Biofuels Archives


March 25, 2015

Praj Licenses Gevo's Isobutanol Technology

Jim Lane
gevo logo

In Colorado, Gevo (GEVO) announced that Praj Industries Limited has signed a memorandum of understanding to become a Gevo licensee for producing renewable isobutanol at sugar-based ethanol plants.

Under the MOU, Praj will undertake to license up to 250 million gallons of isobutanol capacity for sugar-based ethanol plants over the next ten years. Gevo will market the isobutanol produced by Praj’s sub-licensees. Praj will also contribute process engineering and equipment services to expand isobutanol capacity at Gevo’s plant in Luverne, Minn, as well as to improve yields and optimize energy consumption at the facility.

“Praj has conducted significant diligence on Gevo’s corn starch-based isobutanol technology and we believe in the technology,” said Pramod Chaudhari, Executive Chairman of Praj. “Isobutanol has a substantial market opportunity given that isobutanol is a high performance biofuel that can solve many of the issues of 1st generation biofuels. It also enables a true biorefinery model wherein a number of specialty chemicals and bio-products can be produced using isobutanol as a feedstock. We look forward to creating a new opportunity for 1st generation sugar-based ethanol plant owners, as well as accelerating the use of 2nd generation cellulosic feedstocks to produce isobutanol.”

“We are very pleased to be working with Praj and having them become an important licensee and partner. This new strategic alliance demonstrates the flexibility of Gevo’s GIFT technology to convert a wide range of sugar sources into isobutanol. It also continues to validate the interest in licensing our intellectual property portfolio as we look to transition our business to focus more on a licensing model,” said Dr. Patrick Gruber, Gevo’s Chief Executive Officer.

In a “quick take,” Cowen & Company’s Jeffrey Osborne noted:

“In addition to licensing Gevo’s technology for its first-gen ethanol plants, Praj will also tap Gevo to market the isobutanol produced. Praj will also contribute process engineering and equipment services for Gevo’s plant in Luverne, MN, which should help expand and stabilize Gevo’s in-house capability of producing isobutanol and improve yields and energy consumption at the plant.”

This news comes as a follow up to Gevo’s recent announcement of NASA’s purchase of Gevo’s Alcohol-to-Jet (ATJ) for aviation, which is manufactured at the company’s demonstration biorefinery in Silsbee, TX.

As of the last update in January, Gevo’s Luverne facility is producing 75-100k gallons of isobutanol per month, or approximately a run rate of 1 million gallons per year. Praj’s potential assistance at Gevo’s plant can help lead to stable increasing production levels, on top of the financial and technology validation benefits Gevo gains from the licensing arrangement.”

Gevo will announces its quarterly earnings on Thursday.

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.

January 29, 2015

Gevo Raises Money After Win At Supreme Court

Jim Lane
gevo logo

Following just one day after a big win in the Supreme Court and a corporate update last week, Gevo (GEVO) announced that it intends to offer and sell, subject to market and other conditions, common stock units.

Each common stock unit will consist of one share of common stock, Series A warrants to purchase a certain number of shares of common stock and Series B warrants to purchase a certain number of shares of common stock. The units are to be sold by Gevo subject to market and other conditions in an underwritten public offering.


Gevo announced this morning (Jan 29) that it has priced the public offering. The Series A warrants will have an exercise price of $0.27 per share, and the Series B warrants will have an exercise price of $0.20 per share, be exercisable from the date of original issuance and will expire on August 3, 2015.

The gross proceeds to Gevo from this offering are expected to be approximately $6.6 million not including any future proceeds from the exercise of the warrants.

How much runway?

Not much. Although Gevo slashed costs in the past few weeks, and reduced the average monthly corporate-wide EBITDA burn rate to $1.50-1.75 million in 2015 — this offering buys Gevo roughly 4 months of extra runway for its efforts — and came at a cruel cost to current investors. The Gevo share price dropped after the pricing (morning of Jan 29) to $0.14 in early trading.

More detail on the offering

Gevo currently intends to use the net proceeds from the offering, excluding any future proceeds from the exercise of the warrants, to fund working capital, potential capital optimizations at its Luverne, MN facility and for other general corporate purposes.

In connection with the offering, Cowen and Company, LLC is acting as sole manager.

A shelf registration statement relating to the shares of common stock and warrants to be issued in the proposed offering was filed with the Securities and Exchange Commission (SEC) and is effective. This press release does not constitute an offer to sell, or the solicitation of an offer to buy, these securities, nor will there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale is not permitted.

A preliminary prospectus supplement and accompanying prospectus describing the terms of the proposed offering will be filed with the SEC.

Here’s a link to the Gevo IR site with the SCOTUS win, the corporate update and the filing.

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.

Supreme Court Sides With Gevo In Patent Dispute

Jim Lane

gevo logoIn Washington, the U.S. Supreme Court ruled in Gevo’s (NASD: GEVO) favor and overturned an earlier Federal Circuit Court of Appeals ruling on the interpretation of key patent claims.

On April 11, 2013, the Delaware District Court (District Court) entered a final judgment of non-infringement in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s asserted patents under the District Court’s construction of a key claim term in Butamax’s Patent Nos. 7,851,188 and 7,993,889.

At the time, Butamax appealed Gevo’s victory, and a US Court of Appeals in February 2014 vacated the District Court’s prior rulings, and ordered the District Court to reconsider issues related to infringement and invalidity.

In turn, Gevo asked the Supreme Court to vacate the Appeals Court’s de novo nterpretation of a disputed claim term. Today, the Supreme Court granted Gevo’s petition and vacated the decision of the Appeals Court.

According to Gevo:

“The result is that Gevo’s victory in the Delaware District Court is reinstated, and that the case has been remanded back to the Appeals Court for consideration in light of the new standard of appellate review that was decided in the Teva Pharmaceuticals USA, Inc., v. Sandoz, Inc. (Teva) case last week.”

The Teva case

In Teva, the Supreme Court ruled 7-2 that the Appeals Court must apply a more stringent “clear error” standard of review, rather than a “de novo” standard of review. In Gevo’s case, the Appeals Court must now apply the “clear error” standard of review and cannot set aside the Delaware District Court’s (District Court) findings of fact in Gevo’s favor (including interpretation of patent claims) unless they were clearly erroneous.

And you might wonder, what has this to do with the advanced bioeconomy and, in particular, the world of fuels and chemicals.

Turns out, a lot, particularly in the ongoing dispute between Gevo and DuPont over intellectual property used to convert sugars into isobutanol, a higher-density alcohol fuel that has immense promise in circumventing the “blend wall” that bedevils renewable fuels deployment. Not to mention isobutanol’s potential as a chemical blendstock.

Here’s the essence of the case. Teva holds a bunch of patens, which it sued Sandoz over, claiming infrigement. It won a judgement in District Court, but lost in the Court of Appeals when the appellate judges threw out some key elements relating to Teva’s case and the patent claim construction and conducted it’s own “de novo” review, leading it to side with Sandoz.

Now, claim construction is a matter of law and is subject to appelate review — but what about certain key elements that underlie a claim construction? Are they a matter of law and subject to higher review — or are they facts which are tried in a lower court (either by judge or jury), not subject to review?

One of the most perplexing questions has been the reasonableness of a patent claim — would someone skilled in the art understand the claim as written? Is that a fact, not subject to apelate review once found by the lower court or jury — or is that a matter of law.

Well, the Supreme Court has ruled now. Those underlying elements — they are facts. Not subject to de novo review by a Court of Appeal. Meaning that biotech companies, once they have faced their jury or judge on those facts, doesn’t have to worry that a Court of Appeal might conduct a top-to-bottom wholly new review and perhaps, without the benefit of expert witnesses, go another way.

The Supreme Court’s decision effectively reinstates Gevo’s victory at the District Court where a final judgment of non-infringement was entered in Gevo’s favor following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s Patent Nos. 7,851,188 and 7,993,889.

The Gevo-DuPont dispute

Gevo and Butamax fell into the Teva orbit last February, when the U.S. Court of Appeals, in a patent case involving Butamax’s Patent Nos. 7,851,188 (‘188 Patent) and 7,993,889 (‘889 Patent). The appeals court offered a new interpretation of a disputed claim term.

Gevo writes, “On remand, two issues remain to be determined: 1) whether the patents are valid; and 2) whether Gevo infringes them under the new claim interpretation. The claims of the two Butamax patents at issue are currently under reexamination at the United States Patent and Trademark Office (USPTO), which has declared them unpatentable. Gevo believes that it does not infringe any valid claims, and at this time maintains freedom to produce and sell isobutanol worldwide and into all markets. “

In a filing for Supreme Court review, Gevo wrote:

“Indefiniteness calls into question additional considerations of whether a claim is ‘insolubly ambiguous, Here the dispute is plainly and cleanly an issue only of the proper construction of the disputed term.”

It comes down to whether an enzyme known as KARI is dependent on a co-enzyme. If yes, then Gevo is in the clear. If not, then it could be found in violation of a Butamax patent. The District Court ruled yes, the Court of Appeals ruled no. Gevo said the Court of Appeals should not have conducted such a broad de novo review.

“In this case, the district court conducted a painstaking claim construction, carefully reviewing voluminous evidence and testimony presented by the parties, including detailed expert declarations, and held multiple days of hearings. The Federal Circuit gave no deference to those findings when it reviewed the district court’s construction de novo, and issued a new construction that changed the outcome of the case.”

More on the story

The Supreme Court’s docket for the case can be found here.

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.

January 28, 2015

Gevo: Isobutanol Lottery Ticket

by Debra Fiakas CFA

gevo logoThe last time renewable chemicals developer Gevo (GEVO:  Nasdaq) was featured in this forum in August 2014, the stock was looking quite oversold around $0.50 per share. The stock had recently taken a tumble after management sold 30 million shares of the company’s common stock at $0.60 a share at the end of July 2014.  The plan was to use the $19 million in new capital to upgrade a production plant in Minnesota to better produce renewable isobutanol along with ethanol fuel. 

