop and operate the Kinross facility.

The complete coverage of the original filing, Mascoma’s $100M IPO: The 10-Minute Version is here.

BioAmber: Raising $20 million in a private offering

In a filing to update its S-1 last week, BioAmber disclosed that on November 4, 2011, it issued in a private placement an aggregate of 20,061 shares of common stock at a per share cost of $997.00 for aggregate consideration of $20 million to Naxamber S.A., FCPR Sofinnova Capital VI, Mitsui & Co., Ltd. and Clifton Equities Inc.

The complete coverage of the original filing, BioAmber’s $150M IPO: The 10-Minute Version is here.

Genomatica – May forego Tate & Lyle agreement

In its most recent S-1 amendment, Genomatica disclosed that its Tate & Lyle commercial development may be terminated by Tate & Lyle if they have not elected to proceed to the second phase consisting of demonstration-scale manufacturing by March 2012, or if they have not elected to proceed to the third phase consisting of commercial-scale BDO production by September 2013.

The complete coverage of the original filing, Genomatica’s $100M IPO: The 10-Minute Version is here.

Elevance – Ramping up production

In its most recent amendment, filed in December, Elevance dropped a reference to “Our products are currently manufactured at commercial scale using tolling facilities, enabling us to validate our target cost of production for our biorefineries.” Instead the company wrote: “We have produced our chemicals at commercial scale through multiple production campaigns ranging in size from 23 metric tonnes (50,000 pounds) to 450 metric tonnes (one million pounds), including two production campaigns that utilized our proprietary biorefinery process, the first of which was completed in November 2010.

The company also disclosed in its update that it lost $10.4M in Q3.

The complete coverage of the original filing, Elevance’s $125M IPO: The 10-Minute Version is here.

Fulcrum – commenced construction at Sierra, reducing cost per gallon

In its most recent amendment, Fulcrum dropped a reference to “The core element of our technology has been demonstrated at full scale,” and “we expect to produce approximately 10 million gallons of ethanol per year at an unsubsidized cash operating cost of less than $1.30 per gallon, net of the sale of co-products such as renewable energy credits.” Instead, it added, “we expect to produce approximately 10 million gallons of ethanol per year at an estimated production cost of less than $1.25 per gallon, net of revenue from the sale of co-products, such as renewable energy credits and recyclables, of approximately $0.45 per gallon.”

The company also discussed results from its Series C preferred stock financing: “we raised an aggregate of approximately $93.0 million from both existing and new investors, including affiliates of USRG Management Company, LLC and Rustic Canyon Partners, as well as a subsidiary of Waste Management, Inc., or Waste Management, the largest waste management company in the United States. We also entered into a credit agreement with a subsidiary Waste Management to provide a project loan facility of up to $70 million to be available to fund a portion of the construction costs of Sierra.”

The complete coverage of the original filing, Fulcrum Bioenergy’s $115M IPO: The 10-Minute Version is here.

Myriant – deeper losses, more production

At Myriant, the company’s latest amendment added a reference to: “We have already produced 24 metric tons of biosuccinic acid in support of internal and customer/vendor sampling and testing programs. We scaled up these quantities from an initial fermentation vessel size of five liters to 50,000 liters from January 2008 to February 2011 at various locations.”

The company also disclosed that its losses expanded to $28M in 2011, but that the loss included $12.6M in interest expense, which reflected conversion of senior convertible notes into equity in January 2011, resulted in a charge to interest expense to fully amortize the remaining value ascribed to the warrants issued as well as an interest charge associated with the beneficial conversion feature of the notes.

The complete coverage of the original filing, Myriant’s $125M IPO: The 10-Minute Version is here.

Coskata – Settled lawsuit with INEOS Bio

We look at the Coskata update in yesterday’s Digest, here.

The complete coverage of the original filing, Coskata’s $100M IPO: The 10-Minute Version, is here.

Enerkem – IPO just filed

Enerkem has not yet revised its F-1 registration statement, which was just filed. The complete coverage of the original filing, Enerkem’s $125M IPO: The 10-Minute Version is here.

 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.

Posted by Guest Contributor at 02:51 PM | Permalink | Comments (0)

Jim Lane

 In this two-part series, we look at the IPO market for industrial biotech stocks.
Who’s up, who’s down, who’s in the queue, and where might all this take us? Plus, an important update from Coskata.

In Part I, today, we look at the performance of the six IPOs to date in the aftermarket, the Ceres IPO which is ready to price its IPO tonight, and look towards the IPO queue at important changes in Coskata’s recent filings.

In Part II, tomorrow, we look at how Ceres performed, we’ll have an update on Amyris (AMRS), and we’ll look at the other companies in the IPO pipeline – Myriant, PetroAlgae (PALG.PK), Bioamber, Elevance, Genomatica, Enerkem, Mascoma, and Fulcrum Bioenergy.

Who should care about IPOs and company performance? Well, investors, without question. But other producers too – as ‘news you can use’ and also because strong IPOs mean strong investor interest in venture funds. Policymakers, too – strong IPOs make viable companies and drive commercialization and balance sheets that lead to scale. Plus, the R&D community – IPOs offer indicators of the direction research will take, as well as making strong collaborative partners.

For the intrepid retail investor, IPOs have been running hot, performing cold. Though many early-stage venture capital investors can still realize returns on their investments in companies such as Codexis (CDXS), Amyris (AMRS), Solazyme (SZYM), KiOR (KIOR), Renewable Energy Group (REGI) or Gevo (GEVO)– for the average small investor, it has been a rough ride.

In the IPO window that opened in April 2010 with Codexis’ successful IPO, six companies in the biofuels and renewable chemicals sector have gone public, and as a class they are between 8 and 61 percent off their IPO price.

Crushed in the aftermarket

It wasn’t always so. Last spring, as Gevo and Solazyme were going public, the stocks were flying off the shelf, and investors pushed stocks like AMRS as high as $33.85, SZYM up to $27.47, and GEVO up to $26.36.

Company	IPO Date	IPO Price	Post IPO Hi	Low	Today	Change	Marketcap($M)
Codexis	4/21/10	13	14.10	3.91	5.05	-61%	181
Amyris	9/28/10	16	33.85	8.77	9.02	-44%	410
Gevo	2/8/11	15	26.36	5.18	9.4	-37%	243
Solazyme	5/27/11	18	27.47	7.68	11.78	-35%	702
KiOR	6/24/11	15	23.85	8.67	13.01	-13%	1330
REG	1/19/12	10	10.29	8.56	9.24	-8%	264
Ceres	2/9/12	16.5	16.5	16.50	16.5	0%	3

Since then, most of the companies have stayed entirely in line with their original plans, as expressed to their investors in there pre-IPO road shows and beyond, and most have stayed in line with their technical and economic targets and on their growth curve. Market reaction? They got crushed.

Accordingly, we can see the current price environment as more of a measure of the public’s appetite for risk (like, about zero), than as a verdict on the technologies and companies themselves. The stocks went through dizzying declines that pushed the Biofuels Digest Index by almost 15 percent in six months, and individual stocks lost as much as 75 percent of their value.

The Recovery

Generally, the six (REGI, being only three weeks in the public markets, doesn’t factor much in to the aftermarket analysis), have recovered off their lows. Gevo has rebounded 80 percent from its $5.04 low, Solazyme (SZYM) has recovered 53 percent to $11.78, and KIOR is up 50 percent to $13.01.

But market caps tell a story about the expectations of the market, in a different way than price does – who is expected to go big? There. we see a lot of differentiation. Pyrolysis rules – KIOR, with its $1.3 billion market cap, leads the way. The remainder, with the exception of REG, are fermentation technologies. There, Solazyme is in the $700 million range, Amyris trails at $400 million, and the rest are in the $180 million to $243 million range.

REG, which focuses on transesterification of veggie and waste oils into biodiesel, is at the top of the trailing class, at $264 million.

Opportunity? GEVO, KiOR and SZYM are trading close to their most recent $9, $14 and $13 targets (respectively, as projected by Raymond James analyst Pavel Molchanov), while AMRS has a pretty good upside, with a target price of $20, as of December.

The Ceres IPO

Ceres is expected to price tonight, and has dramatically cut its expected price range to $16-$17, down from the $21-$23 range expected just a few weeks ago.

It’s been a common theme. Amyris struggled on price at the gate, as well as Codexis and KiOR, and more recently, Renewable Energy Group. Gevo and Solazyme performed better in the IPO itself, but of course have fallen off substantially since.

Now, Ceres is the first of the biotechnology feedstock plays to come to market. It’s upside? Potentially, there are a lot of customers for energy cane, switchgrass and sweet sorghum, among the crops targeted by the company, which focuses on improving traits such as salt tolerance, drought-resistance and works on yield enhancement.

Coskata, INEOS Bio settle lawsuit: Coskata revises S-1

Moving over to Coskata, the company recently revised its IPO documentation to reflect a settlement of its lawsuit with INEOS Bio, which reflected a trade secret dispute.

From the revised S-1: “On January 12, 2012, the parties signed a settlement agreement in which they agreed to dismiss all claims. Pursuant to the settlement, Ineos will receive from us a $2.5 million cash payment and 2,125,000 shares of Series D preferred stock, after which all the asserted claims will be dismissed, and a mutual release of future claims will become effective.

“However, the release does not preclude Ineos from bringing claims against us arising out of conduct occurring after the effective date of the settlement agreement, or from bringing certain claims against us arising out of conduct prior to the effective date of the settlement agreement.

“In addition, Ineos has the right to receive 2.5% of future ethanol royalties and license fees received by us from third parties who license our technology, subject to a cap with a net present value of $20 million, which will be increased based on future interest rates.”

Bottom line for INEOS? Validation, broadly speaking, of their claims of harm, and some potentially valuable relief through participation in Coskata’s upside. For Coskata, the company has more freedom to operate, and can offer a far greater degree of certainty on IP risk to its investors in the IPO process

Other Coskata IPO updates? Shutdown of the demo plant; aiming at natural gas and biomass mix?

The most striking update is that the company quietly shut down its Lighthouse demonstration unit in Madison, Pennsylvania.

The company explains: “We suspended continuous operations at Lighthouse due to the considerable costs associated with such operations and because our key objectives for operating the facility had been met. These objectives included confirming commercial design metrics, testing commercial-ready microbial strains and demonstrating the conversion of multiple feedstocks into ethanol. Most of Lighthouse’s personnel were relocated to the research facility at our headquarters in Warrenville, Illinois. Our Lighthouse facility is available to be restarted as new micro-organisms are ready for evaluation at this scale and the site lease is extended.”

Another update? Coskata might well be joining the group of XTL technologies. This is a group of technologies that are working on a broader set of feedstocks than biomass (BTL), including natural gas (GTL) and in some cases coal-to-liquid (CTL). In its revised filing, Coskata has signaled its interest in working with natural gas, which itself has attracted increasing attention from the Obama Administration and the Congress as a base for enhancing energy security.

The company explains: “We plan to install a natural gas reformer to ensure a continuous supply of syngas. Consistent with operations at our Lighthouse facility, we expect to operate this reformer on a nearly continuous basis. It is therefore likely that a portion of the ethanol produced at Phase I will not be considered renewable.”

The bottom line for Coskata: freedom to operate, and conserving cash through shutdown of the demonstration unit, which after 15,000 hours had likely yielded up all the engineering data needed for the first commercial plant. Its tough not to be able to work on demonstrating other feedstocks, but Coskata’s focus is clearly on the first commercial facility, and taking on other challenges later. Tough business decisions, and a transformative technology: two reasons why Coskata has quietly emerged as a favorite among analysts looking at the IPO pipeline.
 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.

Posted by Guest Contributor at 03:05 PM | Permalink | Comments (0)

Jim Lane

Companies creating opportunities in feedstocks are getting lots of love from investors, and giant downstream partners like BP and Shell.

What’s up in the new upstream?

It has not escaped the attention of investors that Renewable Energy Group’s (REGI) IPO resulted in a $262 million valuation for a company actively earning $2.11 per share through the sale of 200 million+ gallons of biodiesel, while Ceres recently increased the target for its IPO to a valuation above $500 million, despite being, in essence, a pre-revenue company.

What gives? The secret, it turns out, is in feedstock. In recent months and years, as more and more advanced biofuels processing technologies have made it through pilots and demonstrations of their technology and head for commercial-scale, investors have been focused on the fact that value-creation in biofuels has generally conferred an awful lot of dollars on feedstock growers, and not so much for the processing technologies and downstream marketers.

Controlling feedstock costs

For that reason, companies like BP Biofuels have been making control of the feedstock costs, through direct grower contracting, a central feature of their business models. And processing companies that have been getting significant traction towards commercialization, are generally those that have spent the most time and attention locking down the feedstock costs.

Examples? Well, there are plenty, such as POET’s Biomass Division, the technologies such as INEOS Bio, Fulcrum and Enerkem that have secured long term, zero-cost MSW supply contracts; companies like LanzaTech and Joule that utilize and have secured long-term supply of low cost, industrial off-gases such as carbon monoxide or carbon dioxide; or companies like Mascoma and ZeaChem that have establish long-term relations with forest biomass companies like JM Longyear and Greenwood Resources.

Over the past five years, there have been a raft of celebrated bankruptcies and shutdowns in the bioenergy sector – restructuring at Pacific Ethanol, Aventine Renewables, and VeraSun, as well as (at one time) the  shut-down of huge percentage of global biodiesel capacity. Many of the companies and plants have revived and re-opened, but consider this: just one generation after the days of FarmAid, hardly a grower (of first generation feedstocks) has not enjoyed pretty good times, throughout the past five years.

Limits there are, as is widely understood, on the availability of first-generation feedstocks. In some cases, pricing pressure, as in the case of maize or soybeans. In other cases, regulatory pressure such as the EPA’s ruling that palm oil biodiesel has insufficiently low greenhouse gas emissions to qualify as an advanced biofuel.

Value creation, value unlocking, value add

In the Digest’s Feedstock Framework, we see three types of companies.

First, those that are chasing value creation – turning low-performing feedstocks into economic rock stars through yield intensification, often through hybridization and unlocking favorable traits that are hidden in the genome.

Second, companies involved in value unlocking. That is, taking next-gen feedstocks already available at scale – generally, residues, and finding processing or extractive technologies that tease out valuable material streams out of what, previously, was thought of as waste, fit only for dispersal and disposal.

Third, companies involved in value adding. That is, taking existing feedstocks already available at scale, and already providing material ROI to their growers and processors, and using synthetic biology to produce higher-value products from the feedback.

In some cases, these are processors, some cases seed developers, some cases developers of magic bugs. But all of them are working on the right side of the value equation in bioenergy and biomaterials – which may help explain why investors are giving them so much attention as they come to the markets for capital – whether it is financial investors, or serious strategic players working in the downstream markets, such as BP Biofuels, Shell, Valero or Tesoro.

A Feedstock Framework

Below, we have parsed the major feedstocks into the buckets of “value creation”, value unlocking and value add.

Note: The companies cited are for illustrative purposes – there are, for example, tons of companies working on micro algae and agricultural residues that we did not have space to mention – and no disrespect is intended if a favorite company of yours is not included. And, yes, some of these feedstocks (e.g. algae) fit to some extent in both the sugars and oils department. But you get the general idea.

Value creation (new feedstocks)

Oil crops
Microalgae	Sapphire Energy, Solazyme (SZYM), Phycal, Aurora Algae, many others
Jatropha	SG Biofuels
Carinata	Agrisoma
Camelina	Sustainable Oils, Green Plains (GPRE)

Sugars: cellulosic and otherwise
Macroalgae	Sea6/Novozymes(NVZMY.PK), BAL, Kumho
Miscanthus	Mendel
Switchgrass	Ceres
Woody biomass	ArborGen
Sorghum	Chromatin

Value unlocking (residues)
Bagasse	Codexis (CDXS)
Municipal solid waste	Enerkem, Fulcrum, Terrabon, BlueFire(BFRE.OB), INEOS Bio, Coskata
Animal fats & wastes	Dynamic Fuels, Neste Oil, Diamond Green Diesel
Wood residues	ZeaChem, Mascoma, Cobalt, KiOR(KIOR), American Process
Waste gases	Proterro, Joule, LanzaTech
Agricultural waste	POET/DSM, Abengoa(ABGOY.PK), Novozymes, Dupont (Genencor)

 

Value adding (existing feedstocks)
Corn starch	Gevo(GEVO), Butamax, Green Biologics, Genomatica
Cane syrup	Amyris(AMRS), LS9

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.