Isobutanol is a popular solvent used widely in industrial applications.  It is most commonly produced from by-products of refined crude oil and users are keen to get their hands on renewable sources to reduce their carbon footprints.   At the time Gevo out raising capital the company was aiming to get to a goal of one million gallons in annual isobutanol production by the end of 2014, and then ramping to three million gallons in annual production in 2015. The plant in Minnesota had already been producing eighteen million gallons of ethanol each year.

Today GEVO appears even more oversold, having slipped to $0.29 per share. Directly after the common stock sales, the company raised another $26.1 million through the sale of a note to single creditor.  By the end of September 2014, only $14.0 million in cash remained.  If Gevo continued using cash to support operations and capital spending at the same rate it had been spending in the first nine months of the year, I estimate they used another $11.0 million in cash by the end of December 2014.

If I am correct in my back of the envelope bank account balance, things cannot be very comfortable at Gevo.  The company is still not selling either its ethanol fuel or isobutanol in bulk despite new customer relationships such as Brenntag Canada, which is buying Gevo’s renewable isobutanol for use in a range of solvents and specialty chemicals.  There are apparently no minimum purchase commitments and the company was tight lipped about order quantities except to say the orders can be filled with ‘truckloads’ of isobutanol.

Last week Gevo management issued a press release detailing its plans to improve cash flow at the company.  There will be a headcount reduction by 40%.  That will eventually save some hard cash in the coming quarters.  Gevo’s CEO is taking 25% of his pay in stock rather than cash, a move which in the end is probably more symbolic than anything.

Of course, the press release is also embroidered with the usual Gevo-style promises of new technologies to use ethanol for various end-products.  As part of the plan to save in operations, the company is planning to shift to ethanol-only production in all four of the fermenters in its Laverne, Minnesota plant.  Here is apparently where the new technologies figure into the picture.  The company claims to have already filed patent applications to cover new technologies for the use of ethanol as feed stock for hydrocarbons, renewable hydrogen and other chemical intermediates.  Gevo appears poised to capitalize on the dearth of renewable hydrogen for fuel cells and renewable polyprolylene for packaging and automotive components.

The CFO claims they can bring the monthly use of cash for operations down to $1.5 million to $1.8 million, compared to $2.8 million in 2014.  This figure of $2.8 million per month in cash usage in 2014, differs from my calculation of $3.6 million in cash usage noted in the paragraph above because I was using cash flow from operations in the first nine months of 2014 as my gauge of how much cash the company was spending each month to keep the doors open.

When Gevo was out raising new capital in the summer of 2014, management had promised to achieve breakeven by the end of the year.  That goal may not have been realized.  However in the recent company update, management lays claim to having reached its production goal for isobutanol of 75,000 gallons per month.  Now that seems to be a bit short of the one million annual product capacity as that implies 83,333 gallons per month.  Most investors will probably not quibble over the 8,000 gallon shortfall if the company could produce more sales – even sales by the truckload!

GEVO still looks more like a lottery ticket than a stock as we noted in our last article on the company.  What is worse, the balance sheet now looks stressed.  The company has let a number of people go and along with them they have probably lost some important process knowledge that at times can be even more vital for a company than its patented technologies.

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.

December 14, 2014

Biofuels' Upside From $60 Oil

Jim Lane

Boom times for two-product strategies? Can feed markets offer relief for the challenges on the fuel side?
$60 Oil

The energy industry continues to feel the impact of falling energy prices. In Wednesday’s Top Story, we noted that the industry conversation has shifted from long-term fundamentals to a form of “oil price watching” — not even the short-term fundamentals, but the kind of paralyzed ticker watching, waiting for the bottom, that comes during stock market crashes.

“Barron’s says oil is going to $35bbl,” writes a trusted Digesterati. “The same guy who predicted the 2004 and 2009 lows.”

Well, we haven’t seen the argument made for that low-point — perhaps there’s evidence in the options market — but it’s evidence that we’re seeing ticker-watching.

Besides behavioral change, we’ve seen three types of fallout in the hard data:

a. Layoffs and assets sales announced by major energy companies, including BP, Shell and Chevron.

b. ConocoPhillips just issued its 2015 capital budget of $13.5 billion, “a decrease of approximately 20 percent compared to 2014″. ConocoPhillips notes that the cuts strongly reflect ” the deferral of spending on North American unconventional plays…In 2015, the Lower 48 development program capital will continue to target the Eagle Ford and Bakken, and will defer significant investment in the emerging North American unconventional plays, including the Permian, Niobrara, Montney and Duvernay.”

CEO Ryan Lance said “We are setting our 2015 capital budget at a level that we believe is prudent given the current environment.”

c. Rising gasoline sales. Low prices have stimulated a modest but trackable rise in consumption, despite increases in vehicle fuel economy. EIA said in September that the “short-term forecast of gasoline consumption” has risen to “8.82 million barrels per day (135.2 billion gallons), 0.13 million barrels per day (2 billion gallons) higher than last November’s forecast.”

In the December short term forecast released this week, the 2014 forecast was revised to 8.88 million barrels per day, while actual November consumption rose to 9.04 MBD, up from 8.94 MBD in 2013 and 8.48 MBD in 2012. Overall, gasoline consumption grew 1.9 percent in 2013 and 0.5% in 2014.

The uncertainty in prices going forward.

In Wednesday’s Top Story, we discussed at length the fundamentals driving uncertainty in forward oil prices, but we’ll add here that the EIA, in the December Short-Term Energy Outlook released Tuesday, forecast “$68-per-barrel average Brent crude price in 2015 (and $63 for West Texas Intermediate) while recognizing high price uncertainty,” which you can contrast with:


EIA Forecast from December 2014

a) The $35 Barron’s forecast for the new low; or b) The EIA’s previous forecast of $102 for Brent and $95 for WTI just 3 short months ago, which as of this morning was still proudly displayed on the agency’s website front page.


EIA Forecast from September 2014

We continue to point attention to what we described as a “competition between storylines,” for those who wish to divine the oil price for 2015 at this time.

The opportunities in $60 oil

In looking at the fundamentals driving oil prices (amidst other factors), one of the Digesterati writes this week with a good reminder to focus in on the opportunities that comes with low-priced oil. Namely, in a world where unconventional plays become unprofitable, the opportunities for technologies that make a feed and a fuel product. A friend writes:

I’ve attached an index graphs [comparing the crude oil, soymeal and fish meal price] which makes crude look better than it would be if the data were through November/December 2014 (the data from stopped at October 2014 at $83/bbl crude oil).


What this helps me see is that, as the price of crude oil / energy further uncouples from the price of fishmeal and soymeal, the opportunity for those companies whose primary products are feed/food/protein is great and getting even better with every dollar reduction in the price for crude oil.

Soymeal seems to trade in more sympathy with crude oil, even now, but fishmeal hasn’t for some time, as the data indicate to me.

So this obviously plays into the strategies that focus on making Omega-3s and, later, protein/feed the primary product, but with strains that make meaningful volumes of crude oil that can be refined into biofuels.

This strategy, in particular, plays into the algae market — where proteins are aiming to compete with fishmeal. In the case of algae, the opportunity to use algae oil for the biofuels market gives the volume by which an algae operation can reach meaningful economies of scale — omega-3s and other products just can’t make the enterprise big enough to capture the potential rewards seen in the fishmeal market.

Over in the ethanol markets

The same logic applies. Although fuel ethanol prices have dropped fast, in keeping with the overall drop in petroleum prices, we are seeing RIN prices on the rise — as rising gasoline consumption obviously doesn’t square with the kind of production slow-down that low ethanol prices generally result in. At the same time, ethanol producers (and biodiesel producers) have a secondary product (dried distillers grains and glycerine, respectively) to take some of the sting out of low energy prices.

The hard data?

Here’s a chart of commodity prices, contrasting September 10, 2014 with December 10, 2014: BD-TS-121214-9 As you can see, a massive drop in gasoline futures, nearly 35 percent. But we don’t see the same fall in ethanol future, which are off, but by a comparatively minor 6 percent. Interestingly, ethanol spot prices are up nearly 7 percent in the same period. Though, in bad news for ethanol producers, corn prices have spiked 14 percent since the fall — though still below $4.

At the same time, some other ethanol fundamentals have modestly improved over the past few months. For one, natural gas prices have dropped 5 percent, making it less expensive to run ethanol plants and in particular to dry out distillers grains. Meanwhile, corn oil and distillers grains spot prices have risen, by 10 and 7 percent, respectively.

A two-product strategy looks pretty good — in fact, overall prices for ethanol producers would be up something around 7 percent in this period — compared to a catastrophic fall in gasoline futures. Challenges in fuel prices can be partly mitigated by prices for co-products.

Note on methodology — state data is averaged but not weighted for DDGs— so, for example, Iowa’s prices are given the same importance that Michigan’s are, which could lift DDG prices a percent or two above a true weighted average. Ethanol, corn oil, corn prices, ethanol futures, natgas futures and RBOB gasoline futures are not affected in this way.

The Bottom Line

Our friend writes:

“It would obviously be good to see crude oil prices higher, but, to the extent that fishmeal & soymeal and other protein sources continue their march upward asymmetrically to crude oil, it’s not necessarily a bad thing for the price of crude oil to stay persistently under $100/bbl. One could still get to energy scale and be competitive with the going price of crude oil (no premium to the market price), and make profits, all without a subsidy.”

A two-product strategy is no guarantee of good times during period of rapidly falling energy prices. But it is a hedge, and a solid one based on the data we’re seeing. And unexpected good news, perhaps, for those watching the falling ticker and the tumble in oil prices.

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.

December 10, 2014

What $60 Oil Means For Biofuels

Jim Lane

$60 Oil As if tough financing conditions and policy instability weren’t worrying enough for many observers, along comes a crash in global oil prices. One of the US-based Digesterati writes:

“Most of the biofuels projects that I have worked on in the last 5 years have based their proformas on an $80/barrel oil price. With the recent dip and worldwide “power play,” I feel that investors as well as Boards of Directors will be really re-evaluating their business models, with most going overseas to markets that do not have the abundant reserves that we do.

“If we can make biofuels at a competitive price at $60-$70/barrel, they will be the big winners but I don’t see that happening. I feel that chemicals will be the big winners right now. I am working on a couple of feasibility studies around biofuels and it is hard for me to come up with an independent conclusion that will be credible, too much US political risk, economic risk, and international political risk.”

Another of the Digesterati forwarded this summary of an MIT Review article:

“According to Wallace Tyner, an agriculture and energy economist at Purdue University, all cellulosic ethanol plants were planned for oil above $100 a barrel, and since now it’s at US$70, they are no longer profitable and new plants simply won’t get built. Updated requirements are expected from the EPA early next year. If the mandates are repealed, says Tyner, “then cellulosic biofuels and biodiesel would cease to exist.”

Many are asking — why are oil prices so low? Is this the new normal — an extended period of months, or years, at these levels? Will they return to $100 or so any time soon, when, and what will be the trigger?

Let’s look at the data, and look behind the data, also towards the world of market sentiment and behavior.

Why are oil prices so low?

According to those who believe in orderly, rational markets based on broad and deep consideration of available public information, generally we are seeing commentary around three converging factors:

a. Currency and monetary policy. Succinctly put, the dollar is appreciating fast against world currencies, oil prices are dollarized, meaning that energy prices are rising quickly in local currencies, which softens demand. While, at the same time, producers of energy have costs in (devaluing) local currencies, but see revenues in (revaluing) dollars — meaning that they are not always economically incentivized to cut production as fast as you think, as margins can be altered by currency moves.

b. Global growth. China’s growth is slowing, the EU is in rough shape, and the US is somewhere between sluggish and fine — put together, the three trigger promoting a downward revision in a number of commodity prices.

c. Supply/demand. While demand drops with a slackening in growth, we’re seeing no cutback in OPEC production, and US production from shale oil has been continuing to accelerate, creating an oil glut.

The “rational market” turnaround timeline? Nothing soon, if you watch futures prices as an indicator of when tightness might return to the oil markets and boost prices.

Today, the WTI Jan 2015 contract is trading at $65.17 and the Jan 2017 contract is trading at $70.88 — that’s roughly the impact of inflation. The Jan 2015 Brent contract is trading at $69.07 and the Jan 2017 contract trades at $78.79 — not much more than inflation.

What’s the impact for biofuels? 5 Factors to Consider for the Long and Short Term

A. The sweet spot problem. Generally speaking, biofuels work best in a sweet spot that’s somewhere around $80-$95 right now. Much lower — as our Digesterati friends expressed, the projects don’t pencil out, can’t compete against oil prices, and it is just tough to get bankers excited . Much higher? Capital heads for unconventional oil plays. But in the $85-$90 range there aren’t quite so many great US shale options, and many biofuels projects can compete on price. That’s the sweet spot argument. Right now, biofuels have been falling off the lower end — but, according to this line of thinking, the market doesn’t have to return to the days of $120 Brent for the biofuels outlook to improve.

B. The long-term outlook. The long-range energy outlooks have been less excited about the capability of existing oil technology to meet growing global energy demand, without a robust alternative fuels component. The IEA, for example, sees around 11 million barrels per day in total oil production growth — not enough to prevent sharp price increases given the likely global growth over the next 20 years.

Last year, the IEA opined:

The capacity of technologies to unlock new types of resources, such as light tight oil (LTO) and ultra-deepwater fields, and to improve recovery rates in existing fields is pushing up estimates of the amount of oil that remains to be produced. But this does not mean that the world is on the cusp of a new era of oil abundance. An oil price that rises steadily to $128 per barrel (in year-2012 dollars) in 2035 supports the development of these new resources, though no country replicates the level of success with LTO that is making the United States the largest global oil producer…by the mid-2020s, non-OPEC production starts to fall back and countries in the Middle East provide most of the increase in global supply. Overall, national oil companies and their host governments control some 80% of the world’s proven-plus-probable oil reserves.


C. The feedstock problem. Will biofuels feedstocks track the oil market and keep biofuels competitive? Within a limited range of price shift, oil prices and (for example) corn prices are reasonably well correlated — but when you have a $30 drop in oil in a short period, there’s a disconnect, and right now biofuels feedstocks such as corn have fundamental food-supply price support that is keeping corn prices near $4.00 and soybean oil prices near $0.32 per pound. So, there’s a fundamental gap between biofuels prices and petroleum prices that is tough to close. And, feedstocks such as MSW which are available at negative cost based on social concerns (e.g. “no more landfills!”), don’t generally track with short-term oil prices.

D. The long-term project challenge. As Abengoa CEO Manuel Sánchez Ortega opined in Kansas in September, Abengoa isn’t looking at short-term prices and demand factors to make decisions about 30-year projects. They are looking at long-term prices and demand.

E. The increasingly short-term nature of RFS targets in the US, and EU 2020 targets. The RFS offered a conceptual 15-year time window for project developers back in 2007 as to market size and growth. Leaving aside the short-term problem that it is December and the EPA has not issued its volume obligations for 2014 yet, we only have a 7 year timeline going forward for advanced biofuels projects. That begins now to seriously impact the ability of companies to see long-term price and demand signals. Shell has been emphatic on the need for longer-range biofuels mandates.

The Conventional Wisdom

So, where are we, in terms of understanding a “rational market” for biofuels? We can see two Storylines — the short-term and the long-term. And, one more that lies beyond “rational markets’ that we’ll get to in a minute.

The short-term Storyline was well summed up by our Digesterati friend: the projects don’t pencil out, can’t compete against oil prices, and it is just tough to get bankers excited, and not much will turn around here until at least 2017.

The long-term Storyline is well summed up by Abengoa and Shell. The long-range outlooks show tremendous opportunities across the fuels spectrum — demand and price outlooks are strong, particularly in diesel and jet fuel. Unconventional oil growth rates are uncertainties, and RFS2 targets too — but overall, the projects will likely be financeable so long as feedstock prices stay in line.

So, what’s the third option? The third option is that what we are seeing is a competition between multiple Storylines — not only short-term and long-term outlook, but food vs fuel, indirect land use change, will carbon outcomes be incorporated into energy prices, and the proper risk tolerance for government in commercializing alternative energy, to name a few.

According to that way of thinking, what is far more important to discover is not what the market fundamentals are all about, but how that battle between Storylines will shake out, and when.

For example, you could not have bought a $65 contract for Jan 2015 West Texas Intermediate two years ago — conventional wisdom was wrong about late-2014 energy prices, but decisions about projects today are being made on the basis of conventional wisdom about energy prices in 2017-18, and beyond, not the reality. So, we are not looking necessarily at hard markets in commodities; when it comes to project decisions, we are actually looking more at markets in “Conventional Wisdom”.

And Conventional Wisdom has the considerable power to move prices and markets, but it also has the power to be completely wrong, too.

For example, the market did not price in the Global Financial Crisis of 08/09 into energy futures, until the crisis was apparent. Neither did the markets forecast 9/11. Markets do not have to be right about the future to hold power over it.

Game Theory and Biofuels

“In mathematics you don’t understand things. You just get used to them.” ― John von Neumann

Let’s look at the nature and dynamics of Conventional Wisdom via a quick game.

Let’s say that, next year, here at The Digest we offer a prize to all the readers who correctly select the #1 Hottest Company in Biofuels, as voted in our annual rankings. Note, this is not the price for selecting “the best “company, but “the #1 ranked” company

There’s a couple of ways to play the game. First, you could simply make selections based on your perception of merit. A more sophisticated way to maximize your chance of winning a prize would, instead, be to focus your attention of figuring out what most people believe constitutes merit, and base your selection on what most others would believe.

But, then, consider that other voters might be thinking the same thing you are — that they are all, at the same time, trying to figure out how to win a prize based on (simultaneously) guessing at everyone’s perceptions.

You may have recognized game theory, here, and in particular Keynes’s “Beauty Contest”. As Keynes wrote in 1936:

“It is not a case of choosing those [faces] that, to the best of one’s judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be.”

In his online journal Epsilon Theory, Ben Hunt has applied game theory in general to market behavior and recently to oil prices — and here is a recent example of his line of thinking to consider. It’s the best read we’ve had in a month of Sundays. Really fine work, on a number of levels. Where does game theory take us in considering oil prices? Hunt writes:

“When you’re not sure of yourself and you’re trying to figure out what consensus view to adopt, as likely as not everyone else is trying to do the same thing. In these situations it’s Common Knowledge – public signals that we all believe that we all heard, aka Narratives – that largely determines each of our individual behavioral decisions.

“My personal, entirely subjective view is that oil prices over the past 3+ months have been driven by 3 parts monetary policy to 1 part fundamentals…For at least this week and next my personal, entirely subjective view of the ratio of explanatory factors is going to flip to 3 parts fundamentals to 1 part monetary policy.

“That doesn’t mean that I don’t have strong ideas about how the world works, about how both monetary policy and fundamentals impact the price of oil. What it means is that it doesn’t matter what I think about the way the world works. The only thing that matters is what the market thinks about the way the world works, and in times like these the market will think whatever Common Knowledge says it should think. “

Applying this back to advanced biofuels, and recent oil prices.

Right now, the dominant Storyline is oil prices — not the fundamentals driving oil prices, but oil prices themselves. The Common Knowledge is that oil prices are low, and that no one exactly knows how low they will go, and so long as that Storyline dominates, it is going to be tough sledding for financing advanced biofuels.

But, take for example the $60M investment by the NZ Superannuation Fund into LanzaTech that was announced on Monday morning.

Clearly, not an investment decision driven by short-term oil prices. The decision was, as likely as not, driven by the very factors that NZ Super gave in their public statements:

a. Expansion capital, while a small part of their investment pie, is a good accelerator of returns for their superannuation fund, and they are committed to it.

b. LanzaTech, being within 24 months of a first commercial, with a global set of committed partners and investors and a good track run in the lab and at the demo plant level , is an appropriate candidate for expansion capital. While keeping in mind that not every Starbucks or Sears ever built with expansion capital was still around 10 years later.

c. The long-term outlook in energy is strong — the fundamentals are driven by industrialization in the developing world, and global growth everywhere.

d. Sufficient evidence for a market for alternative fuels — a combination of national agendas on security, social agendas on carbon, and the line-up of supply and demand on oil has led experts to conclude that there a long term opportunity for projects that can demonstrate they are competitive with $80-$90 oil in today’s prices.