Posted by Guest Contributor at 11:20 AM | Permalink | Comments (0)

Jim Lane

Obama unveils an “all-out, all of the above” energy strategy. But is it really “all of the below”? Just election talk? Is ginning up a bioeconomy shelved for a year, or just a week?

Meanwhile, hopeful news from Novozymes (NVZMY.PK) and the World Economic Forum.

In Washington, President Barack Obama gave his State of the Union speech, and dashed hopes and expectations of a revival strategy for US industry through encouraging growth of the bioeconomy. His annual presidential address became the first in a number of years to avoid any mention of biofuels, ethanol, the bioeconomy, or biotechnology.

In a speech which mentioned jobs 32 times, the high-export, high-productivity US agriculture sector also failed to score a single mention. The closest the president came to mentioning biofuels was in touting that US oil imports were at their lowest point in 16 years – without mentioning that the key factor in that import achievement was the rise in domestic biofuels production.

Instead, the president proceeded to embrace an “all out, all of the above” energy strategy – focusing on an intense increase in domestic oil and natural gas production, and borrowing the “all of the above” phrase which, until recently, was most closely associated with conservative Texas Republican, Gov. Rick Perry.

The centerpiece of his strategy? Natural gas. “We have a supply of natural gas that can last America nearly 100 years.  And my administration will take every possible action to safely develop this energy.  Experts believe this will support more than 600,000 jobs by the end of the decade,” the president said.

Clean energy? The president opted to give up on hopes for legislation (except for a one-line exhortation for Congress to renew the Section 1603 tax credits that are used for wind and solar development), and focused on authorizing permits for 10 GW of renewable power production on federal land – that’s equivalent to about 1% of US power production capacity.

The focus on oil & gas production was surprising as Obama Administration policy, but unsurprising as re-election strategy: removing a line of attack that the President’s opponents were planning for the 2012 election campaign.

Has the Obama Administration shifted from an “Action News” to an “All Talk” strategy – shifting from policy implementation to framing the election conversation? We think so. We expect to hear a lot more about Mitt Romney’s 14 percent tax rate this year, than about policies and programs to revive manufacturing, or deploy clean energy.

For now, whither goes biofuels?  The word from Washington is that the President will unveil his Blueprint for a Bioeconomy next week – we’ll see then what the Administration has in mind for industrial biotechnology.

And now, a word from Davos: “Moving towards a next-generation ethanol economy”.

From Davos, where the World Economic Forum is gather this week, came something a little more weighty and specific than the State of the Union speech.

Bloomberg New Energy Finance launched its report “Moving towards a next-generation ethanol economy”. Commissioned by Novozymes (NVZMY.PK), the report estimates the socioeconomic prospects of deploying advanced biofuels in eight of the highest agricultural-producing regions in the world, i.e. Argentina, Australia, Brazil, China, EU-27, India, Mexico and the USA.

“An estimated 17.5 percent of the agricultural residue produced could be available today as feedstock for advanced biofuels. With this amount, enough advanced biofuels could be produced to replace over 50 percent of the forecasted 2030 gasoline demand,” said Steen Riisgaard, Novozymes’s CEO.

The report shows that the eight regions analyzed have the potential to diversify farmers’ income, generate revenues ranging from $1 trillion to $4.4 trillion between today and 2050 and create millions of jobs. Including 1.4 million jobs in the USA, according to the report.

Why the Obama shift in the State of the Union?

Why the shift towards fossil fuels? The President is aiming for re-election, by appealing to swing state voters with the hope of economic gains from increased domestic oil production. The focus of the President’s speech – which pinned hopes economic growth on a revival of American manufacturing and energy production – generally focused on reducing inequality between rich and poor through revision of the tax code.

The real all-of-the-above: advanced biofuels as it approaches commercial-scale

As an example of all-of-the-above energy development that works, look these eight projects we profiled recently in the Litmus Test. First commercial projects from newly-minted public companies Solazyme (SZYM), Gevo (GEVO) and KiOR (KIOR). Two trash-to-biofuels projects from INEOS Bio and Enerkem, located in Florida and Alberta. Europe’s largest biosuccinic acid project, scheduled to be opened by DSM in France. The world’s largest cellulosic ethanol project to date, being readied by Beta Renewables in Italy. And a large-scale renewable diesel project from the Darling (DAR)-Valero partnership that is expected to be ready just as 2013 gets underway.

Eight different technologies, a range of feedstocks, deployment around the globe. It’s a flowering of innovation.

State of America’s biofuels industry

For even more perspective, this week, leaders some of the top biofuels companies in the country are offering their thoughts on the state of the advanced biofuels industry, in a special episode of the Advanced Biofuels Association’s Better Fuels Moment online video series.

The episode features Joel Velasco, senior vice president of Amyris (AMRS); Jack Huttner, executive vice president, commercial and public affairs of Gevo; and Michael McAdams, president of the Advanced Biofuels Association, ABFA.

McAdams noted that the special episode emphasizes that, “Washington now has a real opportunity to invest in clean energy fuels, smarter investments based on performance, not a lifetime of subsidized handouts from Washington.  This opportunity can strengthen America’s energy security while creating jobs here at home, today.”

The Bottom Line

The good news – the release of the “blueprint for a bioeconomy”, expected next week, may offer more substantiation of an “all of the above” strategy. And, for sure, commercialization is rapidly moving out of the realm of government support and towards the private sector. Note that both KiOR (KIOR) and POET-DSM dropped their DOE loan guarantees, saying they were unnecessary for their projects.

For industry – it is a reminder that Obama Administration is likely to support in the form of purchase rather than development – government-as-customer rather than government-as-investor. Those that get themselves off the government dope may well find themselves with a significant first-mover advantage, not to mention some hefty government contracts for drop-in diesel and renewable jet fuel.

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.

Posted by Guest Contributor at 10:01 AM | Permalink | Comments (0)

Jim Lane

Rewind to 2011 with a “best of” New Year’s story? Bah, humbug! Today, Biofuels Digest looks forward to the sunny possibilities of 2012 in bioenergy.

As the sunset of 2011 gives way to the dawn of 2012, here at the Digest we resist the holiday temptation to look back over the challenges and highlights of the year gone by, and instead once again roll out our crystal ball as we list the Digest’s 10 Biofuels Predictions for 2012.

Top 10 Biofuels Predictions for 2012

10. Advanced biofuels capacity surges to 1 billion gallons, globally. We see 570 million gallons in capacity from Neste Oil alone; 137 Mgy from Diamond Green, 75 Mgy from Dynamic Fuels, 62 Mgy from KiOR, 37 Mgy from Gevo, and 25 Mgy from POET.  New, smaller commercial facilities (8-20 Mgy) are expected from Amyris, Chemtex, Solazyme, INEOS Bio and POET; the rest, 50 Mgy in capacity at Nature Works and Metabolix, and small demonstrations and pilots from nearly 200 other companies.

9. Merger-Mania. 200 companies can’t all continue to march forward, developing advanced bioenergy projects. Projects that have completed pilots are going to be ripe for merger and acquisition as they search high and low for expansion capital and find that the well is getting quite dry, as many oil and chemical giants will have already placed their bets. Look for projects to attempt to tap feedstock providers next – absent that, the projects seeking $100M+ for commercial-scale expansion will be looking to make themselves more attractive to investors by issuing so much equity to investors that it will feel like a merger even if the projects remains technically independent.

8. Selected IPOs go forward. The buzz around Elevance and Genomatica continues to be strong, and Fulcrum and Mascoma have put themselves into very strong positions with financing deals from Valero (VLO) and Waste Management (WM). All of the IPOs in the queue, and there are 10 of them, have merit, but we expect that several of them might opt instead to be acquired.

7. Momentum shifts to Asia. Brazil has ruled the roost for the past two years – now, sugarcane shortages, surging demand, and the fact that many of the partners have already chosen their partners for the Brazilian shuffle – well, momentum is shifting to Asia. For those that can utilize palm oil or palm waste – think Indonesia and Malaysia. Cassava? Thailand or Vietnam. Cane? That’s India. Need industrial partners, coal, or residues from forest, animal or municipality? That’s China. Thinking algae? Think a little farther to the south, in Algstralia, where cane is also in relatively plentiful supply.

6. US Renewable Fuel Standard is revised. Though most US biofuels trade associations have kept strongly to a “don’t mess with the RFS” strategy, its common sense that the forces that opposed the VEETC ethanol tax credit – chicken and beef producers, anti-corn activists and small government zealots – will now pivot their full attention to the Renewable Fuel Standard, showcasing the shortfall in the cellulosic biofuels pool. Oil companies may be divided on the RFS given their increasing investments in the sector, but chemical investors won’t care much, and the algae-based biofuels developers will support a revision of RFS targets.

5. Oil and chemical companies rule. Venture capital is just about maxed out in advanced biofuels, and the players that are making a difference are a handful of visionary feedstock-side investors (ADM, Cargill, Bunge) on light duty, more aggressively so from Waste Management. But the big dollars will be downstream in 2012. Valero and BP are stepping up, Shell expects to deploy billions in Brazil, and Petrobras, too. The major Indian oil companies may go big, and we expect to see more and more interest in the sector from Dow, BASF, Dupont, Rhodia and others in the chemicals businesses.

4. Aviation biofuels capacity increases, but US $510M investment de-funded. Aviation biofuels will continue to get hotter and hotter – more and more airlines will try small purchases to try and stimulate large-scale production and helping costs to come down. But we expect only a series of delays and frustrations in US government efforts to fund its $510M commitment to invest in military and aviation biofuels. It’s going to be “sorry” from the House of Representatives throughout 2012 on the question of either re-purposing funds from earlier appropriations, or granting new funds for the Navy’s and the DOE’s side of the investment. After the US elections, in 2013 – that’s a different story.

3. Ethanol producers begin switch to biobutanol and chemicals en masse. If last year was the year of the IPO, as 2009 was the summer of algae, 2012 will be the year that ethanol producers begin to switch over to higher-value molecules, such as butanol or various organic acids. For ethanol producers, its the path of least resistance in getting around the ethanol blend wall. For the high priests developing the new technologies and magic bugs, its an opportunity to partner with companies that have feedstock, infrastructure, 90 percent of the required steel in the ground, and existing markets for co-products.

2. “Carbon capture & re-use” is the new buzzword. It’s been “carbon capture and storage” for some time, but it is beginning to dawn on technologists that, in the end, the costs are too high and the technology can only help stem the flow of carbon into the atmosphere, not provide a permanently sustainable solution. The problem is not that there is too much carbon. There is exactly as much carbon now as 100 years ago – it is a distribution problem. Carbon that needs to be in the soil, helping to produce food and fuel, is trapped in the atmosphere and in the ground. Technologies that capture carbon emissions before they are vented into the atmosphere, and pipe CO2 to technologies that can utilize CO2 to make products for a fast-growing world – that’s where the action will be.

1. US Farm Bill contains reduced, targeted energy title. A new farm bill is due in 2012, and there continue to be a question as to whether there will be a Farm Bill at all, any kind of Energy title within the bill, and what that title might look like. Our belief? Yes, the grand coalition that brings forth a Farm Bill will re-form, fractiously as ever. Yes, Virginia, there will be an energy title. But, holy Vilsack, will it be smaller or what? Look for the energy title to focus on four key programs programs – a revised biomass crop assistance program, designed to help bring cellulosic feedstocks to market; direct equity to inject in commercializing advanced biofuels for military use, that utilize rural biomass; loan guarantees to ensure that a project finance market emerges for advanced biofuels, at scale; finally, a blender pump program to help industry to circumvent the E10 ethanol blend wall with expanded E30 and E40 availability.

Last year’s predictions: 8.5 marks out of 10

For our 2011 batch of predictions, we give ourselves 8.5 marks out of 10.

We gave ourselves 1 full mark for predicting a new set of USDA Loan Guarantees, the end of the VEETC ethanol tax credit, status quo on the US Renewable Fuel Standard,  the continuation of IPO Fever, the dominance of renewable chemicals among early-breakout strategies, the domination of renewable diesel in production capacity, the advent of numerous “bolt-on” deals including increasing US-Brazilian ties, and for the rise of the strategic investors.

We gave ourselves a half mark on our prediction that Brazil, India and China would dominate the development headiness – not much activity, in the end, in India, and more in the US than expected.

We gave ourselves a zero on expanded capacity in cellulosic ethanol – it expanded, but not nearly as much that would justify including it in our predictions.

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.

Posted by Guest Contributor at 08:48 PM | Permalink | Comments (0)

Jim Lane

Following a stinging WSJ editorial board critique on cellulosic biofuels, we leave a fact-filled voice mail for News Corp to hack.

Meanwhile, Mascoma lands $80M and heads for scale.

The Wall Street Journal editorial page writers recently published a stinging indictment of cellulosic biofuels.

Bottom line: the Journal is offering the shortfall in the cellulosic biofuels pool (around 2% of the overall US Renewable Fuel Standard this year), as evidence that government mandates and subsidies do not work, and that the US government has shoveled a lot of money into advanced biofuels for nothing.

Was it brain-failure?

Well, they must be stupid at Valero, announcing this week that the company would invest some $150 million in the new Mascoma cellulosic biofuels plant in Michigan. And at Waste Management (WM), too, announcing last week that they would provide the bulk of financing for Enerkem’s initial commercial-scale cellulosic ethanol facility, and $70 million in financing (a few weeks back) for Fulcrum Bioenergy’s first commercial cellulose biofuels facility in Nevada. Hoo-hah, what morons!

Why are companies like BP, Shell, Valero, Dupont, Dow, Waste Management, Tyson, and Darling all investing in what is, we are now informed, a phantom? Have they all gone simultaneously bonkers?

And yet … perhaps companies like Waste Management and Valero are not investing because of the $1.01 per gallon cellulosic biofuels tax credit, which expires next year before these projects are even completed. Or because of corporate brain-failure. They think that – perish the thought – that they are going to make money from the technology.

It came just the same

As the Grinch might say,“It came without swaps, or options, or fees, it came without points that will knock out your knees. It came without puts, or Ponzi-sourced cash, those foolish folk making fuel out of trash. But despite all our efforts to sell ‘em on oil, they went for renewables after all of our toil. Their investments came, they came just the same.”

It makes you almost wish that the voice-mail hackers at News Corp had targeted, say, Waste Management, instead of celebrities from the entertainment industry, over the past decade. They might have learned something useful from their innovative approach to privacy invasion.

Hack this voice mail

As a gift to our brothers-in-journalism at News Corp, we left a message on the Biofuels Digest voice mail this morning, explaining how much qualifying advanced biofuels capacity is now available to fill the 2 billion gallons that will be mandated in 2012 by the US Government.

That would be, er, around 13 billion available gallons. With some 4 billion gallons in added advanced biofuels capacity announced around the globe for opening by 2016. Four years after the cellulosic biofuels tax credit expires.

There you go again, another example of abject failure in public-private partnerships. You put up a mandate and what do you get? 13 billion lousy gallons to fill a 2 billion gallon mandate. Could there be any more compelling evidence available that mandates do not work? Sheeesh.

For more information on the topic, News Corp can hack our voice mail instead of, say, Madonna’s. 786-393-8530: hack away.

Who’s investing faster than the US Government?