The Battle of Storyline

At this point, you may find your mind rebelling against the idea that markets are driven by competitions between Storylines. Surely, you say, markets are driven by fundamentals. And you might prove your point by sending to me an elegant explanation of why oil prices have dropped $30+ in recent months, based on currency movements. Or, based on supply and demand fundamentals.

As Ben Hunt explained in his Storyline on oil prices, you’d both be right. There is a Storyline for each, all the way down to $65 oil. In fact, if you added up all the impacts from all the available (and cogently argued) Storylines to explain the drop in oil prices — you’d get easily all the way down to $0 oil.

Free energy! Energy is free! Free Gas! Spread the word!

Whoops. Oil isn’t free, and gasoline isn’t either.

Despite the Reduction in Ukrainian Tension Storyline, the Saudis Killing Off Shale Oil Storyline, the Good Nuclear News from Iran Storyline, the Finally Doing Something About ISIS Storyline, the China Hard Landing Storyline, the EU not Getting Better Anytime Soon Storyline, the Drill Baby Drill Storyline, and the Fracking is Energy Liberation for Everyone Forever Storyline. Not to mention the Ethanol Made it Happen by Capping US Demand Storyline.

Not that there’s anything wrong with any of those Storylines, or the sound economic analysis that often goes with them. They just add up to more than $35.

Which tells you that the oil price isn’t being driven by a Monster Storyline, or the Sum of All Storylines — but by the Market in Storylines, where one story dominates the trading sentiment as traders try desperately to understand what the market is thinking.

It is not the Storylines that are changing, but the mix has suddenly shifted from being dominated by the long-term to the short term Storyline.

And we see it here in Digest email.

We are definitely not being inundated with email from traders along the lines of “my thinking has changed to a short-term Storyline.” But we are seeing, as we have shared at the beginning of this column, that we are getting a bunch of communications along the lines of “we think that other people are thinking that other people think that the Storyline has changed to the short-term.”

Generally they replace “what other people are thinking that other people think” with “the market is obsessed with” or a link to a review article about what “the market is saying”— and they replace “the Storyline has changed to the short-term” with “the challenges of biofuels in a world of $70 oil”.

So, we get emails roughly saying “the market is obsessed with the challenges of biofuels in a world of $70 oil”.

Who do these shifts occur, and so suddenly?

First ingredient: The mathematics of group realignment. Well, consider how birds communicate — in mobbing attacks out of “The Birds” or in flying south for the winter — a change in circumstances that can be perceived as a threat, generates an openness to changes in thinking. Two or three birds start flying around, then five or six, then a couple of hundred. Finally a giant flock heads south. What you are seeing is the phenomenon of group thinking and realignment.

Second ingredient: the failure of “business as usual” to explain a new market fact. Example: 1993 Al-Queda bombing of the World Trade Center – explained quickly within the Big Story of Terrorism as understood at the time. Bad people do bad things. Buildings get bombed. But The World Trade Center Does Not Fall Down. That’s Business as Usual.

Then, there’s 9/11. And the dialogue changes, forever.

The Big Story Around Monetary Policy.

Consider this: Easy Money leads to Bad Mortgages Leads to Systemic Collapse of Too Big To Fail Banks, Which Tanks Global Demand, and Commodity Prices Collapse. That’s one way to explain the Storyline of 2008/09 – if not the actual events, and it’s one of the reasons that we didn’t fret over the collapse of oil prices in 2008/09 with respect to biofuels, nearly as much as now. The GFC was seen as the outcome of bad monetary policy – Easy Money.

Believe me, the drop in 2008/09 commodity prices was far more dire than today’s, and tanked a lot of biofuels companies right into bankruptcy. But not so many people fretted about “the end of cellulosic biofuels” then, as now.

Why the Change?

So, let’s turn to the problem of the Storyline of Global Monetary Policy.

Right now, no one can figure out the Fed. The US dollar is rising, despite US long-term focus on a weak dollar, and the interest of the rest of the world in maintain stable energy prices. And maybe you can explain to me the Big Storyline that explains the Downshift in Central Bank Liquidity Operations in the US, vs the Uptick in Central Bank Liquidity Operations in the EU and China.

And, when there’s an uncertainty in the Fed Storyline just as material changes in markets happen, that’s when traders start to think that maybe everyone else’s thinking has shifted. So, are we seeing commodity markets move because there isn’t a dominant way to understand Global Monetary policy at the moment – that the Fed has been struggling to maintain a storyline?

We think so.

Ultimately, the Fed will make its move, and we’ll see the dollar head down, and with that, we’d expect to see pressure on oil prices to rise. And you may find at that point that energy markets get re-focused on the long-term Storyline. Those long-term fundamentals are still out there.

When? Could be a while. A tool for predicting shifts in market sentiment, timing and intensity, doesn’t yet exist. That Might well be the 12th Nobel from a game theorist, when we get that. Between now and then, there’s an arbitrage between the values seen in the marketplace today, and those we will see when the market re-focuses on the long-term energy scenarios. An arb that groups investing for the long-term might well be capturing now.

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.

November 28, 2014

Highlands EnviroFuels Wants Gevo's Isobutanol Tech For Florida Plant

Jim Lane

gevo logo Plant to convert sugar cane and sweet sorghum to 20-25 million gallons per year of Isobutanol

From Colorado, Gevo (GEVO) announced that Highlands EnviroFuels has signed a letter of intent to become a Gevo licensee to produce renewable isobutanol.

Highlands will build a commercial-scale “Brazilian-style” syrup mill in Highlands County, Florida, which would have a production capacity of approximately 200,000 metric tons of fermentable sugar per year. The facility will process locally grown sugar cane and sweet sorghum to a high quality syrup as a clean sugar stream for fermentation and recovery of isobutanol. The isobutanol plant would be bolted on to the back-end of the syrup mill and have a nameplate capacity of approximately 20-25 million gallons per year.

The US cane background

You might ask yourself, since the US has some extensive cane-growing areas in Hawaii, Florida, and Louisiana — and since sugarcane ethanol has been so successful in Brazil, what gives with US sugarcane ethanol? The answer lies in protected pricing — sugar has been historically protected in the US, and the price thereby has been substantially higher than, say, Brazil or Mexico, but strict quotas on imports have ensured a market but one that generally is only affordable for food sugars, not fuels.

A number of ventures over the years have come close to announcing a project based around sugarcane bagasse, energy cane, or other like assets in Florida. Coskata had an announced project that never quite got over the line. BP Biofuels had its first commercial project targeted for the Okeechobee region in south-central Florida, though focused on energy crops.

The Highlands background

Highlands has been in development for quite some time. Back in 2010, we reported that Highlands EnviroFuels said that it proceeding with plans to construct a 30 Mgy ethanol plant in Highlands County using sweet sorghum and sugar cane as a feedstock. The project will also produce 25 MW of green power, and the company said that it has signed LOIs with growers representing 48,000 acres of production to provide feedstock for the plant.

By fall 2011, we reported that Highlands EnviroFuels received its PSD Air Construction Permit from the Florida Department of Environmental Protection, authorizing the construction of a 36 million gallon per year Advanced Biofuel ethanol production plant in Highlands County, Florida. By then, the project had also expanded its power gen, moving to 30 megawatts of renewable power from residual cane and sorghum stalk fiber and leaves, known as “bagasse”. At the time, groundbreaking was targeted for Q2 2012.

There’s a lot of economic opportunity in the project. A study in 2011 concluded that plant would provide $51 million of GDP for the Highlands County economy and nearly $44 million in household income annually. In addition, the economic activity generated by the plant will support up to 60 full-time, high paying permanent jobs, and nearly 700 indirect and induced jobs in all sectors of the county. The study also estimated that the one-time construction impact will account for $47 million of GDP for Highlands County, generate more than $39 million in household income. Overall, the project received $7 million in support from the Florida Farm to Fuel fund as well as a $305,000 grant from the Florida Energy and Climate Commission.

The switch to isobutanol

Why make a $2 fuel when you can make a $4 fuel or chemical? That’s the question that, presumably, Highlands answered for itself in opting for Gevo’s isobutanol model — although we may well find that the proposed Highlands plant may utilize the Gevo side-by-side production approach to give itself the flexibility to produce both ethanol and isobutanol.

Reaction from the principals

“We believe the probability of success increases significantly by transitioning the project from ethanol to isobutanol,” Brad Krohn, President of Highlands, told The Digest. “given the tremendous market optionality for isobutanol (marine fuel, paraxylene for bio-PET, renewable jet fuel production, or chemicals). Not to mention isobutanol for gasoline blending does not suffer from the current blend wall as does ethanol. Nothing is yet binding with Gevo, but we are excited to be moving in this direction. We are eager to finalize the details of a binding agreement so that we can start constructing the facility.”

Pat Gruber, Gevo’s Chief Executive Officer, said, “We are very pleased to be working with Highlands and having them join Gevo as a licensee. This new partnership shows the flexibility of Gevo’s GIFT technology to convert a wide range of sugar sources into isobutanol. It also continues to validate the interest in licensing our intellectual property portfolio as we look to transition our business to focus more on a licensing model.”

The Bottom Line

LOIs are not hard contracts — and we’ll see how far this goes, it’s been a tough row to hoe for Highlands EnviroFuels in translating project ambitions into steel in the ground — and Florida repealing its own in-state E10 RFS last year didn’t help much.

Nevertheless, as the principals indicate, isobutanol gives the project some upside on the revenue side, and it’s been tempting and popular country for a number of project developers over the years. The combination of sweet sorghum and isobutanol might be just the sweeteners the project needs.

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.

November 17, 2014

Gevo Finds A Way

Jim Lane

gevo logoLike Rocky Balboa, no matter how many punches they take, Gevo [NASD: GEVO] just won’t fall over. In fact, the company’s prospects have brightened considerably in recent months — is the company “gonna fly now”? How and why is success on the horizon?

For most of its history, Gevo has looked like a long-shot — a company aiming at making high-value, bio-based butanol, mostly from corn sugars, via retrofitting its exotic bug into ethanol fermenters.

The opportunity is pretty simple to understand. Isobutanol sells for around 60 cents a pound, sugars check in at 16 cents a pound. If you can make the yields work, the upside is pretty good.