When it comes to RFS-qualifying advanced biofuels capacity, there are a couple of companies investing faster than the US government, as it turns out.

Lord, what fools. Who could those be? Mere pawns for quick destruction by real companies, real companies like oil companies.

Um, that would be Shell and BP.

Oops.

The pool, by the numbers

As we have repeated so many times it just gets nauseating, cellulosic biofuels are a component within the advanced biofuels pool.

Here’s how a pool works. If cellulosic biofuels come up short, the other qualifying fuels can easily slip in to fill the gap. Sort of like, when one oil well dries up, you can make up the shortfall by drilling another. And when Saudi Arabia dries up, oil-wise, the Journal can urge us to drill the heck out of the Arctic National Wildlife Reserve. Or the ocean. Or Neptune. And so on. That’s how pools work.

Just so you know.

Pointing out that one component of the overall pool is behind, well that’s like taking one stock out of the Dow Jones Industrials and saying that, because one component stock is underwater, the world of equities is going to hell.

In retrospect, the Congress was simply wrong to prescribe one portion of the pool so narrowly. They were just asking for trouble back in 2007. It has become a poster child for the failure of advanced biofuels, despite the fact that the world is awash in capacity to fill the RFS mandate.

For example, the Diamond Green Diesel project from Valero and Darling (DAR), scheduled for completion next year with 137 million gallons in capacity. Or more than 500 million gallons in renewable diesel capacity that Neste Oil has brought online in the past there years. Or the 75 million gallon Dynamic Fuels project that Syntroleum and Tyson opened last year. Just to name a few.

Are market-makers important?

Now, for sure, the RFS mandated market is a helpful thing, because it provides assurance of market access. Anyone who ever tried to launch a web browser to compete with Internet Explorer knows that it can take government action to get a rival technology distributor (in this case, fossil oil, as opposed to Microsoft) to make a disruptive, competitive product available to their customers.

And DOE loan guarantees and project grants are a useful thing. Government support in the early days was instrumental in other technologies, too. For instance, that 7th wonder of private enterprise, the oil pipeline. The internet. The GPS system that helps you navigate around town. Just to name a few.

Mascoma heads for scale

Therefore, its not exactly bad news when, this week, Mascoma announced that it has signed a cooperative agreement with the DOE to assist in the design, construction and operation of its first commercial  commercial-scale hardwood cellulosic ethanol facility.

The combination of the $80 million from DOE and the remained from Valero effectively completes the financing for the first project. Groundbreaking is scheduled for the first half of next year, opening of the facility for year-end 2013. It will have an initial name plate capacity of 20 million gallons, expandable to as much as 80 million gallons. Kinross Cellulosic Ethanol LLC, a joint venture formed by Mascoma and Valero, will develop and operate the Kinross facility.

Reaction from Mascoma

“This DOE award is a significant milestone for Mascoma, and the biofuels industry, as it completes the financing for the development and construction of a first-of-its-kind 20 million gallon per year cellulosic ethanol facility in Kinross,” stated Bill Brady, President and CEO of Mascoma.

“Mascoma is honored to receive this award and we are fortunate to have such a strong partnership with the DOE for the Kinross project. We look forward to the continued support from and collaboration with the DOE,” added Michael Ladisch, Ph.D., Chief Technology Officer of Mascoma, Principal Investigator for the DOE award, and Distinguished Professor at Purdue University.

Reaction from DOE

“Biofuels hold great potential, not only for reducing our dependence on foreign oil, but also for creating new jobs and economic opportunities for America’s rural communities,” said Valerie Reed, Ph.D., Acting Biomass Program Manager, Office of Energy Efficiency & Renewable Energy, of the DOE. “The cooperative agreement between Mascoma and the DOE will enable the construction of a new commercial-scale advanced biofuels facility, and the only one using CBP technology. It is indeed a significant step towards meeting America’s energy challenges with cost-effective and sustainable bioprocesses.”

Money pits?

This week, Motley Fool writer Travis Houim described biofuels as a “green energy money pit,” citing Solazyme, Amyris, and Rentech in particular, as publicly traded companies he recommended avoiding. Houim wrote:

“The first problem is scale. Right now none of the companies mentioned above makes fuel in any sort of scale, having only proven their technologies in labs or pilot plants. But moving to a large scale means sourcing more fuel and building larger plants. When it became time for corn ethanol to make that jump, the increased demand for corn resulted in higher prices and any advantage ethanol had evaporated.

Now, let’s observe for the record that Amyris (AMRS) has three commercial-scale facilities under construction, Solazyme (SZYM) is doing commercial-scale work at tolling facilities and it building its first commercial, and Rentech (RTK) just completed construction of a demonstration-scale plant. It’s more than a little disingenuous to focus in on the existing capacity when so much steel is going into the ground.

Can the feedstock remain affordable?

But let’s hone in on that last point. It’s a fair question. Is there enough feedstock that advanced biofuels can scale up to meaningful numbers without causing a run-up in feedstock prices?

Oak Ridge National Laboratory thinks so. In the revised “Billion Ton Study, (a/k/a Son of Billion Ton), they projected that, in their baseline assumption, there will be 193 million tons of woody biomass – the type that Mascoma uses – available at under $60 per bone dry ton, by 2030, to support scale-up at Mascoma and its brethren. That’s enough to support more than 80 projects of Mascoma’s scale. That’s just in the United States, not disturbing anyone else’s supply, or with costs rocketing up to unaffordable levels.

Is the Billion Ton Study correct? Time will tell. But certainly, the potential is there and deserves a little more than derision. See our “Son of Billion Ton – the 10-Minute Version”, for full details.

Warning signs to watch

Now, there’s one metric worth watching. The CAPEX for the Mascoma project. At $230 million for its 20 million gallon first phase, that’s $11 per gallon. Now, that’s for 20 million gallons. We’ll have to wait for Mascoma, probably, to get through its IPO before we have a lot of commentary on what it will cost, per gallon, to build out larger-scale facilities.

Moreover, once sufficient industry demand was established for solar panels, the price for manufacturing dropped, and fast. It was that very phenomenon that ultimately doomed Solyndra.

But that number had better come down. In the long-run, it is only one component, along with the operating costs, that determine the viability of cellulosic biofuels. But it narrows the field of potential investors when the project equity portion is north of $50 million, much less north of $200 million.

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.

Posted by Guest Contributor at 06:47 PM | Permalink | Comments (1)

Jim Lane

Codexis (CDXS) and Mascoma show that low-cost sugar is the key, as advanced biofuels moves from R&D into industrial era.

There used to be a restaurant in lower Manhattan called Exterminator Chili. Decorated in Elvis garb, it served world-class chili for the enlightened chow hound, in three grades of heat: residential (hot), commercial (blistering), and industrial (melt steel in your mouth).

The proprietors would have understood little about advanced biofuels and nothing about the importance therein of low-cost sugars. But they did understand that the bigger the scale, the hotter you were. And that the highest summit was the reaching of industrial scale.

Why hath industrial scale proved so elusive in advanced biofuels?

“The government rushed into investments, with no diligence,” says Codexis chief Alan Shaw. “They are just not industrialists, in my opinion.”

Two major announcements this week drive the point home in advanced biofuels.

In California, Codexis introduced its CodeXyme Cellulase enzyme product line for bio-based chemicals, converting biomass to low-cost sugars. The platform, which includes a pretreatment process as well as enzymes for conversion and post-pretreatment, was developed with Chemtex, and utilizes the cellulase platform developed for Shell, and already is in use at Iogen.

In New Hampshire, Mascoma and Valero announced a joint venture to develop and operate a 20 million gallon per year commercial-scale cellulosic ethanol facility in Kinross, Michigan. The cost to construct, commission and start-up this facility is expected to be approximately $232 million. These costs are fully funded, with Valero providing the majority of the financing, and the remainder from awards by the U.S. Department of Energy (DOE) and the State of Michigan. Construction of the Kinross facility is anticipated to start in the next three to six months and is expected to be completed by year-end 2013.

The common problem: high-cost sugars

Codexis CEO Shaw has made the point before: when it comes to making drop-in fuels or many renewable chemicals, “first generation sugars are a failed model, particularly for diesel. The problem in the sector has been the lack of a cellulosic technology.”

The difficulty, he has explained, is the problem of making $275 per tonne sugar work in a $750 per tonne diesel market, when you lose 60 percent of the mass in the conversion, when the oxygen is blown off from biomass to make a hydrocarbon.

Reaction from industry? “I agree,” commented UOP general manager Jim Rekoske, whose company does a lot of the upgrading work from, say, renewable oil to diesel and jet fuel.

The common solution: low-cost sugars

Though it has proven incredibly time-consuming to develop the operating systems for liberating cellulosic sugars from biomass at affordable rates, companies such as Mascoma and Codexis say they have cracked it. Codexis, using its collection of technologies that improves the activity and performace of enzymes. Mascoma, with its consolidated bioprocessing approach, which eliminates the separate hydrolysis step altogether, performing the hydrolysis and fermentatinon in one consolidated step.

Novozymes and Genencor are also in the race, with small start-ups such as HCL CleanTech and Comet Biorefining also focused on the same niche. Then, there are companies like Proterro, which synthesize (or is that sun-thesize?) low-cost sugars directly from water, CO2 and sunlight using a modified organism, bypassing biomass altogether.

Codexis and the pursuit of renewable chemicals

Now, in the case of Codexis, the company is focused, with CodeXyme, on the production of higher value chemicals, such as CodeXol Detergent Alcohols. The company expects to have commercial samples for customers in the chemicals industry broadly available in the second half of 2012. In the meantime, and in the fuels arena, the company is focusing on its deliverables for Shell and its fuels JV with Cosan, Raizen.

Mascoma, Valero and the pursuit of renewable fuels

By contrast, the Mascoma-Valero deal is all about fuels, specifically low-cost cellulosic ethanol.  Under the agreement Valero will provide project management to build and will operate the Kinross facility, will hold a majority interest in the joint venture, and will have the option to expand the Kinross facility’s capacity to up to 80 million gallons per year. Meanwhile, Mascoma will receive royalties for a certain time period based on ethanol yield milestones. In addition, Mascoma and Valero have developed a framework agreement for partnering on additional cellulosic ethanol facilities beyond Kinross.

The Brazil option

“At Cosan Day in New York [their day for analyst presentations],” commented Shaw, “Cosan said that two of their top four priorities in the next 2-3 years relate to deploying second-generation technologies.”

It’s not hard to see why, Shaw contends. “Raizen is Brazil’s largest sugar producer. The liberate sucrose from the cane, and sell it as sugar or ferment it into ethanol. They have mountains of bagasse, which generates very low value for them. In our process, we liberate glucose from biomass. It can’t be used for the sugar market, but it can be used to make ethanol. So, ethanol producers can divert more of the sucrose to the lucrative sugar market, and use glucose to make ethanol. It’s making gold from dirt. We’ve modeled it at $50 per ton, and in Brazil it can be aggregated for as little as $10 per ton.”

So, customers? “Chemical companies, sugar producers, and engineers,” says Shaw. “But, above all, the sugar companies.

Back in North America

In North America, many of the primary feedstock producers are sitting on their hands, owing to the problem of aggregation. Corn producers are balking at the aggregation of corn stover without government support. Forest owners are similarly strapped for cash.

Waste stream feedstock companies have been highly active to date, among other reasons because the feedstock is already aggregated. Hence Valero’s co-investment with Darling in renewable diesel from animal rendering waste (Diamond Green Diesel), or its co-investments with Waste Management in Terrabon and Enerkem.

But, now, the barriers may be falling. Valero has bitten the bullet with Mascoma – combining with Mascoma’s private investors, and the federal government (in the form of DOE grants), to bring the technology to industrial scale in the US.

Over in Florida, BP has also moved forward in developing its own vertically integrated approach, where it will directly develop and contract with farmers for dedicated energy crops such as miscanthus.

The business model

Well, Mascoma is tight lipped, owing to their impending IPO. But Codexis says, “We make very good margins on the enzymes. But we think of this as a complete operating system for low-cost sugars. And I want us to be focused on getting this OS adopted as the OS of choice.”

The floodgates

“The flood gates will open,” says Shaw. “There is no shortage of cash or capital. What is desperately thin on the ground is confidence. When proved, other capital will follow. Meanwhile, look at Guido Ghisolfi over at M&G, who said ‘I have put $300 million of my own family’s money into this.’ That’s the kind of vision you are starting to see.”

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.

Posted by Guest Contributor at 02:57 PM | Permalink | Comments (0)

Jim Lane

Should biofuels have its own reserve accounting system and accompanying balance sheet booster, just as the oil & gas industry has?

Ceres CEO Richard Hamilton says “yes”, and explains why, and how.

At the Advanced Biofuels Markets conference earlier this month in San Francisco. Richard Hamilton, CEO of Ceres, advanced the remarkable proposition that biofuels companies – on the “level playing field” theory advanced by opponents of government mandates and subsidies, should   have the right to book their reserves of crude renewable oil production, in a parallel to the reserve accounting system which forms the bulk of the oil & gas industry balance sheet.

About proved reserves and balance sheets

Most investors understand proved reserves. Under specific (and generally conservative) SEC rules, proved reserves (that is, which have a 90% or higher probability of being feasibly extracted) can be added to the balance sheet.

These reserves currently total 44 billion barrels for the top six oil exploration companies (ExxonMobil, BP, Shell, Total, ConocoPhillips and Chevron), and when we speak about the massive oil company balance sheets, this is very much in the mind of the investors when they value each company, especially in terms of their predicted future ability to produce revenues.

The complete Hamilton presentation

Hamilton’s presentation can be viewed here, and it contains a call to action on the final slide which is well worth considering. (But, please note, the call to action email should be sent to bsimmons@capitoldecisions.com – make sure you have that spelling correct).

Why have what Hamilton calls “renewable reserve accounting”? For one, it creates a system for valuing biofuels companies that parallels the way we value oil companies, which helps make them inherently more fungible, more comparable, more apples to apples.

Transitioning from an agriculture model to an energy model

Especially if we are to decouple biofuels from the agricultural model, which in all regions is heavily subsidized and in which government plays a heavy-handed role – and instead move biofuels over into the less regulated, more market-based system that underlies energy trading.

Hamilton notes in his remarkable presentation that a system for renewable reserves could, in fact be developed. He based his illustration on the tonnage of biomass per acre, the conversion yields in gallons per ton, and a contract term for which the underlying land would be dedicated to energy production.

Think of it, then, as an above-ground oil or gas field.

Hamilton points out that, over time, despite technological innovations, the cost of finding and developing new oil reserves is increasing, and this is a metric by which energy (bio or fossil-based) should be measured in a standard way. Hamilton notes that the three-year average Finding & Discovery (F&D) investment by the six largest independent oil companies is $20 per barrel, rising to $34 per barrel in 2010, and that the six IOC’s spent an aggregate of $100 billion on exploration & production last year.

What does $100 billion buy you?

What does $100 billion buy you? he asks. On the fossil side, about 3 billion barrels in reserves. On the bio side, if the goal is to produce a crude oil equivalent (rather than a finished fuel or chemical), the costs aren’t much higher for, say, the first stage of pyrolysis (before upgrading to finished fuel). In terms of reserves, you would end up with, say, somewhere between 2.5 and 3 billion barrels of oil equivalent.

Now, what would you rather have, goes the thinking – 3 billion barrels of crude (ready for refining) – and lord knows where the next 3 billion will come from or at what cost. Or 3 billion barrels of renewable crude (ready for refining), and you know exactly where the replacement is going to come from. And you have a pretty good idea that , because of technological innovation, costs of finding, developing and producing biomass reserves is likely to decrease.

That’s one of the nuggets in Hamilton’s system – the argument that biofuels companies ought to be able to acquire and manage reserves and be valued as companies for that potential – and not strictly for their production today.

Why is reserve accounting valuable?

For example, if oil demand dips, oil company reserves don’t – they still have the benefit, from an investment point of view – of being valued on their reserves as well as on day-to-day demand in the market.

Now, agriculture is not generally valued this way. In ag, reserve accounting does not generally exist, and companies are to a great extent valued based on market demand, margin and actual stockpiles (for example, processed grain held in silos). You don’t get bennies from the market just because there is a 90% or higher potential that you can get more production out of a given field, at a later date.

But, to protect agriculture from the mad price swings that accompany commodity grain markets, there is a lot of government protection built into the agricultural system – floor payments, mandated government purchases, price controls, subsidized food, and so on. No one wants a return to the market conditions of, say, the Great Depression, or the global commodity collapse of the 1890s.

But Hamilton argues, if biofuels are asked to transition out of system by which global agriculture is valued and protected, as opponents of mandates and subsidies would demand, why shouldn’t biofuels have access to a parallel system by which global energy is valued and protected?

A fair go

It’s a fair question. Shouldn’t biofuels get a fair go?

Now, Hamilton’s outlook is, essentially, a conversation-starter rather than a complete system. Whether a biomass field should be valued over, say, a 15-year or 100-year period, should be debated. Tonnage per acre, whether than is 2 or 15, should be agreed and understood.

Crucially, a cost would need to be established that parallels the technology cost associated with production & exploration. For the purpose of establishing a reserve, for example, should all the costs of growing, extracting and refining fuel molecules be included? Likely, not – after all, the total cost of refining fuels is not applied to oil & gas reserves. But what cost should be applied to “prove the reserve”? The cost of leasing land, or above that the cost of growing the biomass, or above that some limited refining cost to turn it into, at least, a barrel of crude oil equivalent?

Here at the Digest, the latter case strikes us as the most comparable – something like the lowest cost of growing, and then converting carbs into a biocrude.

Moving from conversation-starter to system

For sure, the devil is in the details. But the focus for today, is on a startling idea that deserves a wider conversation.

As Hamilton himself says, the world of carb-derived fuels features no to low carbon, low discovery risk, declining E&P costs per barrel, and fields that don’t peak and decline.

Why shouldn’t such a system have a parallel to the hydrocarb-derived fuel – one that fits the current accounting system and business model?

If biofuels, in short, are expected to live without agriculture’s USDA shelter, shouldn’t it have the SEC’s oil & gas shelter?

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.

Posted by Guest Contributor at 03:00 PM | Permalink | Comments (0)

Jim Lane

13 companies knocking on the door of greatness – will they make the grade?

13 companies. 5 already public – eight filing for IPOs. In the first category, Codexis, Amyris, Gevo, Solazyme and KiOR. In the second category, PetroAlgae, Myriant, Ceres, Mascoma, Genomatica, Elevance Renewable Sciences, Fulcrum Bioenergy and OriginOil.

They’ve shown what it takes to get to the threshold of great things – do they have the Right Stuff to succeed at scale?
The public companies

It’s been a good October for the newly public companies, after a miserable summer. Amyris (AMRS), up 15 percent last week.Solazyme, Inc. (SZYM), up 10 percent for the month to date. Codexia (CDXS) up 8 percent for the month. Gevo (GEVO), up 35 percent for the month. KiOR (KIOR), up 4 percent in the last two weeks.



For the most part, valuation on these early-stage companies, is part perception, part reality. The value depends on how much you place faith in the business plan, the technology and the management. There’s not much by way of revenue, and nothing in the earnings department, for early-stage investing. That’s why it is potentially so lucrative.

But perception must give way to reality – and, actually, the public companies are happy for that. Hungry for it. Generally, they’ve been dumbfounded at the lack of investor enthusiasm through  a tough summer – because the companies have been building out their business plans as they told investors they would.

For Solazyme and Amyris, there was the expectation of new partners and new production capacity. Done. For Codexis, the expectation of a deal with Raizen in Brazil to expand into bagasse-based renewable chemicals., Done. For Gevo, it was time to sign up new capacity and work towards conversion of their first commercial-scale plant to isobutanol production. Done. For KiOR, it has been a time of building capacity – underway.

Pavel Molchanov, alt energy analyst for Raymond James, commented: “Following this rating change, KiOR becomes our third Market Perform-rated stock in the alternative fuels space.  The key difference is that our rating on our other two Market Performs – Codexis and Rentech – reflects fundamental concerns about their business models, as opposed to valuation.  Our top pick in the space – and, in fact, the only Strong Buy-rated stock in our alternative energy coverage universe – remains Amyris.  We have Outperform ratings on Clean Energy Fuels, Gevo, and Solazyme.”

Fair? The stocks have generally been performing, throughout the summer, poorly in comparison to the broad equities markets. The space between current prices and analyst-based target prices is reaching astonishing levels. Solazyme, a 46 percent discount to its target price; Gevo, a 38 percent discount. Amyris, a 34 percent discount.

Inflection points?

For Solazyme, their next major JV announcement,. For Amyris and Gevo, start-up of their Sao Martinho JV and Luverne plants, respectively. Rentech, completion of its Colorado-based PDU next year. Codexis, its first major commercial arrangement outside of the Shell universe, or clarification from Shell on its strategy and timing.

The disappointments for ethanol in 2008, biodiesel in 2009-10, and the performance of the public advanced biofuels stocks in 2011 has created a potentially chilling effect for the seven stocks that wish to move forward with their IPOs.

Grading the class of eight IPO hopefuls

The star students – the A’s. With the eight new IPOs, sentiment has been running strongest amongst observers for Genomatica and Elevance – the renewable chemicals story is playing well, we hear. Liked by investors? Higher product margins, less capital intensive path to scale.

A-minus. Ceres is considered a special case, being such a long-term play and a very broad investor base, should an IPO prove unattractive.

Incomplete. OriginOil (OOIL.OB) is too new to the IPO group to have generated substantial section.

Leaving PetroAlgae (PALG.PK), Myriant, Mascoma, and Fulcrum Bioenergy.

Looking like a gentleman’s C. Of the four, PetroAlgae is considered the long-shot, given the long time the company has been in the IPO mix without pricing, and given the large capital raise ($200 million) and somewhat complex ownership structure.

The Solid B’s. Myriant, Mascoma and Fulcrum are all – like most of these new IPOs – financing events rather than liquidity events for investors. The current owners are trying to get more cars on the freeway, not heading for the exits.

Fulcrum is financing its waste-to-energy project in Nevada. Chief appeal? A low-cost feedstock story, and a great emissions picture,. What could be finer than converting garbage to fuels? Myriant is financing a scale-up of its ambitions in succinct acid. Chief appeal? Like Genomatica and Elevance, they are capitalizing on the large, relatively high-margin markets. On the down-side, a number of companies chasing succinct acid and the ongoing question of whether any of these companies can produce product at parity with the fossil fuel-based incumbents.

Mascoma – well, consolidated bioprocessing hard been a high-flying cellulosic biuofuels technology for a long time. That’s its challenge – like PetroAlgae, its been out there raising capital for quite a while. What do we hear from investors. The scale-up challenges are still generally not well understood by the market, and the daunting capital intensive nature of the projects, has put a question mark on the company’s ability to continue to scale. It’s a very light question mark, given all the progress the company has made, but enough to dull their momentum in an unenthused market. Many observers thought that Valero’s $50 million investment commitment would tip the scales for the company – but a more dramatic downstream partnership announcement may be just the ticket for the company to move forward.

The bottom line

So, thirteen companies – the lucky 13? Well, we doubt that all of them will, in the very long-term, survive the coming consolidation in biofuels. But if they haven’t quite yet fully locked in first-mover advantage, they have their noses out in front of the pack.

Others in the mix? Companies like INEOS Bio, Dupont Danisco Cellulosic Ethanol and BP Biofuels with access to huge balance sheets have to be considered among any real list of the potential winners in biofuels. Plus hot technologies like LS9, Cobalt, Qteros, Mendel, and Sapphire, to name just a few, that have remained on the private side of the equation.

Jim Lane is editor and publisher of Biofuels Digest.

Posted by Guest Contributor at 08:18 PM | Permalink | Comments (1)

Jim Lane

Iowa algae and corn ethanol project points the way towards optimizing delivery of feed, fuel, carbon reduction.

In our 10-part series, the Bioenergy Project of the Future, based on extensive interviews with industry leaders, we outlined what is expected to be the multi-product, multi-input structure of biofuels and biomaterials projects in the future.

In step 1, we identified the acquisition of an existing first-generation ethanol plant as an appropriate base, because it had so many assets already in place, including a feedstock aggregation system, relations with growers and customers, rail lines, roads, water, power and so on.

In steps two through nine, project developers would add in a variety of inputs and outputs that would increase the product value, stabilize the input costs, and improve the carbon footprint and impact of the project.

2. Cellulosic biomass feedstock
3. Renewable chemicals
4. Advanced drop-in biofuels
5. Algal fuels and materials
6. Bio-ammonia
7. Renewable diesel
8. Lowest-cost waste feedstocks
9. Solar, wind and other renewables

Bioenergy Projects of the Future, today

The most complete realizations of that vision at scale, to date, are the POET Liberty Project in Emmetsburg, Iowa; the Gevo biobutanol project in Luverne, Minnesota; the Amyris (AMRS) SMA Indústria Química project in Brazil; and the Green Plains Renewable Energy (GPRE) project in Shenandoah, Iowa – in which an algal fuels and biomaterials project in underway in partnership with BioProcessAlgae.

The Green Plains project is by far the least-known of the three – given POET’s position as the largest privately-owned, dedicated ethanol producer, and given the deserved hoopla over Amyris’ and Gevo’s (GEVO) successful IPOs in the past year.

In the POET project, they have taken on the most direct route to the Bioenergy Project of the Future, by adding in  cellulosic biomass feedstock, and moving on to the production of fuels in 2013 when the 25 million gallons Project LIBERTY plant officially opens at scale.

In the Amyris project, they have established a joint venture with an existing 8.5 million tonne sugarcane ethanol project in Pradópolis, Sao Paulo state, Brazil, owned by Usina São Martinho. Starting in Q2 2012, Amyris and São Martinho plan for the joint venture plant to produce Biofene, a renewable hydrocarbon, which would be used as an ingredient in detergents, cosmetics, perfumes, industrial lubricants, and diesel. In their case, they are still testing out cellulosic feedstocks, but have added in renewable chemicals and renewable diesel to expand their high-value product portfolio.

In the Gevo project, they have acquired an existing corn ethanol plant as a base, and are busy converting that production over to isobutanol, which is scheduled to commence at-scale in March 2012. In the Gevo case, they have skipped over (for now) the addition of cellulosic feedstock, but likewise added in renewable chemicals and advanced drop-in fuels to diversify the product portfolio.

The Algae Option

Of all of them, the Green Plains Renewable Energy and BioProcess Algae project in Shenandoah is the first to reach step five of the multi-step transition we identified – which is to bolt-on an algal fuels and materials capability to an existing corn ethanol production system

It’s all still at relatively small-scale. The partners will have to prove they can sustainably produce, harvest and process the algae. But it’s significant in three ways, for sure.

First, it massively changes the carbon footprint and impact of a corn ethanol project. Almost one-third of the corn kernel, by weight, is transformed into carbon dioxide in the ethanol fermentation process, and the algae can remediate that usage by absorbing the CO2 in its own growth process. It’s not carbon sequestration – that’s different, because the algae itself will be utilized for fuels and biomaterials. But it is capture and re-use, or a second bite of the cherry, and dilutes the carbon impact by creating a second batch of fuels or materials for the same given bushel of corn.

(You may be wondering how they grow algae at all in the state of Iowa during the colder six months of the year, without using bioreactors that are simply too cost intensive. Ah, that’s where the process heat and steam that comes off an ethanol paint comes in handy.)

Second, it changes the economics of the corn ethanol project. Though it remains exposed to the commodity price swings in the corn market, except to the extent to which it can achieve fixed-price or partially-fixed contracts with growers – it is far less exposed to the commodity price of ethanol. Biodiesel, for example, comes into play, or other bio-based materials made from algae – omega-3 laden fatty acids, for example that make for rich protein.

More importantly, the economics of algae do not work unless a project is using the entire biomass – either for feed, to gasify for fuel, or to provide energy back to the system. So, making algae work as a feed system is important to the economics.

Third, making algae work as a secondary feed source can substantially add to the feed options available to the meat and dairy industries, that have been sore as heck in having to compete with ethanol plants for corn-based feed, and have been running a first class, textbook “fear, uncertainty and doubt” campaign against ethanol that has befooled and beguiled, apparently, most of the US Congress.

So – for many reasons, one of the big question marks is whether algae strains that can tolerate industrial gases will work as an animal feed.

The big question: will it work as animal feed?

So it is significant that, yesterday, Green Plains Renewable Energy and BioProcess Algae announced the successful completion of the first round of algae-based poultry feed trials. The algae strains produced for the feed trials demonstrated high energy and protein content that was readily available, similar to other high value feed products used in the feeding of poultry today.

The algae strains used in the feed trials were grown in BioProcess Algae’s Grower Harvester reactors co-located with Green Plains’ ethanol plant in Shenandoah, Iowa. The test was conducted in conjunction with the University of Illinois led by Dr. Carl M. Parsons, a leading expert in the field of poultry sciences.

“This was the first time we tested algae as a poultry feed-product and many of the qualities found were similar to high protein soymeal, but with higher energy content,” said Dr. Parsons. In addition to the high energy and protein content, the testing found amino acid profiles similar to existing feed components. The University of Missouri analyzed the results and provided an independent third-party validation.

“Based on these first-round tests, we will continue the development of this and other high-quality animal feed products from our algae. We will proceed with further testing for poultry and begin evaluating a replacement product for fishmeal,” said Tim Burns, Chief Executive Officer of BioProcess Algae. “We can now look into the opportunity to use algae as a ‘carrier’ for higher value products going into poultry feed such as Omega-3s.”

Next steps

So, there’s reason for increased optimism on the algal fuels and materials front. Next steps for BioProcess Algae include further feed trials, and more importantly, continuing to knock down the production cost. Their current costs, at the scale they are producing, are sure to be too high, but how fast they knock them down in their science of growth and engineering of a low-cost production system will be key. We expect that, if they had a path to parity with $80 oil already figured out, the public might well have heard about it.

For now, we stay tuned.

Jim Lane is editor and Publiser of Biofuels Digest.

Posted by Guest Contributor at 03:56 AM | Permalink | Comments (0)

by Ivan Castano

Second-generation biofuel IPOs are all the rage this year with recent deals pricing well above initial expectations and a growing number of companies expected to tap the capital markets in coming months. But analysts caution some of these companies will have a hard time wooing investor interest unless they become more transparent about their accounts and future path to profitability.

"None of these companies will be earning much any time soon so investors want to see clarity and visibility about the enterprise story behind the companies," says Stacey Hudson, an analyst with Raymond James. "If they have a strong story and the right technology, there is definitely appetite out there. Investors have become more comfortable and knowledgeable for second-generation biofuel companies."

Certainly, investors have been keen to bankroll the latest IPO’s, sending their post-IPO valuations sharply higher. Late last month, algae-for-biofuels firm Solazyme (SZYM) priced its IPO at $18, the top of the initial price range and saw its shares jump 15% on its trading debut, raising $227m.

Rising Value

The last two deals before it - Gevo (GEVO)and Amyris (AMRS)- have seen their stock increase 32% and 83% respectively. Others including Codexis (CDXS), Metabolix (MBLX)and Syntroleum (SYNM), also performed well, helping the second-generation biofuels sector boost its market capitalization to $3.8bn in the past 14 months.

Eager to profit from this momentum, investment banks are scrambling to price deals before market sentiment changes with one senior IPO banker saying his firm is working on at least 18 potential deals. So far, however, the only well-publicized IPO hopefuls include Petroalgae (PALG.OB), Ceres, Myriant and Kior. Hudson expects Kior will do well because it has a "strong technology" and uptake partnerships. However, she says Petroalgae, which has been hoping to IPO since last year, may struggle because of "some week elements in its business model."