Of course, you have to get the butanol out of the broth before it reaches a point of concentration where it kills the magic bug — if you’ve splashed some rubbing alcohol on a wound to kill unwanted microbes, you’ll understand right away why an alcohol like butanol is deadly to Gevo’s modified yeast biocatalyst. So that’s part of Gevo’s portfolio of magic, a GIFT system for separating butanol out of the broth, that was so deft it felt like it was right out of Hogwarts:

Bacterium de-brothemus divisium!

Voila, a batch of butanol and all those magic bugs, separated out. Step right this way to clang the NASDAQ bell after your monster IPO, please.

It sort of worked out that way. The company raised a whole bunch of capital, recruited a team of notables and worthies, bought an ethanol plant that was too small to make money any more for a technology demonstration at scale, and navigated an IPO.

Then the butanol hit the fan.

Two problems beset Gevo even before the ink was dry on its IPO registration: a debilitating battle over intellectual property with DuPont, and an infection in the ethanol plant that was about as welcome to Gevo’s microbe as the ebola virus.

So beganneth Gevo’s long descent into a seemingly perpetual winter. The cash burn began to require ever-more dilutive capital raises.

“You have to hand it to [CEO] Pat Gruber for finding a way to keep going,” wrote a longtime reader in essaying Gevo in a private note last month.

For some time, it has looked grim, as the costs of litigation have stacked up, and not every battle has gone 100% Gevo’s way in the courts (though no knockout punches have been recorded by either party). Meanwhile, that little ethanol plant that didn’t make any money became an isobutanol plant that didn’t make any money. So, plans emerged to have it retro-retrofitted to make either ethanol or butanol, depending on which one offered a better return.

Which sounded to critics like a whole lot of optionality on the road to not making any money.

But then.

Against all odds

In its Q3 earnings announce, Gevo reported a net loss of just $200,000 on $10.1 million in revenue — compared to a loss of $15.9 million on revenues of $1.1 million for Q3 2013.

What? Where’s the funeral, the undertaker, the mournful relatives and investors dropping their share certificates onto Gevo’s coffin like flowers on a casket?

Gevo commented: “The increase in revenue during 2014 is primarily a result of the production and sale of approximately $9.2 million of ethanol and distiller’s grains following the transition of the Luverne plant to the SBS. During Q3, hydrocarbon revenues were $0.8 million, primarily related to the shipment of bio-jet fuel to the U.S. military during the quarter. Gevo also continued to generate revenue during the third quarter of 2014 associated with ongoing research agreements.”

It’s not all good — the company did not generate positive cash flow, and warned that it expects, ahem, “an increase in expense associated with its ongoing litigation with Butamax Advanced Biofuels,” — another way of saying that the lawyers are rolling through the dollars about as fast as they did in Jarndyce v Jarndyce, the case that ruined nearly every life it touched in Charles Dickens’ masterful Bleak House.

But there were a number of operational highlights: In Q3, Gevo decreased the plant-level EBITDA loss for the quarter by almost 70% as compared to Q1 2014, and has managed to double the isobutanol batch sizes and cut the batch turnaround times in half — and has been seeing prices of $3.50-4.50 per gallon from isobtuanol sales, as well as some revenues beginning from selling iDGs, its branded animal feed product from the isobutanol side of the Luverne plant.

Gevo’s Take

“Even before purification, isobutanol purity levels have been at 95%, excluding water, which has exceeded our targets. At the same time, isobutanol production costs continue to improve, and importantly, based on Luverne data, we can see that our long-term isobutanol production cost targets remain achievable with incremental process improvements. The team at Luverne has done a very good job implementing the SBS, moving down the isobutanol learning curve while successfully operating the ethanol side of the plant,” said the ever-optimistic CEO Pat Gruber.

But he had some friends in the land of Wall Street, which of course has been known to invest in some Hogwartzian enterprises from time to time, but when it comes to singing choruses of “Stand by Me”, rarely sticks with anything except the real thing for more than a few quarters.

Encouragement from the Street

Piper Jaffray’s Mike Ritzenthaler now has the stock (trading at sub-50 cents) price targeted at two bucks. He writes:

We maintain our Overweight rating and $2 target on shares of GEVO following a 3Q print which highlighted continued, steady technology improvements – suggesting that the company is on track to exit FY14 with the Luverne facility at cash break even, and poised to transition more ethanol fermenters to isobutanol in FY15.

“Higher than expected purity levels, reduced batch turnaround times, and a steadily increasing rate of isobutanol production should enable a run-rate of ~100k gallons of isobutanol per month. Turning to FY15, we see the potential for further cost cutting measures to further slow the cash burn, although we also note the probability of additional capital infusions as the company moves toward corporate-level EBITDA break-even.”

Ritz adds: “The most important takeaway on the technology front, in our view, is the high purity level of isobutanol production which should help drive production/tolling costs down. Combined with other improvements (such as lower cycle times and higher productivity) management was able to make and ship commercial quantities of isobutanol out of one fermenter at Luverne and is on track to hit a year-end run-rate of 50-100k gallons per month. Management reiterated on the call that ASPs for isobutanol are in the $3.50-$4.50 per gallon range, and while long-term economic targets are still in the distance, we think the company is sufficiently seeding markets needed to reach an inflection point in the business model in the 3-4 coming quarters.”

The Street is expecting one more dilutive cash raise between now and break-even — but the company is targeted for $66 million in sales, even in these days of falling commodity prices as China’s big economic engine grinds in low gear.

The Fast 500

Looking back, the growth is impressive. Just this week, Gevo was named on Deloitte’s Technology Fast 500, a ranking of the 500 fastest growing technology, media, telecommunications, life sciences and clean technology companies in North America. Gevo grew 1,146% during this period and was ranked 103rd overall but, notably, in the industry where it competes, Gevo ranked third out of all clean technology companies.

Bottom line, break-even at Luverne — and some welcome dollars from the ramp-up in production — appears to be on the horizon in 2015. It looks like Gevo has found a way.

Jim Lane 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.

November 03, 2014

Earnings Season For The BioEconomy: Novozymes, Green Plains & Pacific Ethanol

Jim Lane 

In the first half of November we will be hearing from a slew of companies regarding Q3 earnings — but earnings season is well underway already, and we have good indicators from the likes of Novozymes, Clariant, BP, Pacific Ethanol and Green Plains about the overall environment for energy, speciality chemicals, industrial biotechnology — and specifically, biofuels.

Let’s take a look.

Novozymes-logoIndustrial biotechnology — robust growth at Novozymes.

Also this week, Novozymes (NVZMY) announced 9% organic sales growth for Q3 and 8 percent growth for the nine months of 2014 to date. The company is saying that growth is “broadly based” but highlighted that sales in Household Care and in the bioenergy business have been growing in line with expectations.

Outlook: In comments on the earnings call as reported by Seeking Alpha, CFO Andy Fordyce said that China “provides some headwinds” with “more competition” but described bioenergy as the “brightest star this year” with “23% organic sales growth” this year to date. Fordyne noted that the “U.S. ethanol market product is up around 10% this year so far” and alluded to “new innovation” in the “bioenergy pipeline” within the next six months.

SVP Thomas Videbæk highlighted the opening of celluloisc next-gen plants by Abengoa, GranmBio and POET-DSM as expected, but still great to see” and noted that upgrades at the Beta Renewables’ Crescentino “have started to contribute to higher production volumes” and that “Capacity utilization is increasing” while hailing Italy’s 1% advanced biofuels mandate. But Videbæk said that Crescentino is not yet running at full capacity though Novozymes remains “confident we’ll get there.”

He added that it has been “a significant ramp of time for Crescentino” and stated that “we certainly hope that the other ones will be able to do it faster.”

In looking at the company’s planned target of 15 biomass conversion plants by 2015, Videbæk described the target as “a very challenging and ambitious target” but did not back down from the target, saying that “There’s no indication that this is no longer possible,” while conceding that “It’s not going to be a walk in the park.”

On the 15 by 17 target, CEO Peder Holk Nielsen added that “it’s going to depend a lot on how many new investments goes into these plants in 2015.” On E15, CFO Benny Loft commented that on E15, “we certainly must commit or say that it’s really difficult to see where the E15 – when it will come.”

On the impact of US elections, CEO Nielsen commented that “there’s some risk around the U.S. midterm election and that will create a different mood around bioenergy in the U.S.” He also said that the company is watching for “a potential slowdown in Europe and the emerging markets.”

green-plainsEthanol — big earnings growth at Green Plains

In Nebraska, Green Plains (GPRE) announced its financial results for the third quarter of 2014. Net income for the quarter was $41.7 million, or $1.03 per diluted share, compared to net income of $9.4 million, or $0.28 per diluted share, for the same period in 2013. Revenues were $833.9 million for the third quarter of 2014 compared to $758.0 million for the same period in 2013.

During the third quarter, Green Plains had record production of 246.9 million gallons of ethanol, or approximately 96% of its daily average production capacity. Non-ethanol operating income from the corn oil production, agribusiness, and marketing and distribution segments was $22.2 million in the third quarter of 2014 compared to $14.2 million for the same period in 2013. Non-ethanol operating income for the nine-month period ended September 30, 2014 was $79.9 million compared to $52.7 million for the same period in 2013.

Revenues were $2.4 billion for the nine-month period ended September 30, 2014 compared to $2.3 billion for the same period in 2013. Net income for the nine-month period ended September 30, 2014 was $117.3 million, or $2.90 per diluted share, compared to net income of $17.9 million, or $0.56 per diluted share, for the same period in 2013.

For the nine-month period ending September 30, 2014, EBITDA was $260.0 million compared to $92.7 million for the same period in 2013.
The earnings took Wall Street by surprise, with Zacks Investment Research reporting a consensus Street estimate of 89 cents — so a 12% beat. However, Zacks reported a consensus Street expectation of $987.2M, with the company dragging in $833.9M — so a 15% miss there. Obviously a huge swing in margin — 5% margin delivered compared to Street expectations of 3.7%.

CEO Todd Becker commented, “U.S. ethanol production margins continue to reflect strong demand, both domestically and globally. As a result of this environment, we are reaffirming our mid-year guidance of stronger earnings per share performance in the second half of 2014,” added Becker.