Caroline Taylor, an analyst at the Energy Biosciences Institute in Berkeley, says Ceres has a good strategy because it is a feedstocks company.  She said that establishing the feedstocks for advanced cellulosic fuels is crucial for commercial development, given that the largest cost associated with production is for the feedstock.

Standing Out in the Crowd

In the biofuels game, having an economically feasible business model is crucial at a time when many firms are struggling to make money amid soaring feedstock costs and falling oil prices. Kior's core business is transforming non-food biomass into so-called renewable crude oil that can then be refined to make a variety of gasoline and diesel blends. It says it can sell its crude oil at a much lower price than biofuel, which typically sells at $3-4 a gallon.

Meanwhile, Ceres, which hopes to raise as much as $100 million to expand its output of genetically modified crops to make biofuels, says it is developing sweet sorghum as an alternative to sugarcane to make biofuels. It is also working to improve corn and soybean yields as well as making other crops that can better tolerate drought and salt. Ceres also has some high-powered partnerships in place, including Monsanto, which is helping it research and develop some of its products.

Myriant, which is also eyeing some $100m in its flotation, makes "biocatalyst" technology for the conversion of renewable feedstocks into special chemicals including succinic acid. Petroalgae, meanwhile, sells a technology it claims helps improve the growth and harvest rate of plant micro crops or algae to generate proteins that can be used to make biofuels, animal feed and human food. While it hoped to IPO last year, the company has struggled to find the right window to come to market. Some say it's failure to attract investment from ExxonMobil, which sunk $600m into algae-to-biofuels rival Synthetic Genomics in July 2009, raised questions about the value of its technology.

Showing just how crucial technological differentiators have become in the industry, observers said Solazyme's success was primarily due to it's ability to grow algae in fermentation tanks without sun or photosynthesis processes, which are used by most rivals. In a recent report analyzing the upcoming IPOs, Raymond James states technology will be a make-or-break factor for the success of future second-gen biofuel IPOs. But so will other factors including a clear proof of concept, roadmap to profitability, strong strategic partners and adequate and inexpensive access to feedstock.

Ivan Castano is a freelance journalist based in Miami. His work has appeared in Thomson Reuters’ International Finance Review (IFR), Dow Jones’ Financial News, Euromoney, Trade & Forfaiting Review and a range of trade publications covering the capital markets, private equity, loan, credit and restructuring markets.

This article was first published on Renewable Energy World, and is reprinted with permission.

Posted by Guest Contributor at 03:32 PM | Permalink | Comments (0)

Debra Fiakas

After a series of bankruptcies laid the U.S. ethanol industry on its back a few years ago, the survivors got the message  -  become economically viable or go out of business.  The industry has been scrambling to adopt new processes that utilize other non-food materials or at least get more out of the corn that has been the mainstay feedstock for the U.S. ethanol industry.  

Enter Greenshift Corporation (GERS:  OTC/BB) with its corn oil extraction process and a new step in the corn-ethanol production process.  Greenshift may change the economics of corn-ethanol production by giving producers new revenue streams.  

In the U.S. corn-ethanol industry the dry mill process is most typical with the whole corn kernel going into the fermentation stage.  After the fermentation process that turns the sugars in the corn kernel to ethanol, the leftovers or “corn stillage” are usually put through water extraction and drying stages.  The dried by-product called distillers grain is sold as animal feed.  Cattle or hog finishers are only to happy to get distillers grains since the protein content is near 30%.

However, distillers grains also has a high fat content  -  12% to 15%.  Greenshift’s corn oil extraction process removes corn oil from the corn stillage, providing ethanol producers another revenue producing by-product.  The corn oil can then be sold as biofuel feedstock or as an alternative animal feed ingredient.  What is left in the stillage goes on through the usual water extraction and drying process.  Greenshift claims its process removes as much as 80% of the oil from the corn stillage.

Greenshift has managed to license its process to a half dozen or so ethanol and corn handling concerns, including most recently Marquis Energy for its Wisconsin ethanol plant.  Marquis previously licensed the Greenshift technology for its plant in Illinois.  Green Plains Renewable Energy, Inc. (GPRE:  Nasdaq) is also a licensee.  In a recent letter to shareholders, Greenshift CEO Kevin Kreisler predicted that current license agreements would be sufficient to bring the company to break-even at the operating level.  

As rosy as the story might sound, GERS is only for the most risk tolerant investor.  The stock is trades more than 70 million shares per day at a price that is well under a half penny.  Those of us who need to sleep at night might wait until Green Plains has implemented the Greenshift technology.  Green Plains expects to complete deployment by the end of March 2011 and claims the change could enhance operating income by $15 million to $19 million per year.  If Green Plains is able to make good on its claims, it could be a good reason to look more carefully at GERS.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  GERS and GPRE are included in Crystal Equity Research’s Beach Boys Index in the Ethanol Group.  

$GPRE, $GERS

Posted by Debra Fiakas at 07:50 PM | Permalink | Comments (2)

Jim Lane

Will the new fermentation technologies completely shatter preconceptions about biofuels and bio-based products – and redefine the way in which Western Civ approaches the production of fuel, food, feed, and fiber? The new Brew Barons are working hard to make that so.

See part 1 of  'Brew Barons', here.

LanzaTech

The LanzaTech process increases industrial energy efficiency by capturing waste gases (CO, CO2) and converting them to valuable fuels and chemicals. LanzaTech provides an opportunity to produce large volumes of low carbon fuel and chemicals at low costs using a countries own resources, reducing dependence on foreign imports and GHG footprint.  Simply utilizing the available steel mill waste gases, LanzaTech could produce more than 30 billion gallons of ethanol per year.  This would have a significant impact on the global energy landscape.

Two weeks ago, LanzaTech signed a memorandum of understanding with Posco, a Korean conglomerate with interests in steel, power, energy, engineering and construction, to convert the steel maker’s flue gases to ethanol and other value added products. LanzaTech uses its gas fermentation technology to produce ethanol and also 2,3-Butanediol (2,3-BD), a key building block used to make polymers, plastics and hydrocarbon fuels. It has investment from K1W1 (New Zealand), Khosla Ventures (US) and Qiming Venures (China) as well as funding from the New Zealand and US governments.

LanzaTech CEO Jennifer Holmgren commented, “This means that LanzaTech is now working with 2 of the top 5 global steel manufacturers (some would say the #2/3). From my perspective this shows the traction that the LanzaTech technology is receiving in the market place and the potential impact that our technology is likely to have in the coming years.  We are creating a nice pipeline of commercial projects so that as we get to scale – we don’t do it one commercial production facility at a time but multiple commercial production facilities in parallel with a variety of partners globally.”

In January,  IndianOil and LanzaTech signed a Memorandum of Understanding to collaborate on a demonstration of LanzaTech’s proprietary gas fermentation technology collaboration in a technology demonstration at one of the India Oil refineries. that will enable IndianOil to produce fuel grade ethanol.

LS9

The cryptically-named LS9 uses a e.coli-based fermentation to convert of renewable plant biomass into advanced biofuels that are drop-in compatible with the existing infrastructure.  The same technology platform enables the production of a diversity of high-value chemicals.

Last month, LS9 announced the initiation of a second development and commercialization partnership with Procter & Gamble.  This additional partnership draws on LS9’s unique technology to broaden the portfolio of renewable chemicals to be used in P&G’s consumer products. It followed a $30M series D financing round led by BlackRock that came just as the company reached #4 in this year’s 50 Hottest Companies in Bioenergy.

In 2010, LS9 announced a major scientific breakthrough that will significantly lower the cost of producing “drop‐in” hydrocarbon fuels that are low‐carbon, sustainable and compatible with the existing fuel distribution infrastructure. This breakthrough has allowed LS9 to accelerate its technology and demonstrate alkane production at pilot scale.

In the article “Microbial Biosynthesis of Alkanes” published in Science magazine, a team of LS9 scientists announce the discovery of novel genes that, when expressed in E.coli, produce alkanes, the primary hydrocarbon components of gasoline, diesel and jet fuel. This discovery is the first description of the genes responsible for alkane biosynthesis and the first example of a single step conversion of sugar to fuel‐grade alkanes by an engineered microorganism.

Biofuels Digest profiled LS9 most recently in “LS9 raises $30M, adds BlackRock – what does it mean?”

Mascoma

The unique technology developed by Mascoma Corporation uses yeast and bacteria that are engineered to produce large quantities of the enzymes necessary to break down the cellulose and ferment the resulting sugars into ethanol.  Combining these two steps (enzymatic digestion and fermentation) significantly reduces costs by eliminating the need for enzyme produced in a separate refinery.  This process, called Consolidated Bioprocessing or “CBP”, will ultimately enable the conversion of the solar energy contained in plants to ethanol in just a few days.

In January, Mascoma announced that Valero Energy  has joined as an investor in the company. Further, Mascoma, Valero, and Mascoma’s operating subsidiary, Frontier Renewable Resources, (jointly owned with J.M. Longyear) have signed a non-binding letter of intent to support the construction of Mascoma’s 40 million gallon cellulosic ethanol plant in Kinross, Michigan.  Groundbreaking on the project is slated for later this year.

Under the terms of the letter of intent, Valero would potentially invest up to $50 million of the equity required to finance the project through Frontier Kinross LLC, a subsidiary of Frontier, and would enter into an off-take agreement for the project’s ethanol production. As further support of the project, Valero will provide project development and construction oversight services.

Frontier will use hardwood pulpwood, which is selectively harvested, naturally regenerated, and is an underutilized, abundant resource in the area surrounding the Kinross biorefinery. Mascoma’s 200,000 gallons of cellulosic ethanol per year demonstration facility in Rome, New York, has demonstrated the viability of the technology over the past two years and sets the stage for the commercial facility.

Mascoma recently announced the acquisition of SunOpta BioProcess Inc. (SBI), a world-leading fiber preparation and pretreatment company, creating a company with comprehensive capabilities for converting non-food cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value co-products. With the addition of SBI and Valero, Mascoma has now covered the entire process of commercializing cellulosic ethanol, from raw materials supply, to pre-processing, through Mascoma’s CBP process and into final distribution.

Novozymes (NVZMY.PK)

Novozymes’ core technology for the biofuels industry is enzymes that break down different types of feedstock into fermentable sugars for conversion into ethanol.  Within this area, Novozymes develops solutions for two distinct types of ethanol technology: cellulosic ethanol and starch-based ethanol.

Novozymes cellulosic ethanol work is the largest endeavor the company has ever undertaken, with over 150 scientists dedicated to the effort.  Not only is Novozymes’ developing and offering the leading enzyme solutions for cellulosic ethanol technology, but we have also expanded our research focus into optimizing the pretreatment, hydrolysis and fermentation process steps.

In 2010 Novozymes launched the first commercially viable enzyme for the cellulosic ethanol industry, Cellic® Ctec2.  The 1.8X average performance improvement over a variety of feedstocks is enabling our partners to reach a commercially viable enzyme cost window and overall production costs.  We have also worked with many of our partners to help optimize their process technology in order to lower enzyme use cost and find the right balance in process tradeoffs to lower capital and operating costs.

As the world leader in bioinnovation, Novozymes produces enzymes that optimize the conversion of grains such as corn, barley, wheat and other starch raw materials into ethanol. Unrivalled in their performance and ease of use, our enzymes enable higher yields, faster throughput and lower processing costs. Our tailored solutions – including custom enzyme blends – match the specific needs of our customers’ processes for liquefaction, saccharification, fermentation enhancement, and viscosity reduction.

Novozymes’ enzyme solutions provide robust performance on a wide variety of feedstocks. Cellulosic ethanol employs biomass feedstocks such as corn stover, wheat straw, sugarcane bagasse, woody residues, switchgrass, etc. For starch-based ethanol, the primary feedstocks are corn, barley, wheat, sugarcane, etc.

OPX Biotechnologies

OPXBIO is a Colorado-based company using biotechnology to convert renewable raw materials into biochemicals and biofuels. Applying its proprietary EDGE™ (Efficiency Directed Genome Engineering) technology, it will manufacture bio-based products that are more economical and sustainable than petroleum-based alternatives.

OPXBIO’s first product will be bioacrylic, which will be the chemical equivalent of petroleum-based acrylic, which is currently an $8 billion market that is growing at 4% per year. OPXBIO intends to produce bioacrylic at a lower cost ($0.50/lb) than petroleum-based ($0.65 – 0.75/lb today) and will commercialize bioacrylic through a joint venture with the first plant being operational in 2014.

OPXBIO’s second product is biodiesel, which it is working on through a $6 million grant from the U.S. DOE ARPA-E program. The company is partnered with the National Renewable Energy Lab (NREL) and Johnson Matthey to biologically produce biodiesel through fermentation from carbon dioxide and renewable hydrogen.

OPXBIO’s EDGE technology allows it to optimize the microbe and bioprocess 1,000 to 5,000 times faster than traditional genome or microbial engineering, and it is extremely robust allowing OPXBIO to work on multiple products and utilize numerous feed stocks.

POET

POET doesn’t get enough attention for its market-leading efforts in deploying enzyme-based cellulosic ethanol. Its 25 Mgy Project LIBERTY complex, which is now scheduled to commence construction in early 2012, awaits the outcome of a loan guarantee application from the DOE. But POET has been a leader in pushing the limits of fermentation technology in first-generation ethanol as well. It can produce up to 3.0 gallons of ethanol per bushel of corn with its proprietary BPX technology. BPX also reduces energy needs for fermentation by 8 to 15 percent compared to other ethanol production processes.

Last month, POET reported that farmers are now allowed to deliver bales of biomass to the company’s storage site in Emmetsburg that will supply the company’s future cellulosic ethanol plant. When operational, the facility will accept 300,000 tons of biomass but for now, area farmers harvested 56,000 tons of corn cobs, leaves, husks and some stalk this fall.

Farmers had been waiting to deliver the biomass to POET while guidelines for the U.S. Department of Agriculture’s Biomass Crop Assistance Program (BCAP) were finalized. Farmers on last week began completing the application process, and they started delivering bales soon after.

Last August, POET commenced construction of a new 22-acre biomass storage facility that will house up to 23,000 tons of biomass bales. The facility will form part of the Project LIBERTY complex. Meanwhile, potential suppliers of biomass to the plant have received  $100,000 in incentive payments towards establishment of their own harvesting systems. Farmers associated with the POET project will start the collection of a 56,000 ton harvest of corn cobs and light stover, which will be used as feedstock for the Project LIBERTY facility.

The facility will eventually consume 300,000 tons or more of biomass, which according to POET’s released figures could be sustainably harvested from a 468 square-mile area. By contrast, a 100 Mgy corn ethanol plant can be sustained by a 325 square-mile area using POET’s process.

Qteros

Qteros’ CBP platform is based on its broadly protected, feedstock-agnostic micro-organism, the Q Microbe.  Qteros’ near-term feedstock strategy includes corn stover, wet distiller grains (WDGs) and bagasse processed at cellulosic ethanol facilities that are co-located with existing corn and sugarcane ethanol plants. Longer term, Qteros plans to focus its strategy on greenfield facilities processing energy crops (e.g., sorghum and energy cane) which represent the greatest opportunity for global commercial scale production of cellulosic ethanol.

The Q Microbe is one of Qteros’ key competitive advantage as the organism possesses the native ability to hydrolyze a broad array of biomass and efficiently ferment all sugars into ethanol.  As such, Qteros is optimizing a micro-organism with native biological capabilities versus attempting to engineer one from scratch. Specific ethanol-producing attributes of the Q Microbe include: The preferential digestion of oligomeric versus monomeric sugars which significantly reduces pretreatment severity; the natural production all enzymes required to digest biomass; and a natural ability to simultaneously co-ferment all C5 and C6 sugars, thereby streamlining unit operations and reducing costs. Additionally, the Q Microbe is an anaerobic organism which minimizes production-related contamination risks associated with aerobic production processes.

In January, Qteros and Praj Industries announced  a strategic partnership to accelerate commercialization efforts for industrial-scale cellulosic ethanol production.

Under the agreement, Qteros and Praj will collaborate on a highly focused, multi-year development program with the objective of rapidly developing and commercializing Process Design Packages (PDPs) that enable cellulosic ethanol production using Qteros’ Q Microbe-enabled CBP platform and Praj’s technology and expertise in the conversion of biomass to ethanol. This unique licensing model serves to provide both a highly efficient and low-cost solution to the market, while also allowing Qteros and Praj to deploy their capital in an efficient and leveraged manner. Importantly, the companies plan to retrofit Praj’s existing pilot plant in Pune, India with Qteros’ technology platform, which will then become the foundation for accelerated production scaling as part of its commercial planning.

At the same time, Qteros announced that it closed the initial $22 million tranche in its Series C financing, with an undisclosed group of new and existing investors. The completion of this $22M financing is expected to provide sufficient funding to accelerate the Company’s development and commercialization plans.

Solazyme

The company generally shies away from promoting itself as an algal biofuels company, because it focuses its messaging around its products rather than its process – same, by the way, as Budweiser.

Biggest news lately – a partnership with Qantas to develop renewable jet fuels, and the widely-circulated expectation that Solazyme will file its S-1 registration form for an IPO by the end of March.

The Qantas deal? Solazyme announced that it has begun a collaboration with Qantas, to pursue the potential for commercial production of Solazyme’s microbial derived aviation fuel, Solajet, in Australia. This represents the first collaboration in the Asia-Pacific region to explore the use of Solajet in commercial aviation.  There is currently a six billion liter a year demand for aviation fuel in Australia.

Qantas is also working with another US company, Solena, to determine the feasibility of using MSW for production of biojet fuel.

Solazyme’s unique renewable oil production process uses microalgae to convert biomass directly into oil and other biomaterials, a process that takes a matter of days and can be performed in standard commercial fermentation facilities cleanly, quickly, and at low cost and large scale. Its renewable oil and bioproducts technology has manufactured tens of thousands of gallons of oil -  in fact in 2010 alone we will produce approximately 100,000 gallons of oil.  Solazyme’s latest technology breakthrough on tailoring the oil by carbon chain length and saturation offers a distinct advantage to its partners in the fuels and chemicals industry.  The oils that Solazyme produces can act as replacements for fossil petroleum and plant oils and compounds in a diverse range of products from renewable chemicals to cosmetics and food ingredients.

Solazyme made the decision several years ago to grow heterotrophic algae in the dark and harvest renewable oils – and have become the unquestioned leader in the quest to make an integrated biorefinery commercially successful in the production of renewable oils for fuels, foods and other bio-based products. Along the ways they’ve racked up an impressive array of partners, and won contracts to supply biofuels to the US Department of Defense. More importantly, in every way, they have personified throughout their organization what it means to be an advanced bio-based company – in the ways that they have triumphed, and in the ways they have faced adversity.”

Terrabon

The company’s technology is called MixAlco – an advanced bio-refining technology used by Terrabon’s experienced staff of chemical engineers to convert low-cost, readily available, non-food, non-sterile biomass into valuable chemical precursors such as organic acids, ketones and secondary alcohols that can be processed into renewable hydrocarbon fuels.

The biomass used as feedstock includes biogenic municipal solid waste (MSW), sewage sludge, forest product residues such as wood chips, wood molasses and other wood waste, and non-edible energy crops such as sorghum.

Terrabon can produce mixed secondary alcohols (a mix of isopropanol, 2-butanol, 3-pentanol, 2-pentanol, etc), green gasoline, green diesel and green jet fuel.  At the moment Terrabon is focusing on producing green gasoline and jet fuel.

In January, Terrabon revealed that it has exceeded its goal of producing 70 gallons of renewable gasoline per ton of MSW using its patented acid fermentation technology, MixAlco, paired with CRI/Criterion’s renewable fuel catalyst technologies. The company’s demonstration plant in Bryan used cafeteria waste and paper shreddings from Texas A&M University for the trial.

Verdezyne

Verdezyne is a privately held company developing and commercializing novel genetically engineered microorganisms for use as “factories” to manufacture chemicals and fuels, using renewable feedstocks. Verdezyne’s unique microorganisms permit greener, cleaner and more cost effective production of chemicals and fuels as compared with traditional methods. The Company is commercializing its technology through partnerships with leading chemical and fuel manufacturers.

Verdezyne is a product-focused company that is leveraging its technology platform to optimize the metabolic pathways, microorganisms and fermentation processes that enable economical production of renewable fuels and chemicals, focusing in this stage of development on biobased adipic acid (a platform chemical), and bioethanol, made from C6 sugars, C5 sugars (biomass, cellulosic sugars), plant-based oils, by-products from plant-based oil processing, paraffins

ZeaChem

ZeaChem combines the best of biochemical fermentation and thermochemical processes into a hybrid process that achieves 40% higher yield than other cellulosic processes. ZeaChem’s patented biorefining process uses an acetogen – a naturally occurring species of bacteria adapted to digest the tough carbon chains of cellulose – to extract the maximum amount of energy available from the feedstock. ZeaChem offers the highest yield, lowest production cost and lowest carbon emissions profile of any known biorefining process

ZeaChem’s patented process offers the highest yield, at the lowest cost, with the lowest fossil carbon footprint of any known biorefining method. Incorporated in 2002, ZeaChem is headquartered in Lakewood, Colorado and operates a research and development facility in Menlo Park, California.

ZeaChem’s 250,000 gallon per year demonstration scale cellulosic biorefinery is currently under construction in Boardman, Oregon.

In December, ZeaChem obtained a guaranteed maximum price, under the Engineering, Procurement and Construction agreements with engineering firm Burns & McDonnell, for construction of its demonstration cellulosic ethyl acetate and ethanol plant in Boardman. The company also announced that it has secured full construction funding for the core facility. The $25 million grant from the U.S. DOE will be used to fund the independent front and back-end cellulosic process components, enabling ZeaChem to produce fuel grade ethanol as well as intermediate chemicals from non-food related biomass.

The core unit of the biorefinery is currently under construction at the site location in Boardman and foundations are being poured, and the company will begin producing 250,000 gallons (annually) of cellulosic ethanol in 2011.

Jim Lane is the Editor and Publisher of Biofuels Digest.

Posted by Guest Contributor at 10:25 AM | Permalink | Comments (0)

Jim Lane

Will the new fermentation technologies completely shatter preconceptions about biofuels and bio-based products – and redefine the way in which Western Civ approaches the production of fuel, food, feed, and fiber? The new Brew Barons are working hard to make it so.

The Regents of the University of Washington generally only admit under conditions of duress – waterboarding is typically employed – that I graduated from their institution. At issue? What they felt was an inappropriate level of focus on beer and other fermentation products as a subject of personal discovery disguised as undergraduate research.

They’ve been laughing in Seattle since I left, but unintentionally I may just have the last laugh. It may be the case that fermentation, in its modern incarnation, may indeed be the key to saving Western civilization from itself.

Is there enough energy, food, fiber and feed for all? Advances in industrial fermentation – a/k/a an incredulous “you’re making what? from what? using what? – will be the key to answering that question.

The stars of this drama are using everything from sorbitol to steel waste gases, grass clippings, pulp mill black liquor, sludge, cane trash, vinasse, leftover chili, and potato peels that never found a home.

They are using two basic strategies – fermenting liquids and, more unusually, fermenting gases too. Most are fermenting liquids; companies utilizing gas-phase fermentation, like Coskata, LanzaTech and IneosBio, are just now proceeding towards demonstration at scale.

Their microorganisms have become so focused and well trained that they are creating phosphate-free detergents, ethanol, organic acids, diesels, gasoline, base and novel chemicals, even synthetic anti-malarials. Just today, Codexis (CDXS) announced that it has developed a process to capture CO2 from coal-fired power flue stacks by fermenting the waste gases.

Intriguingly, researchers from Cornell this week reported, in “Bacterial Community Structures Are Unique and Resilient in Full-Scale Bioenergy Systems” (Proceedings of the National Academy of Sciences, Feb. 22, 2011), analysis of 400,000 gene sequences of the microbes in the sludge at nine Budweiser facilities that treat wastewater in bioreactors. Anheuser-Busch InBev recoups 20 percent of its heat energy use through the methane produced by these nicrobes, saving the company millions of dollars every year. The intrigue: the Cornell engineers are looking to prevent methane production by the microbes, and instead, to shape the bacterial communities to produce carboxylates, which are a precursor to the alkanes found in fuels.

“We are going to shape these communities so they start making what we want,” said Cornell’s Largus Angenent, associate professor of biological and environmental engineering.

Now that’s the, ahem, spirit. That’s the outlook that why these fermentation-meisters are responsible – along with the Kings of Catalysis – for shaking up the world in a very positive way.

The new Brew Barons

They are the new Brew Barons. In an earlier age, they might have been content to make White Lightning, or craft brews. Today their targets are jet fuel, renewable gasoline, renewable diesel, ethanol, a boatload of renewable chemicals, plus feed grains, food oils, pharmaceuticals, nutraceuticals, and more.

One thing is for sure. Based on the advances they are making, anyone who begins a sentence with “biofuels are…” isn’t up on the science. They are too turbulent to be characterized – too fast-moving to be catalogued or pigeon-holed. The nature, potential, and value of biofuels are changing nearly as rapidly as feedstocks in a fermenter.

Who are they? Let’s look at some of the best and the brightest.

Algenol

An interesting approach. Algenol are utilizing algae to make starches, which they then ferment into ethanol.

Algenol Biofuels and Dow Chemical are in the process of constructing a $50 million pilot algae biofuels plant in Freeport, Texas. The plant will be located with Dow’s existing chemicals complex, and will supply CO2 as well as land for the pilot algae facility. Dow said that it was interested in Algenol’s ability to use algae to produce ethanol, which could be used as a base for making ethylene, which is in turn a feedstock for many types of chemicals. The plant is designed to produce 100,000 gallons of ethanol per year at a target price of between $1.00 and $1.25 per gallon, according to CEO Paul Woods, who added that groundbreaking is expected to commence this year. Traditionally, chemical companies have been using natural gas as an ethylene feedstock.

Amyris (AMRS)

It was an unheralded IPO – a lot of people passed on it at $16, now the stock is riding at $32 less than six months later, and the company just received this week its first purchase order for Amyris renewable squalane. The order was generated through collaboration with Amyris’s partner, Soliance, a leading green ingredient provider to the cosmetic industry based in France.

Last week, Amyris announced that it had completed multiple runs of its fermentation process using its engineered yeast to produce renewable farnesene, in 100,000 and 200,000 liter capacity fermenters. These runs were completed through contract manufacturing operations in North America and Europe.

The results of these fermentation runs, including yields, were consistent with previous runs at smaller scale. Amyris expects to commence commercial production of Biofene in the second quarter of 2011 and ramp production through manufacturing arrangements with entities including Biomin and Tate & Lyle.

In addition, Amyris and Grupo São Martinho, a leading sugar and ethanol producer in Brazil, have commenced site preparation on their joint venture production facility at Usina São Martinho. All of these facilities will utilize fermentors with capacities ranging between 100,000 and 600,000 liters.

Amyris is building an integrated renewable products company by applying its industrial synthetic biology platform to provide alternatives to select petroleum-sourced products used in specialty chemical and transportation fuel markets worldwide. They genetically modify microorganisms, primarily yeast, and use them as living factories in established fermentation processes to convert plant-sourced sugars into potentially thousands of target molecules. Their first commercialization efforts have been focused on a molecule called farnesene, which forms the basis for a wide range of products varying from specialty chemical applications such as detergents, cosmetics, perfumes and industrial lubricants, to transportation fuels such as diesel.

They have developed genetic engineering and screening technologies that enable us to modify the way microorganisms, or microbes, process sugar. By controlling these metabolic pathways, they design microbes to serve as living factories, or biorefineries, to produce target molecules that we seek to commercialize. Their platform utilizes proprietary high-throughput processes to create and test as many as 1,000 yeast strains a day in order to select those yeast strains which are most efficient. They first developed and applied our technology to create microbial strains to produce artemisinic acid, a precursor of artemisinin, an anti-malarial therapeutic. This work was funded by a five year grant awarded by the Bill & Melinda Gates Foundation to the Institute for OneWorld Health. We have granted a royalty-free license to this technology to sanofi-aventis for the commercialization of artemisinin-based drugs.

Bluefire Renewables (BFRE.OB)

BlueFire often gets overlooked because they are not using enzymes for the crucial hydrolysis step, and missing out on the attention that is generated by companies like Codexis (CDXS), Genencor and Novozymes (NVZMY.PK) for their enzyme customers. But fermenting their acid hydrolysis brother indeed they are, and operating a successful, proven technology for a number of years now.

Next step – they are awaiting loan guarantees – like Fulcrum, BP Biofuels, POET and a number of others – in order to proceeed with their Fulton,Mississippi-based cellulosic ethanol project. The facility will be engineered and built by Wanzek Construction, Inc., a wholly owned subsidiary of MasTec Inc. (MTZ) , for a fixed price of $296 million which includes an approximately $100 million biomass power plant as part of the facility.

In recent months, BlueFire had also announced the securing of 15-year offtake and feedstock contracts with credit worthy partners, and has thereby became the first advanced biofuels company to secure all three legs of the requirements generally associated with DOE loan guarantees. BlueFire is working with both the USDA and DOE loan programs, and over the past three years has secured $88 million in DOE grants.

Last month, BlueFire Renewables announced that Lincoln Park Capital Fund will invest up to $10 million in the company.  Upon signing the agreement, LPC invested $150,000 in BlueFire as an initial investment under the agreement at $.35 per share together with warrants to purchase an equivalent number of shares at an exercise price of $.55 per share.  BlueFire intends to use the proceeds of this transaction for general corporate purposes and to aid in the closing of additional financing for the Fulton project.

Cobalt Technologies

Cobalt Technologies is commercializing cellulosic biobutanol, a versatile platform molecule for the renewable and profitable replacement of petrochemicals and petroleum.  The Company’s technology efficiently converts diverse non-food feedstocks – initially, hemicellulose extracts from woody biomass and sugar cane bagasse – into biobutanol.  Cobalt will offer complete systems for biomass power facilities and retrofitting pulp and paper plants with a cost-effective biorefinery module, taking advantage of benefits of co-location (feedstock supply, logistics, permits) while enhancing overall facility returns.  Feedstock for the biorefinery will be low-value hemicellulose extracted from woody biomass (or bagasse) that otherwise would be burned for energy.

Biobutanol can be used as is in paints, coatings and other chemical products, a 1.2 billion gallon, $6 billion market.  It can also be converted via known chemistry into a wide range of high value products, including 1-butene, isobutene and butyraledehyde derivatives, replacing petrochemicals and accessing a 67 billion gallon, $300 billion market, and full performance jet fuel and diesel.  Biobutanol can also be blended with gasoline, diesel and ethanol to reduce emissions.

Engineered to achieve low costs through high productivity, energy efficiency and the use of low-cost feedstock, Cobalt is making biobutanol and its derivatives a cost effective substitute to petroleum-based materials.

Codexis (CDXS)

Codexis’ platform is based on proprietary directed evolution biocatalysis technology.  Codexis manufactures industrial biocatalysts for use in creating faster, more efficient and environmentally-friendly manufacturing processes and industrial scale in the bioindustrials and pharmaceuticals markets.

At the ARPA-E Energy Innovation Summit this week in Washington, DC, Codexis will announce significant progress towards developing economical, commercial scale technology to reduce carbon dioxide emissions from coal-fired power plants.  The program is supported by an ARPA-E Recovery Act program grant.