Green Plains had $414.3 million in total cash and equivalents and $167.7 million available under committed loan agreements at subsidiaries (subject to borrowing base restrictions and other specified lending conditions) at September 30, 2014.

peixConfirming the ethanol trend – Pacific Ethanol reports record gallons, big growth in revenues, earnings.

In California, Pacific Ethanol (PEIX) reported net sales of $275.6M, an increase of 18%, compared to $233.9M for Q3 2013. The company’s increase in net sales is attributable to its record total gallons sold resulting from increases in both production and third party gallons.

Gross profit was $18.0M, compared to $3.5M for Q3 2013. The improvement in gross profit was driven by significantly improved production margins and corn oil production. Operating income was $13.6M, compared to $1.0M for Q3 2013. Net income available to common stockholders was $3.7M, or $0.15 per diluted share, compared to a net loss of $0.40 loss per share for Q3 2013.

CEO Neil Kohler noted: “We delivered solid financial results for the third quarter of 2014, supported by efficient operations and continued strong ethanol market fundamentals.” CFO Bryon McGregor, added: “Since December 31, 2013, we increased our cash balances by over $51.1 million. As a result, our working capital increased to approximately $93.3 million from $51.2 million at the end 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.

October 13, 2014

Earth to Cellulosic Ethanol: Glad You’re Here, What Took So Long?

Jim Lane 

Part I of II

Cellulosic ethanol arrives at scale — “The five years away forever” put to rest — but are there troubling waters still ahead? For whom, and why?

There’s a gigantic disconnect between two sections in the country as to whether the United States should be celebrating the success or the failure of cellulosic biofuels — biofuels made from crop residues, energy crops, and other feedstocks including municipal solid waste, and which feature a 60 percent or greater full-lifecycle reduction of greenhouse gas emissions compared to conventional gasoline.

The supporters

On the one hand are the supporters — including project developers, growers, the US Department of Energy, Department of Agriculture, several foreign governments (particularly in the EU) and supporters of renewable fuels.

They point to the growing number of commercial-scale biorefineries, and the reaching of cost-competitiveness with $100 oil, as signature achievements of the renewable fuels movement.

Many of the supporters will be gathered in Hugoton, Kansas next week for the official opening of Abengoa (ABGB) Bioenergy’s commercial-scale cellulosic biorefinery, which at 25 millions gallons of capacity will (for a period of a few months) be the world’s largest of its type.

Typical of supporter enthusiasm is this report from the Department of Energy:

In September 2012, conversion technologies were demonstrated at the National Renewable Energy Laboratory…where scientists led pilot-scale projects for two cellulosic ethanol production processes: biochemical conversion and thermochemical conversion. Both…demonstrated process yield and operating cost…At the biochemical pilot plant, cellulosic ethanol was produced at a modeled commercial-scale cost of $2.15 per gallon—a process that was approximately $9 per gallon just a decade ago. For the thermochemical pilot plant, cellulosic ethanol was produced at a modeled commercial-scale cost of $2.05 per gallon.

Beta Renewables

The detractors

On the other hand are ranged a number of detractors — oil companies, some environmentalists, skeptics of government R&D for renewables, and mandate-hating conservatives.

Typical of their critique is a report from Jonathan Fahey of the Associated Press that ran last November:

“As refineries churn out this so-called cellulosic fuel, it has become clear, even to the industry’s allies, that the benefits remain, as ever, years away…The failure so far of cellulosic fuel is central to the debate over corn-based ethanol…Ethanol from corn has proven far more damaging to the environment than the government predicted, and cellulosic fuel hasn’t emerged as a replacement…Cellulosic makers are expected to turn out at most 6 million gallons of fuel this year, the government says. That’s enough fuel to meet U.S. demand for 11 minutes…Corn ethanol…has limited environmental benefits and some drastic side effects…Despite the mandate and government subsidies, cellulosic fuels haven’t performed. This year will be the fourth in a row the biofuels industry failed by large margins to meet required targets for cellulosic biofuels….

“The Obama administration’s annual estimates of cellulosic fuel production have proven wildly inaccurate…supporters acknowledge there is almost no chance to meet the law’s original yearly targets that top out at 16 billion gallons by 2022…expectations were simply set too high. To attract support from Washington and money from investors, the industry underestimated and understated the difficulty of turning cellulose into fuel…

Fahey continues, “The industry was also dealt a setback by the global financial crisis, which all but stopped commercial lending soon after the biofuel mandates were established in 2007…Hundreds of companies failed that had attracted hundreds of millions of dollars from venture capitalists and government financing.”

You’ve come a long ways, baby

Part of the excitement around competitive-cost cellulosic biofuels is the magnitude of the effort and the achievement. Just a few years ago, the projected cost per gallon was $9.00. Just a few years ago, a kilogram was a tough quantity to find produced in the United States.

A problem of targets and language

One of the biggest confusions over the Renewable Fuel Standard is the language of the “cellulosic mandate”. It’s not much of a mandate, at the end of the day. Congress set a maximum target of 21 billion gallons of advanced (that is, no-corn ethanol) fuel by 2022, which included biodiesel, all other forms of advanced fuels that EPA qualified, and cellulosic fuels.

DuPont's Nevada cellulosic biofuels plant, as of August.
The core technology and fermenter units can be seen at center;
at left center, biomass intake; at left, storage and

DuPont’s Nevada cellulosic biofuels plant, as of earlier this year. The core technology and fermenter units can be seen at center; at left center, biomass intake; at left, storage and distillation

The maximum target for cellulosic was 16 billion gallons by 2022 — but it was specifically tied back to actual capacity levels, given that the fuel was, in 2007, only available in labs. EPA was required to reset the mandate each year to actual production volumes.

In other words, no production, no mandate. It’s not exactly right to say that the Congress “mandated” the blending of 16 billion gallons of cellulosic biofuels in 2022. It is true to say that Congress intended to mandate that, if the industry produced the volumes, Congress would require obligated parties (such as oil refiners and marketers) to blend the (competing) fuels into their petroleum fuels, or pay for waiver credits. Which is to say, if the detractors could come up with some way of frightening the heck out of investors and otherwise frustrate efforts to build capacity, the mandate would disappear.

Imagine an EPA mandate that says, in effect, “we mandate lower levels of arsenic and mercury in groundwater if someone comes up with a product to substitute for the one causing the arsenic and mercury problem. If no one produces a substitute, you can go on polluting.” Well, imagine the galvanizing impact on polluters. They could take the hard road of developing cost-effective alternatives, or the easier road of demonizing all the substitutes and thereby keeping them out of the market.

The Projection Problem

POET-DSM's Project LIBERTY under construction last winter.
The project opened to great fanfare this summer.

POET-DSM’s Project LIBERTY under construction last winter. The project opened to great fanfare this summer.

One of the difficulties relates back to the difference between capacity and production. What happens if someone builds a 10 million gallon integrated biorefinery that can make fuels or chemicals — and market conditions change radically mid-year to make either fuels or chemicals wildly more profitable or unprofitable?

A normal industrial response to changing commodity demand is to alter production – shift to a higher-value market, and tune up or down the volumes. At some times, it makes sense to idle or limit a plant’s production capacity — and definitely, industry will make $5 chemicals over $3 fuels every time, if the input costs are the same.

INEOS Bio New Planet Energy's 8 million gallon cellulosic
ethanol plant in Vero Beach, FL — also producing a healthy
stream of renewable power.

INEOS Bio New Planet Energy’s 8 million gallon cellulosic ethanol plant in Vero Beach, FL — also producing a healthy stream of renewable power.

Another problem. When is a plant market-ready, as opposed to mechanically complete? No plant operates at full capacity until it has gone through a commissioning period — and that can range from moths to several years as bottlenecks in a design are worked out.

Take for example Gevo (GEVO). It has four production lines, which can a) produce ethanol b) produce isobutanol for the fuel markets c) produce isobutanol for the chemical markets or d) be idled individually or in total because of input/output commodity price imbalances, commissioning troubles, or technology upgrades.

Cópia de GranBio_1_Crédito_Divulgação

The 21.6 million gallon per year GranBio project which just opened in Alagoas, Brazil.

So, EPA has the tricky job of projecting production volumes, as opposed to “mechanically-complete production capacity”. In the short-term, it will have troubles projecting production volumes from new plants that may intend to be in full production with, say, 6 months, but encounter more bottlenecks than expected. In the long-term, it has the problem of deciding how much fuel will be made for a domestic market, how much may be exported, and how much production capacity might be devoted to making higher-value specialty chemicals.

Industry’s optimistic timelines

The cellulosic fuels movement and industry probably didn’t help itself much back in 2007 when the first commercial-scale DOE grants were awarded to six projects.

The project and promise. “Abengoa Bioenergy Biomass of Kansas LLC received $76 million for a proposed plant in Colwich, Kan. The facility will thermochemically and biochemically produce 11.4 MMgy of ethanol from 700 tons per day of corn stover, wheat straw, milo stubble, switchgrass and other feedstocks. The project is expected to start construction in late 2008. Abengoa is also building a pilot-scale cellulose facility in York, Neb.”

The actual outcome. The project grew to 25 million gallons, shifted to Hugoton, Kansas from Colwich — and is opening this year after starting construction in late 2011.

The project and promise. “ALICO Inc. received $33 million for a 13.9 MMgy project in LaBelle, Fla. The project is also proposed to produce electric power, hydrogen and ammonia from 770 tons per day of yard, wood and vegetative wastes. Construction is slated to begin in 2008 with start-up in 2010.”

The actual outcome. ALICO backed out, their partners New Planet Energy stayed in and ultimately partnered with INEOS Bio. The partners shifted the project to 8 million gallons of ethanol and 4MW of renewable power in Vero Beach, FL, started construction in 2011, completed in 2012. The project remains in a commissioning period — which may possibly finish up by year end when equipment upgrading is complete.

The project and promise. “BlueFire Ethanol Inc. received up to $40 million for a proposed facility in southern California. The facility will be sited on an existing landfill and produce about 19 MMgy of ethanol from 700 tons per day of sorted green waste and wood waste from landfills. Construction is slated to begin in 2008.”