The grant supports development of custom enzymes to decrease energy needed to capture CO2 from coal-fired power plants.  Enzymes developed by Codexis under the grant have been shown to be functional and stable in relatively inexpensive and energy efficient solvents for 24 hours at temperatures up to 75⁰C.  Use of these solvents with fully developed enzymes is expected to reduce the energy needed to capture CO2 within the plant by 30%.

These reductions are possible through development of customized carbonic anhydrase (CA) enzymes, or biocatalysts.  CA is an enzyme which catalyzes the transfer of carbon dioxide in nature – for example, CA enables carbon dioxide to be released from blood into the lungs during respiration. However, the natural enzyme does not function at the high temperatures and harsh industrial conditions in coal-fired power plant flue gas.  In research being presented this week, enzyme performance has been improved by about 100,000 times over natural forms of the CA enzyme.

Biofuels Digest profiled Codexis most recently in “Resistance is Futile: Codexis and the chase for low-cost cellulosic feedstocks".

Coskata

Coskata was in the news most recently with the securing of a massive (though conditional, subject to closing) loan guarantee from  the USDA that will power the company towrds its first commercial demonstration.

It’s an intriguing technology (that finds itself currently entangled in a lawsuit with INEOS), that employs a three step process: gasification, biofermentation, and separation. During gasification, the feedstock is thermally broken down to form synthesis gas (syngas). During the second step, fermentation, the syngas is sent to a proprietary bioreactor where patented microorganisms consume the gas and produce ethanol. The last step of the Coskata process uses conventional distillation and dehydration technology to separate the ethanol from the water, resulting in pure, fuel-grade ethanol.

Coskata’s feedstock flexible process can utilize virtually any carbonaceous feedstock, including energy crops such as: switchgrass and miscanthus; wood chips, forestry products, corn stover, bagasse and other typical agricultural wastes; municipal solid waste and industrial organic waste like petroleum coke.  Their feedstock flexibility allows for enormous geographical and economic advantages over other fuel technologies.

Coskata’s hybrid process, combining gasification and biofermentation, leads to several competitive advantages in terms of efficiency, affordability, and flexibility.

Coskata’s highly efficient hybrid technology allows for one of the lowest costs of production in the industry.  Their microorganisms are specific to ethanol production and our technology has the ability to extract the entire energy value of the feedstock. Finally, they are not dependent on expensive enzymes or chemicals and pre-treatment costs are significantly lower than any non-gasification based technology available today.

Second, Coskata’s ethanol conversion process is one of the most feedstock flexible technologies among advanced biofuel startups and is able to create a high quality fuel from virtually any carbon-containing material. This feedstock flexibility also leads to geographic flexibility, allowing the company to build facilities virtually anywhere around the world where feedstock is available.

Genencor

Known primarily in the biofuels neck of the woods as an enzyme supplier, Genencor picked up a 2010 Biofuels Digest Award for the development of its C5 BioIsopren platform for use in the production of branched chain hydrocarbons, C10 gasoline; C15 biodiesel and jet fuel blend stocks that they collectively refer to as BioIsoFuels.

Isoprene is an important commodity chemical used in a wide range of industrial applications ranging from the production of synthetic rubber for tires and coatings to use in adhesives and development of specialty elastomers.  Current production of isoprene is derived entirely from petrochemical sources.  There is an increasing global need for more isoprene and a simultaneous environmental imperative to reduce green house gases, both of which can be achieved by a high efficiency fermentation based process for polymer grade isoprene production.  BioIsoprene™ will have broader commercial applications beyond the biochemical uses of isoprene in synthetic rubber, adhesives and specialty elastomers.  As a C5 hydrocarbon, BioIsoprene™ has inherent fuel properties and represents a key biobased intermediate that can be converted to a drop-in transportation fuel additive using chemical catalysis to C10 and C15 biobased hydrocarbon fuels, thus addressing performance gasoline, jet fuel and biodiesel markets.

Genencor develops enzymes and enzymes systems that enable starch as well as a wide range of cellulosic biomass processing to deliver fermentable feedstocks for use in the production of biochemicals and biofuels.  Feedstocks may include; corn, wheat, rye, barley, sorghum, triticale and rice. They  develop biological systems capable of producing biobased chemicals from a wide assortment of feedstocks including refined sugars from starch and biomass-derived feedstocks.

Genomatica

Genomatica’s technology is used to make major intermediate and basic chemicals in a direct, one-step process. This one-step process means fewer processing steps, lower capital costs, greater efficiency, and reduced overall cost. We are able to go directly from renewable feedstocks to the product of interest, as demonstrated with their recent partnership with Waste Management (WM). Genomatica’s technology offers sustainable chemicals at lower costs than petroleum-based alternatives.  The unique integration of technologies cuts years and millions of dollars of R&D investment from developing bio-based processes for making low-cost chemicals.  The organisms and complete manufacturing processes for  Genomatica’s targeted products are developed with high productivity due to our platform.

Their platform has been proven through an astonishing 2.5 year timeline to pilot production for1,4-butanediol, or BDO; and through $20 million of industry and government collaborations. The platform allows them to cost-effectively perform high-throughput ‘in-silico’ (computer-based) design and testing of highly-optimized organisms, manufacturing processes and economics. This results in more efficient, focused lab work, much faster product development and time to commercial-scale manufacturing, lower-cost production, and de-risking of the process.

Gevo, Inc. (GEVO)

Another celebrated IPO – Gevo just debuted at $15 not too long ago, but is already trading at a 30% premium, riding the NASDAQ currently at $19.71 after flirting briefly with $22.

Gevo has two proprietary technologies that combine to make it possible to retrofit existing ethanol plants to produce isobutanol, a four carbon alcohol which serves as a  hydrocarbon platform molecule.  We have developed a robust industrial scale yeast biocatalyst to produce isobutanol without typical byproducts operating at parameters equivalent to commercial ethanol producers.  The second piece of technology is a separations unit that operates continuously and removes isobutanol during fermentation.  This helps reduce distillation requirements, thereby reducing process energy consumption.

Gevo will produce isobutanol, a four carbon alcohol that can be dehydrated using well known technology to isobutylene, a C4 hydrocarbon.  Isobutanol has 30% more energy content than ethanol and can be blended into gasoline without modifying automobile engines.  Isobutanol is a low RVP blendstock and less soluble in water than ethanol.  It can be transported in pipelines and be dispensed in existing retail pumps.  Isobutanol is a biofuel that carries a RIN value of 1.3 and It can be an advanced biofuel from corn if it achieves a 50% GHG reduction.

Isobutanol also has a market as a chemical solvent.  The opportunity for isobutylene spans many C4 markets in jet fuel, paraxylene, PET and other multi-billion dollar applications in fuels, synthetic rubber, chemicals and plastics.

Gevo has a number of off-take agreements and has announced non-binding letters of intent to supply Total for gasoline blendstock; United Airlines for biojet; Lanxess for butyl rubber; and, Toray industries for p-xylene.

INEOS Bio

INEOS Bio was most recently in the news with the groundbreaking at its 8 million gallon per year advanced bioenergy facility in Vero Beach, Florida. The facility will also produce up to 6 MW of renewable power from municipal solid waste and yard and wood residues, enough to power more than 4,000 residences. INEOS New Planet BioEnergy is a joint venture between INEOS Bio and New Planet Energy, which received a $50 million grant from the DOE last year towards construction of the INEOS New Planet demonstration plant.

The INEOS Bio process is a combined thermochemical and biochemical technology for ethanol and power production.  It is comprised of four main steps:  (1) feedstock gasification, (2) synthesis gas fermentation (3) ethanol recovery and (4) power generation.  The process utilizes a patented fermentation process, where cleaned, cooled synthesis gas is converted selectively into ethanol by a naturally occurring anaerobic bacteria.  The process has been under development for 18 years.

Last June, INEOS Bio received a $10.8 million in grants from the Department for Energy and Climate Change and the Regional Development Agency One North East towards the construction costs  of its waste-to-ethanol BioEnergy Process Technology project at the INEOS Seal Sands site in the Tees Valley. The 7.9 Mgy (30 million liter) project will also produce 3 MW of renewable power and will be completed in 2012. The plant which will utilize 100,000 tonnes of municipal solid waste (which it will convert at a 25 percent yield) will create 40 permanent and 350 construction jobs, and will become the base of a larger commercial INEOS Bio plant that will open in 2015.

Part II of 'Brew Barons' is here.
Jim Lane is the Editor and Publisher of Biofuels Digest.

Posted by Guest Contributor at 08:04 PM | Permalink | Comments (0)

Marc Gunther

Biofuels development at Codexis headquarters in Redwood City, CA.

In the overcrowded biofuels business, it’s hard to tell the pretenders from the contenders.

Every company claims to possess breakthrough technology that is just about ready for commercialization. Just ask Algenol, Amyris (AMRS), Bluefire Renewables (BFRE.OB), Coskata, Genencor, Gevo (GEVO), LS9, Mascoma, Novozymes (NVZMY.PK), Range Fuels, Synthetic Genomics (which is funded by ExxonMobil) and Terrabon. In the last couple of years, I’ve taken a look at Poet, (See Poet, seeking patronage), Qteros (Qteros: Turning mud to big money) and Solazyme (Gee whiz, algae!), among others.

Today, I’ll turn my attention to Codexis (CDXS), which, like its rivals, has a beautiful website, big ideas and very little in the way of commercial production of a biofuel not made from food. That’s the problem here — a sustainable biofuel such as cellulosic ethanol, which is ethanol made from the wood, grasses or the non-edible parts of plants, always seems to be a few years away, despite the hopes of venture capitalists and politicians.

It was back in 2007, after all, Congress mandated that the U.S. use 100 million gallons of cellulosic ethanol yearly by 2010, and 250 million gallons by 2011. Congress, alas, can’t mandate technological progress or persuade algae to grow faster, no matter how much money it throws at the problem, so neither target will be met, not by a long shot. For a skeptical view of the biofuels biz, see Robert Rapier’s blogpost, Cellulosic Ethanol Reality Begins to Set In. A former ConocoPhillips exec and a chemical engineer, Rapier doesn’t think that “large-scale commercialization of cellulosic ethanol will ever be viable.”

And yet…many scientists, investors and corporate executives, including some in the oil industry, believe strongly in biofuels, which brings us to Codexis. Shell has invested $350 to $400 million in Codexis, according to the company’s CEO, Alan Shaw, who spoke with me this week in Washington. “It’s the largest privately funded biofuels program in the world,” Shaw told me.

Codexis also has partnerships with Merck and Pfizer, because its enzymes can be engineered to produce pharmaceuticals, and with Alstom (AOMFF.PK), which is using Codexis technology to capture carbon dioxide emissions from coal-fired power plants.

“Our model is to work with Big Brother,” Shaw said.

Codexis (CDXS), which was spun out of a biotech firm called Maxygen in 2002, went public last April. The company reported $107 million in revenues in 2010, with most coming from Shell, which, in effect, is outsourcing its biofuels R&D to Codexis. The company isn’t making money yet and the stock’s down by about 20% since the IPO.

If I’d taken biology and chemistry in college, I might be explain to explain Codexis’s technology in a sophisticated away. Here’s the best I can manage: In brief, the company rearranges the DNA of enzymes–which are proteins that speed up or slow down chemical reactions–in order to make new industrial processes possible and make existing processes faster, cleaner and more efficient than conventional methods.

In Codexis’s biofuels business, that means turning feedstocks like sugar cane bagasse and leaves, wheat straw, woody biomass, or waste from pulp and paper mills into sugars that can then be fermented into ethanol.

Shaw does not believe that using corn or sugar as feedstocks makes long-term sense for the biofuels business. He’s surely right about that. The environmental benefits of corn ethanol are questionable at best, and groups including the American Meat Institute, the American Jewish World Service, the Competitive Enterprise Institute and moveon.org (strange bedfellows!) all oppose further federal subsidies for corn ethanol.

Sugar, meanwhile, costs more than $700 a ton, which makes the economics of turning sugar cane into ethanol very challenging. Prices will only raise as the world’s population grows, Shaw says. Instead of turning sugar into ethanol, why not find ways to take biomass with no food value and turn it into sugar?

That’s Codexis’s approach, of course. In Canada, Codexis is working with Iogen, which has been making cellulosic ethanol from wheat straw in a small demonstration plant since 2004. In Brazil,  Codexis is working with Cosan (CZZ), the world’s largest sugar and ethanol company, and Royal Dutch Shell, which have formed a joint venture called Raizen. They’ll focus on sugar cane bagasse, leaves and stalks, none of which are edible.

Shaw told me that he expects to see Codexis’s technology used in pilot plants in Canada this year and Brazil next year.

And when will the technology be commercialized?

“You’re talking about hundreds of millions of dollars of investment,” Shaw said. “Large scale, I think we’re looking at 2015.”

In the long run, there ought to be a future for sustainable low-carbon biofuels. Even if the automakers electrify most or all of their cars, clean transportation fuels will be needed to power planes, trains and ships.

What’s more, no industry wants to be dependent on oil forever–not even the oil industry.

DISCLOSURE: None.

Marc Gunther is a contributing editor at FORTUNE magazine, a senior writer at Greenbiz.com and a blogger at www.marcgunther.com.

Posted by Guest Contributor at 10:15 AM | Permalink | Comments (0)

by Debra Fiakas CFA

There are not many companies with the courage to stage an initial public offering, but renewable chemicals and materials producer Amyris, Inc. (AMRS:  Nasdaq) was undaunted.  The company sold 5.3 million shares at $16.00 earlier this month, raising $78.8 million in net proceeds. 

Amyris has done fairly well in raising capital.  In December 2009, the Department of Energy awarded Amyris a $25.0 million grant to build a pilot plant that will produce diesel and petrochemical substitutes through the fermentation of sweet sorghum.  Then Temasek Holdings invested $47.8 million into the company.

The Amyris vision is lofty  -  build a “fene economy.”  Investors might be scratching their heads over that one.  Amyris engineers microbes and has developed a molecule called farnesene.  The molecule can be the building block for a variety of products such as detergents, cosmetics, perfumes and industrial lubricants, and to transportation fuels like diesel.  The company has ubiquity in mind for farnesene-based products, replacing existing products that are derived from petroleum, plant or animal sources and that may be of lower quality or higher price.  While sweet sorghum is the feedstock for the diesel pilot project, the company plans to use Brazilian sugarcane for its ambitious farnesene production. 

Management claims commercialization is just around the corner and expects revenue streams to begin flowing in 2011.  Amyris has revenue from consulting and licensing, but development costs and other operating expenses have run high.  The company reported a net loss of $76.0 million in the twelve months ending June 2010.  For perspective we note that operations only used $45.9 million in cash during that period.

After the offering, Amyris estimates there will be approximately $294 million in cash on the balance sheet.  The company has no debt so the cash kitty is available for further research and development work.  Amyris has not been working exclusively behind the research bench.  A stable of partners has been assembled that gives Amyris access to production and distribution capabilities and expertise.  The business model allows Amyris to remain focused on what they know best  -  chemistry  -  while partners and customers figure out how best to incorporate that chemistry into marketable products.

Investor enthusiasm is running strong for the company.  AMRS price rose in the days following the offering and have remained solidly above the offering price even if investors have not been treated to a “soaring” stock price.  We would like to see some seasoning of this stock before committing large amounts of capital.  Nonetheless, the company has an interesting business model that should earn strong margins as sales ramp.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  AMRS is included in the Crystal Equity Research Beach Boys Index in the Biofuel Group.

Posted by Debra Fiakas at 04:37 PM | Permalink | Comments (0)

Bill Paul

In the wake of the massive Gulf of Mexico oil spill, it’s clear the U.S. needs to end its crude-oil addiction as much to protect its economy as the environment.

To move the future forward, America needs one company in particular to come through on behalf of all Americans. In a cruel twist of fate, that company is ExxonMobil (XOM), which is working on arguably the most important energy-research project in the world today. Namely, a project to replace crude with genetically-modified algae that can be cost-effectively refined using existing refinery equipment.

A year ago when Exxon announced its algae project with biotech pioneer J. Craig Venter, the company said that it would take at least 5-10 years to produce commercial quantities of algae-based fuels. “My suspicion, and it’s just a suspicion, is that they still see it as five to 10 years away,” says Addison Wiggin, editorial director of The Daily Reckoning, who has been looking into the Exxon-Venter project for a forthcoming documentary on entrepreneurs in the post-crisis financial world.

Too long. As video of the black death pouring out of that ruptured pipeline gushes onto every American TV and computer screen, it's time for President Obama to declare a new Manhattan Project, a new man-to-moon space race. The goal must be to take America off its crude addiction in less than five years with a literally home-grown industry that will create tens of thousands of agricultural and other jobs without jeopardizing the existing oil industry’s trillion-dollar infrastructure.

Exxon shares would surge the moment this plan became publicly known; however, the President can’t allow the investor payoff to be too bountiful. There will have to be safeguards against Exxon controlling the applicable patents in order to prevent the company from controlling America’s energy future.

Algae oil is no panacea, the President will further need to say. Accelerated development of plug-in electric and all-electric vehicles is needed in order for the U.S. to have, by 2020 or sooner, a nationally-secure, environmentally-sound transportation infrastructure.

In a second twist of fate, not only would Exxon shares likely surge in price, so too might the shares of utilities that generate a lot of electricity from coal. Companies such as Duke Energy (DUK), Southern (SO) and FirstEnergy (FE) might lose their pariah image if part of the President’s strategy were to capture coal plants’ carbon dioxide and use it to accelerate algae growth.

For risk-inclined investors who believe that all this may be on the way, a company that might be worth a closer look right now is tiny OriginOil. (OOIL.OB). The company has started signing up customers as it begins commercializing a technology for producing biofuel from algae using CO2 emissions captured from smokestacks.

Disclosure: No positions

ED NOTE: Follow this link for a look at four algae oil companies, including OriginOil.

Posted by Bill Paul at 06:00 PM | Permalink | Comments (1)

Tom Konrad CFA

There are two types of solution to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  Each potential substitute has barriers to its use which stand in the way of it from becoming a complete substitute for petroleum based fuel.  Understanding those barriers also leads us to the investment opportunities that arise from these substitutes. 

In the last two articles of this series, I looked at barriers to adoption for alternative fuels, and the limits and constraints that will likely prevent most of them from reaching sufficient scale to replace our current oil use. 

The first barrier was the last of existing infrastructure for many fuels: the lack of a fueling infrastructure that would allow drivers to fuel their vehicles when and where they need to at competitive prices, while the lack of a distribution infrastructure can keep the fuel from getting to the regions of the country where it is needed.  The second barrier is energy density: in order to deliver the range that people expect from their vehicles, an alternative fuel and the tank or battery that holds it works best if it is both light and compact.

The constraints were the total available supply (current and long term), alternative uses which might divert that supply to more economic purposes than fuel, and the damage producing and using the fuel does to the climate and environment.

To be a success, an alternative fuel must be able to overcome both barriers, and not have such severe constraints that there is little fuel available.  The barriers put limits on the short term profitability of the technology.  The constraints limit the short-term or long-term size of the market for the fuel, and the economics of the fuel.

Investment Opportunities

The table below summarizes the discussion in parts VI and VII.  I've rated the barriers and constraints for each fuel from A to F, with F being the least favorable to the adoption of the alternative fuel, and A being the most favorable.

Barriers	Biofuels	Electricity	H2	NGV	GTL	CTL
Fueling Infrastructure	A	C	F	F	A	A
Distribution Infrastructure	D	A	D	A	A	A
Density	A	F	C	C	A	A
Overall Barriers	B	C	D	C	A	A
Constraints	Biofuels	Electricity	H2	NGV	GTL	CTL
Current Supply	C	B	F	B	B	B
Long Term Supply	B	A	A	F	F	F
Alternative Uses	C	C	D	C	C	C
Climate/Environment	C	A	A	D	D	F
Overall Constraints	C+	B+	C+	C-	C-	D+

H2= hydrogen; NGV = Natural Gas Vehicles; GTL=Gas to Liquids; CTL= Coal to Liquids.

Hydrogen (Barriers D / Constraints C+)
If you agree with my assessments in the previous articles and as laid out in the above chart, it seems clear that hydrogen is a non-starter as an alternative fuel: the barriers are much worse for hydrogen than any of the other alternatives, and while hydrogen does have the long term advantages of potentially unlimited supply with minimal environmental impact, electricity has these same advantages, but has fewer barriers to overcome.

Natural Gas Vehicles (Barriers C / Constraints C-)
Natural Gas Vehicles are questionable as a peak oil mitigation strategy as well.  Natural gas is usually touted as a transitional fuel as we move away from oil and towards renewables.  But with the barriers to vehicle electrification no worse than the barriers to NGVs, a direct transition to electric vehicles seems a better choice. 

Biofuels (B/C+) and Gas to Liquids (A/C-)
  Biofuels and Gas to Liquids will likely have roles to play, but these roles will be limited by supply constraints.  Companies that can solve some of the problems for these two alternatives (such as land and water use for biofuels) may be profitable investments.  Algae is one possible way to overcome the supply constraints and environmental degradation caused by biofuels, but as I discussed in Part V, the publicly traded algae companies and technology is still too early stage to make attractive investments.  Biofuel feedstocks grown in salt water also have good long term potential.

The big questions lie with Vehicle Electrification and Coal to Liquids (CTL). 

Coal to Liquids (A/D+)
CTL would have a lot of potential as a short-term peak oil mitigation strategy if either 1) we choose to ignore the associated climate impact, or 2) we find and develop an economical way to sequester the associated carbon emissions.  I personally don't think that carbon sequestration is likely to be economical except in special (and small scale) situations such as enhanced oil recovery, but if a company manages to crack this nut, it is likely to be an excellent investment opportunity.

Likewise, so long as the true costs of greenhouse gas emissions are not paid by the polluters, high oil prices may make coal to liquids plants quite profitable in the short term given the ease with which synthetic diesel can be used in the current distribution and retail infrastructure.  However, such plants would be subject to potentially bankrupting regulatory risks because of the real chance that regulators may decide to price these externalities at a later date.  These risks mean that many lenders will be unlikely to finance Coal to Liquids plants.  We have seen a similar trend with many banks deciding not to finance new coal-fired electricity generation because of regulatory risk.  This trend is not all one-way, however, as some lenders (like the World Bank) are less subject to market forces, and may continue to fund environmentally harmful projects if they feel such projects are in line with other goals, such as development.

Vehicle Electrification (C/B+)

Where the prospects for Coal to Liquids are all short-term, the prospects for vehicle electrification are all long-term.  Energy density and the cost of batteries present serious near-term barriers to vehicle electrification.  In contrast, the long term prospects for vehicle electrification are much brighter than for any other alternative fuel.  The potential to deliver clean renewable electricity from wind and solar is sufficient to power all the worlds current electricity and transportation needs hundreds of times over.  Electric vehicles have the added advantage that they can smooth the natural variability of these most abundant renewable electricity sources by charging when the wind blows and the sun shines.

But the prospects for vehicle electrification come with a huge caveat: Plug-in Hybrid Electric Vehicles (PHEVs) and pure Electric Vehicles (EVs) are far from cost-effective ways to displace oil because of the huge cost, weight, and volume requirements of batteries.  Batteries are getting better, and many governments are pouring in the funding dollars, but for now only the mild vehicle electrification available with conventional hybrids uses batteries cost-effectively enough to make economic sense, even with a doubling or tripling of gas prices.  PHEVs and EVs can make sense as niche vehicles where performance (sports cars), silence (golf carts), or environmental sensitivity is at a premium.  They may also make sense for some fleet vehicles that follow predictable routes and can benefit from multiple battery swaps or charging sessions per day (mass transit, postal vehicles) but the cost-benefit analysis of such applications will be very sensitive to the application.  Smaller vehicles such as electric bikes and scooters also have great potential because their lower power and range requirements are easier to meet with current commercial battery technology.

Even these more limited applications for vehicle electrification are large compared to the current battery market.  As I wrote in part II, battery companies, especially those making progress with chemistries not currently the subject of intense investor interest, are compelling investment prospects.

Conclusion: The Best Peak Oil Investments

There is no perfect substitute for fossil fuels.  In the end, we are going to have to find ways to address the reality of peak oil that go farther than simply replacing one fuel with another: we are going to have to reduce our usage.  Fortunately, a number of strategies for reducing fuel use exist.  Not only is there considerable potential to increase vehicle efficiency, but there are also many ways to encourage conservation which can have net economic benefits for society.  For investors, these strategies also hold promise, although it is not always obvious how companies can turn a profit from helping consumers consume less.  

The "Best Peak Oil Investments" are not be the substitutes I have been talking about so far.  The best peak oil investments are the technologies that allow us to use less oil and still get our transportation needs met.  Future articles in this series on peak oil investment strategies will attempt to tease out the investment opportunities that arise from reducing our use of oil, not just finding substitutes for it.

Here are links to the previous articles in this series:

1. Biofuels
2. Hydrogen and Vehicle Electrification
3. Natural Gas Vehicles
4. GTL and CTL
5. Algae
6. Barriers to Substitution
7. Substitution Constraints
   

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 06:24 PM | Permalink | Comments (0)

Tom Konrad CFA

There are two types of solution to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  These substitute have barriers to their use as a replacment petroleum based fuel.  Understanding those barriers also leads us to the investment opportunities that arise from these substitutes. 

As I wrote the first five parts of this series, looking into potential substitutes for gasoline and diesel, it was clear that many potential substitutes would need to overcome barriers to its adoption.  This article and the next will look at these barriers, and what they say about the potential for investments in substitutes for liquid fuels from petroleum.  Part VII will look at factors which constrain the supply of these substitutes.  Part VIII will combine the resulting understanding of these barriers and constraints to highlight the investment opportunities arising from them.

Barrier: Infrastructure

One great advantage gasoline and diesel have over most of the proposed alternatives is an extensive infrastructure.  In addition to an extensive pipeline network, we also have a large number of competing fueling stations.  If a new fuel requires new fueling stations, like natural gas and hydrogen, or charging points and (potentially) battery swapping stations (electricity) it may not be enough to make sure that enough filling stations exist for would-be drivers to make long trips.  If there is only one national network of filling stations, drivers will likely become concerned that the lack of competition will mean that they overpay for fuel.

Among the possible substitutes, the synthetic fuels discussed in part IV, as well as biogasoline are the best placed in that they can use existing infrastructure. 

In terms of having a nationwide transportation network, the best placed substitutes are natural gas and electricity.  In terms of point of sale delivery, electricity has an advantage in that it's safe and relatively cheap to place charging infrastructure in parking lots, and most homes already have the capability of charging an electric vehicle, although it takes a long time from the 120V outlets in most garages.  Most homes do not have natural gas in the garage, and even when they do, a compressor is necessary. 

Conventional biodiesel and ethanol can be dispensed from the same pumps used for fossil fuels, but both present some difficulties in transport and storage.  Biodiesel cannot be allowed to get too cold, because it begins to congeal, so in colder climates, storage tanks as well as transport tankers must be insulated and even heated.  Ethanol cannot be shipped through pipelines that are also used for gasoline, because it absorbs too much water.  Hence ethanol and biodiesel are mostly shipped in tanker trucks and rail cars.  But both can be blended with conventional fuels, meaning that little new dispensing infrastructure is needed.  The importance of a competitive fueling infrastructure can be seen in in this November 2009 statement from the Trucking industry to the US Senate [pdf] about the conversion of trucking from diesel to natural gas.  They say,

It is not sufficient to have a single LNG vendor with stations built at strategic locations along key freight corridors. Absent a competitive refueling infrastructure, trucking companies could face unreasonably high prices at individual retail LNG stations that have no competition in a particular geographic area. While competition exists in the natural gas industry, the high barriers to entry for retail LNG refueling stations may slow the development of a competitive refueling infrastructure. A competitive LNG refueling model would require the presence of multiple entities selling LNG in the same geographic area.

This objection applies to any potential alternative vehicle which locks the user into one fuel, and includes Electric Vehicles (EVs) such as the Nissan Leaf and Hydrogen Fuel Cell Vehicles, but not to flex fuel vehicles (E85 ethanol) or biodiesel (which can be used in any diesel engine.)  It also does not apply to Plug-in Hybrid Electric vehicles, such as the Chevy Volt, because while charging points and battery swapping stations may be limited, the existing fueling infrastructure provides supply competition.

The fuel with the weakest infrastructure is hydrogen.  Like natural gas, it needs specialized filling stations, but hydrogen lacks a national pipeline network.

Incomplete infrastructure can be either a barrier or an opportunity.  If a potential fuel is compelling for other reasons, firms well placed to provide the necessary infrastructure should be able to profit handsomely.  If, on the other hand, a fuel lacks an existing infrastructure and also faces significant other barriers, it will be unlikely to become a significant transportation fuel, and infrastructure investors are likely to lose their shirts along with everyone else interested in the fuel.

Barriers: Energy Density

When talking about energy density, it's important to consider not only the fuel, but the tank.  Both volume and weight are important.  Few fuels are as energy-dense as gasoline and diesel, both of which can be stored in simple, unpressurized fuel tanks.  In contrast, the fuel tank for electric vehicles is the battery, and batteries are not only large and heavy for the amount of energy they store, they are also extremely expensive and degrade over time.  Although the cost of driving an electric vehicle are very low compared to gas or diesel, the large up-front investment in batteries makes the total cost of owning an eelctric vehicle higher except for drivers who use the vehicle for frequent, short trips with time to recharge in between. 

The big winners for energy density are synthetic fuels, as well as conventional biofuels such as ethanol and biodiesel.  Although ethanol has been criticized because it only contains about 2/3 of the energy of the same volume of gasoline, it's close enough that people using ethanol don't have to completely change their behavior in order to use it in a conventional vehicle.  In contrast, electric vehicle manufacturers find that the range of their vehicles is constrained not only by the cost of batteries, but also by their size and weight.  Weight is particularly important, because as a vehicle gets heavier, more of the energy is used to move the vehicle rather than the occupants, which in turn requires even more batteries.

In between energy-dense biofuels and bulky batteries lie gaseous fuels: natural gas and hydrogen, which have good energy per gram, but require heavy pressurized tanks to pack them into a space small enough to fit in a vehicle.  Hydrogen requires a pressurized tank that takes up a lot of space, even if it is not very heavy.  Natural gas can either be used as Compressed natural gas (CNG) or Liquid Natural Gas (LNG.)  CNG is similar to hydrogen, although it is a little more energy dense.  LNG has the same energy density as diesel, but requires considerable energy to compress into that form, and is not available from a home fueling station.  Hence, natural gas vehicles present a tradeoff between energy density and fueling infrastructure.

Conclusion

Considering just the barriers of energy density and infrastructure, it is clear why the conventional biofuels ethanol and biodiesel gained an early lead over alternatives such as electricity and hydrogen.  The big questions about biofuels arise from constraints in their total supply, and the harm that many forms of biofuel agriculture do to the environment.  Synthetic fuels made from natural gas and coal (GTL and CTL) can also have excellent energy density and can take advantage of existing infrastructure and vehicle fleets, but so far have not been adopted in a large way becasue they have had to compete with cheap oil.  As oil prices rise, we will probably also see the rise of synthetic fuels, but, like biofuels, their long term prospects will be limited by total supply and possibly by concern about the environmental harm they do. 

Such supply constraints and environmental concerns will be the subject of Part VII.  Previous articles have been:

1. Biofuels
2. Hydrogen and Vehicle Eletrification
3. Natural Gas Vehicles
4. Synthetic fuels: GTL and CTL
5. Algae
   

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

Posted by Tom Konrad at 10:14 AM | Permalink | Comments (7)