The actual outcome. The company (now known as Bluefire Renewables (BFRE)) has struggled to complete financing, and is still intending to build but has not yet commenced construction although site-prep work has been done and designs are in place. Ultimately, BlueFire shifted the project to Natchez, Mississippi and attracted a total of $87 million in grants when this project was re-awarded out of Recovery Act funds.

The project and promise. “Broin Companies received up to $80 million for its Project Liberty proposal. The company plans to add cellulosic ethanol production to its existing corn dry mill in Emmetsburg, Iowa. Construction is expected to begin later this year.” At the time Ethanol Producer observed, “The company plans to convert the company’s existing 50 MMgy Emmetsburg, Iowa, corn dry mill plant to also handle cellulosic feedstocks, mainly corn stover. The expansion is slated to take approximately 30 months and increase the facility’s capacity to 125 MMgy of ethanol.”

The actual outcome. The company, now known as POET, formed POET-DSM Advanced Biofuels in a JV with DSM, and opened the 20 million gallon Project Liberty this year in Emmetsburg,

The project and promise. “Iogen Biorefinery Partners received up to $80 million to build its proposed 18 MMgy facility in Shelley, Idaho. Iogen already operates a demonstration-scale wheat straw-to-ethanol facility in Canada.”

The actual outcome. The company ultimately abandoned the project. The Shell-Cosan JV Raizen broke ground last November on a $100 million, 10 million gallons first commercial facility in Piricicaba, Brazil that was expected to open by the end of this year.

The project and promise. Range Fuels was awarded up to $76 million for a proposed project near Soperton, Ga. The 40 MMgy ethanol plant would also produce 9 MMgy of methanol from 1,200 tons per day of wood residues and wood-based energy crops. Construction on the Khosla Ventures-backed project is expected to begin this year.

The actual outcome. The company and project ultimately failed, and the site was sold to LanzaTech, which maintains a pilot facility there to this day — although LanzaTech is focused at this point on developing its first commercial-scale capacity in China.

Some unexpected big wins along the way

The project and promise. Beta Renewables was not formed in time to compete for the 2007 DOE grants, or the round of grants announced under the Recovery Act in late 2009. Chemtex was developing a technology at the time, and ultimately formed Beta with investors Texas Pacific Group and Novozymes (NVZMY).

The actual outcome. The company opened a 20 million gallon commercial-scale facility in Crescentino, Italy in 2012, which is now operating at full capacity. The company has signed firm deals for new plants in China and Slovakia, and is developing a project on its own balance sheet for North Carolina. More licenses are expected over the next 12 months.

The project and promise. GranBio was not formed in time to compete for the 2007 DOE grants, or the round of grants announced under the Recovery Act in late 2009.

The actual outcome. The company opened a 21.6 million gallon commercial-scale facility in Alagoas state in Brazil this past month, which is currently the world’s largest. The company has announced plans to invest $724.5 million in five cellulosic ethanol plants during the next few years.

The project and promise. DuPont (DD) Industrial Biosciences (operating than as the JV DuPont Danisco Cellulosic Ethanol) either did not compete or did not win a 2007 DOE grant, or in the round of grants announced under the Recovery Act in late 2009.

The actual outcome. The company is expected to open what will become the world’s largest cellulosic ethanol facility in the world when its 30 million gallon, $200M Nevada, Iowa plant is completed by the end of December.

The project and promise. Enerkem’s Edmonton project was not legible for a DOE grant because it is in Canada — but it did pick up a grant for a future project in Pontotoc, Mississippi.

The actual outcome. The company just opened its first commercial 10 million gallon facility — which owing to trends in commodity prices, is currently producing methanol instead of ethanol. All of it, though, from Edmonton’s supply of municipal solid waste.

The tale of the tape

Six commercial-scale projects were originally envisioned by the DOE in 2007. Ultimately, we have four open, one more this week, two more by the end of the year, four in development, and ultimately a whole generation of new technology competitors with at-scale capabliities. One failed.

The timelines were not pretty. We’re seeing the real wave hit the beach in 2014, something like 5 years late.

Were the targets “juiced”?

According to a Digest source employed in a senior role at Iogen during 2007, when the EISA Act established the cellulosic targets:

“There was no way those targets were going to get met. We were the only company at the time that had reached demonstration scale, and we did not believe that we would be ready with a first commercial facility by that timetable. Knowing how long it takes to get to pilot and demonstration scale, a first commercial and then a fleet of new plants.

“Most experts agreed that we need until the mid-decade to really start ramping up capacity. And this was before the 2008-09 financial crisis and other factors causing slowdowns. We told everyone this, and originally the timetables and targets were much more conservative. But one prominent investor in the sector was far more bullish, called the more conservative targets “a joke”, and at some stage Congress became convinced that a more aggressive timetable was the right way to go.”

[Editor's note: The DOE timetables for first commercials in the 2007 grants indicated that 159 million gallons in capacity would have reached mechanical completion by 2010, with Iogen's 18 million gallons coming on-line after that — but only if all projects were financed and all were successful technologically. At the time, one of the six had reached demonstration-scale, and another one or two had reached pilot-scale. It is virtually impossible to imagine how the projects would have reached steady-state operations in 2011 without skipping a minimum-scale full demonstration step altogether. The absence of a proven demonstration at scale of the technologies would prove to be, in some cases — fatal to projects which proceeding to jump to scale prematurely — and a delaying factor in financing for the rest.]

How realistic were the targets and timelines given the state of technical readiness?

It’s easy to answer this one. Given the outcomes, the projects were real, the timelines were not.

For example, POET’s 2007 projections indicated a construction start in 2007 and and opening as soon as 2010. But the company only reached pilot-scale at Scotland, South Dakota in the 4th quarter of 2008 and began producing cellulosic ethanol in Q1 2009. Commercial biomass harvesting began in Q3 2010.

Now, realistic timelines and realistic projects are two different things. The United State originally hoped to invade France in 1943, 19 months after Pearl Harbor, and ended up staging Operation Overlord in June 1944, 12 months and 63% later than the original targets. The winning of the war was vastly more important than the timeline. And in the case of POET-DSM — the opening of the plant in 2014 is proof that the journey had a successful ending.

Which brings us to the problem of financing. As we’ll continue in PART II of this special report, which you can find here.

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.

Earth to Cellulosic Ethanol: Glad You’re Here, What Took So Long?

Jim Lane 

Part II of II

Cellulosic ethanol arrives at scale — “The five years away forever” put to rest — but are there troubling waters still ahead? For whom, and why?

There’s a gigantic disconnect between two sections in the country as to whether the United States should be celebrating the success or the failure of cellulosic biofuels. Supporters and detractors alike saying that the wave of commercial-scale cellulosic ethanol refineries is a new wave in technology or the latest round in a wave of unimportant hype.

We looked at the supporters, the detractors, the problems of targets, the Projection Problem, optimistic timelines — and the question of whether targets were “juiced” - in part I, here.

Which brings us to the problem of financing. As we’ll continue in PART II of this special report.

The smoking gun: the failed loan guarantee program for cellulosics

Beta Renewables_Cellulosic Ethanol Deliveries_3

No one ever, ever thought that cellulosic fuels would get off the ground without a loan guarantee program. First-of-kind technologies are simply too risky for conventional project finance lenders and costs — and credit-card interest rates made the projects not economically viable.

So, DOE-backed projects — into which DOE would have extraordinary oversight and insight — weresupposed to have access to DOE-backed loan guarantees for their first commercial projects — which theoretically would allow them to zero out the project risk to the lender and allow them to tap conventional project finance at conventional interest rates — something like 4-7 percent. After the first commercial, the technology risk would be eliminated, and the companies could tap conventional project finance on their own — so went the theory.

Did DOE get a start on the program? Sure, In fact, it was not authorized under the 2007 EISA Act, one was originally established under the 2005 Energy Policy Act. By 2007, Ethanol Producer was reporting, “The DOE is also developing a loan guarantee program for cellulosic projects as authorized in the Energy Policy Act of 2005.”

As of today, the DOE has only two loan guarantees in its portfolio for this 1703 program — both for nuclear energy.

What happened?

Bottom line, of the 11 projects we outlined, only one received one of those DOE loan guarantees, and that one was not finalized until September 2011 — $132.4M for the Abengoa Bioenergy project. The INEOS New Planet Energy project and Range Fuels (ironically) received USDA loan guarantees. BlueFire has a conditional USDA loan guarantee commitment, but no lender of record yet. The rest of them had to find wealthy corporate backers.

Numerous projects attempted to attract DOE loan guarantees, and no dice.

A house oversight committee found that:

“DOE invested a disproportionate amount of its funds into solar technology leaving taxpayers vulnerable by overemphasizing a single technology. 16 of the 27 1705-backed projects employed solar technology – that represented 80 percent of DOE’s funds.”

And noted that:

“DOE has engaged in a disturbing pattern of suspending the approval of a credible project that adheres to all stated standards, only to later approve massive funding for a project proven to be nowhere nearly as far along in the process as DOE purported. DOE’s favoritism significantly harmed numerous companies that had relied on the promise of 1705 financing. The perception is that DOE actively misleads applicants about the status of their loan application, thereby encouraging these firms to misallocate capital, which has led to financial harm.”

Bottom line, financing woes have been the biggest cause of delay — primarily, the government’s inability to construct the loan guarantee program it knew would be needed for first commercials.

The Abengoa project that received funding was, in fact, the lowest-rated project in the DOE’s entire technology loan portfolio — receiving a CCC rating, which is rated as a “highly-speculative investment”. In fact., Abengoa was exposed to criticism in the House Oversight Report because of the Abengoa Bioenergy loan:

A single Spanish firm, Abengoa, received an aggregate $2.45 billion in loans and loan guarantees plus $818 million in Treasury cash grants.54 This reveals excessive risk and subsidies provided to a single firm via multiple subsidiaries. Abengoa has a credit rating of BB, which is considered Junk, thus making this concentration of investment in one company speculative and highly questionable. Exemplifying the risk DOE took in the case of Abengoa, the company managed to obtain a DOE loan commitment for the lowest rated project across the entire DOE Junk portfolio; Abengoa Bioenergy Biomass of Kansas received an extraordinarily low CCC rating and yet the DOE approved a direct loan to the project.

In a 2011 independent review of loan guarantees ordered by the White House, former Assistant Secretary of the Treasury, Herbert Allison, found:

” A lack of clarity in the lines of authority within the loan program office; A lack of clear guidance regarding DOE’s standard of “reasonable prospect of repayment;” and “A lack of clarity with regard to DOE’s goals and tradeoffs with respect to financial goals versus policy goals”

The crisis of innovative technology financing

The problem of the Loan Guarantee program is that it simultaneously required a “reasonable prospect of repayment” while at the same time focusing, in the language of the Energy Policy Act:

The Secretary may only make loan guarantees under §1703 for projects that employ “new or significantly improved technologies.” DOE’s implementing regulation defines this as an energy technology “that is not a Commercial Technology, and that has either (1) Only recently been developed, discovered, or learned; or (2) Involves or constitutes one or more meaningful and important improvements in productivity and value, in comparison to Commercial Technologies in use in the United States. . . .”

Common-sense tells us that energy technology “that is not a Commercial Technology” and has “Only recently been developed, discovered, or learned” or “Involves or constitutes one or more meaningful and important improvements in productivity and value, in comparison to Commercial Technologies” is by definition a first-of-kind project.


Common-sense also tells us that first-of-kind projects are not going to have “investment-grade” project ratings.

Fitch, the project finance rating agency, in commenting on the DOE’s newest round of loan guarantee funds, noted:

“The DOE will favor projects that may be unable to obtain full commercial financing due to perceived risks accompanying newer technologies. Eligible projects offering a catalytic effect on subsequent projects, which replicate or extend the innovative features of eligible projects, may also be favored. In determining which applicants advance, the DOE will assess whether a project provides a reasonable prospect of repaying all project debt, and whether available capital from all sources will be sufficient to carry out a project. No minimum credit rating is specified for this solicitation.”

‘Projects seeking funding must use new or significantly improved technology,” said Gregory Remec, Senior Director with Fitch’s Global Infrastructure Group.

The repayment problem in the face of feedstock and product price risk

What we are left with is this, that borrowers must provide:

“An analysis demonstrating that, at the time of the Application, there is a reasonable prospect that Borrower will be able to repay the Guaranteed Obligations (including interest) according to their terms, and a complete description of the operational and financial assumptions and methodologies on which this demonstration is based.”

Which isn’t much. The definition of “reasonability” is critical in the case of first-of-kind technologies, and was left so entirely vague that a DOE Loan Programs officer could rightly determine that repayment prospects could and should be entirely based on a Fitch rating where feedstock and commodity market risk would be heaped on biofuels — vs, say wind or solar that have free feedstock and fixed power contracts with utilities — and that left the financing of cellulosic biofuels in the lurch.

The First Lien Problem

Another critical failure in the Loan Guarantee program. Despite no specific language requiring this in the Energy Policy Act of 2005, the DOE Loan Program rules specified that:

‘‘[t]he [guaranteed] obligation shall be subject to the condition that the obligation is not subordinate to other financing.’ and that ‘‘[t]he rights of the Secretary, with respect to any property acquired pursuant to a guarantee or related agreements, shall be superior to the rights of any other person with respect to the property.’’

What does that mean, exactly? Comes down to interpretation. In this case, in 2007 DOE issued a final rule implementing Title XVII, and issued regulations which requiring a first lien security interest in all project assets as an incident to making a guarantee.

Now, if you’ve tried to get a home loan, and had a parent or relative guarantee the loan, you know that the guarantor is not going to wrest the first lien away from the bank. The bank remains first in line with a right to foreclose. It was a non-starter for many projects, all across the energy spectrum.

It was bad news for energy projects. As DOE itself reflected in late 2009, “nowhere does section 1702 itself require that the Secretary receive a first lien on all project assets as a condition of his ability to make a loan guarantee. Instead the statute requires only that the Secretary’s guaranteed obligation ‘‘not be subordinate to other financing.’’ In fact, section 1702 does not require that the lender or the Secretary receive any collateral as a statutory requirement for making a loan guarantee.

DOE reexamined the statute, particularly its text and structure, and now concludes that “A first lien on all project assets is better understood as one element that the Secretary may require for a particular project, but is not compelled by the statute to require,” and amended its rules. Pushing back the start date for many projects by almost four years.

Now, keep in mind that cellulosic targets were set to commence in 2011, just 13 months after the clarifications on the 1703 loan guarantee program. And the rules for the cellulosic provisions of RFS2 itself — the critical rules that would underpin any efforts commercially to build capacity to meet of those targets — were finalized by EPA in early 2010.

The impact of the rule problems

All this unsophisticated hoo-hah about “missed targets”. And, also, companies put the extra time to good use in developing more cost-effective technology and logistic operations. So, in the long-term the delay produced better technologies and more of them.

So — that’s the technology — but what about market access?

E10 saturation

One thing that supporters and detractors can agree on is that, in the United States, E10 (10 percent ethanol blends) have reached a saturation point, with around 13.5 billion gallons of ethanol blended into roughly 135 billion gallons of gasoline. The overwhelming majority of that fuel is corn ethanol — which has advantages in cost and availability over cellulosic fuels.

Ethanol vs gasoline, which costs less?

Today, in fact, on an energy basis, ethanol is so cheap that what was once a subsidized fuel — and criticized as such in some quarters — is right at parity with gasoline on an energy basis. As pointed out here, ethanol-free gasoline costs 10-15 cents more per gallon than E10 unleaded.

And there’s good reason for that. November ethanol futures were trading at $1.59 on the Chicago Board of trade, while the November RBOB gasoline contract was trading at $2.30. RBOB is blended with 10% ethanol content to make 87-octane regular unleaded fuel — with ethanol supplying an extra boost of octane.

What’s the market access debate over now?

Most of the debate focuses on where fuels go, past the E10 saturation point. That’s not the base for biodiesel or drop-in fuels — but for first-generation and cellulosic ethanol, and for obligated blenders, it’s the big issue on the table.

One option is E15 blending, which is now EPA-approved for vehicles made in 2001 or later. But adoption rates have been cruelly slow — a handful of outlets offer E15. Opinions differ on whether that reflects petroleum industry influence or retailer resistance.

Another option is E85, which is very cost effective for consumers, but it is only available at fewer than 3,000 fuel stations (out of 150,000 nationally), mostly in the Midwest. Retailers balk at the cost of retrofitting for E85 without government help — and in general E85 is marked up way higher at retail than the market will bear. We reported on that here.

Bottom line, there’s no clear path for added ethanol capacity to reach a market at the moment. And corn ethanol is going to be more cost competitive right now. With corn trading at $3.41 per bushel for the December contract, there’s a notional cost of $0.78 per gallon for the corn feedstock right now (even without considering renewable fuel credit values – RINs) — and that’s impossible for cellulosic fuel to compete with right now.

Which puts a brake on financing until the market access picture clears up.

E85 vs gasoline, which costs less?

On a wholesale basis, E85 wins. It’s priced as low as $1.39, wholesale, if you avoid buying it from petroleum companies. That’s a savings of 32 cents per gallon, vs RBOB gasoline, after allowing for differences in energy density.

The Bottom Line

The technologies were hamstrung by a combination of:

1. Overly optimistic views of construction and development timelines from pilot to demonstration, to first commercial, to steady-state operations at scale, to the multiple facility scale. The project developers point out that they are creating several new industries, from scratch (e.g. in many cases, biomass harvesting, pre-treatment, cellulosic hydrolysis, and fermentation) and there is much to be considered in the fact that they did what they said they’d do, in greater numbers, only later.

2. Unlucky timing in terms of the 2008-09 financing crisis and the shutdown of project finance markets.

3. No emergence of consensus on how to deal with the E10 saturation point — which accelerated in the face of falling gasoline demand.

4. Poor structure of loan guarantee program, in a way that virtually shut out liquid transportation fuels, even though they were the primary focus of “ending the oil addiction” and the 2005 and 2007 energy policy legislation.

In the short-term, much of the excitement of their arrival, in the general public view — has been dampened by the exhaustive timeline of the journey. Many in the public have moved on, to electrics, cheap natural gas, or to taking more selfies.

In the long-term, the market access problem looms large. Unless that is solved — perhaps through confrontation, perhaps through confrontation — this wave of cellulosic ethanol technologies will not be joined by a second wave, at least in the United States. Asia and Latin America have become the most likely candidates for deployment now.

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.

September 17, 2014

Cellulosic Feedstock: The Gap Between Switchgrass And High Yield Corn

Jim Lane 

As the first wave of cellulosic biorefineries launch — is there really enough affordable feedstock for the next wave? Can growers make enough money to justify the switch…and risk?

For several years, the questions that have perplexed actors in the advanced bioeconomy have revolved around policy stability and the effectiveness of the new technology: can new advanced fuels be affordably produced and will there be a market for them?

Years ago, these were the same questions that were asked about petroleum. Today, when people talk about petroleum and long-term availability (when they choose not to focus on carbon or on energy security issues), it all relates back to feedstock cost and availability. $80 oil (good), $120 oil (bad), $200 oil (aprés moi, le deluge).

It’s not all that different with the first advanced biorefineries — being built by in this first wave by the technology developers like Beta Renewables, DuPont, Abengoa and Poet-DSM. With the first locations they have chosen — in places like Crescentino, Italy; Nevada, IA; Hugoton, KS and Emmetsburg, IA — the feedstock supply and economics look good. Grower relations look excellent.

According to Deputy Under-Secretary for Science and Energy Dr. Michael Knotek, “we need 1000 of these”. And, true, one thousand of the POET-DSM-sized facilities would generate 20 billion gallons of cellulosic biofuels, and cover the spread between production today and Renewable Fuel Standard targets for 2022. That’s a lot of feedstock. IS there enough?



The DOE has assessed feedstock availability in The Billion Ton Study and Son of Billion Ton — bottom line conclusion, not much to worry about in terms of land availability, as a billion tons would cover 1000 biorefineries three times over, or more.

So, why are we even talking about it? Little secret in Billion Ton — the authors found 328 million tons of feedstock currently available. 767 million dry tons (in the baseline scenario) come from “potential resources” by 2030. And that “potential resource” drops to 46 million dry tons by 2017, if the price is $50 per ton — and POET is targeting closer to $50 than $60.

Whoops. So let’s look closer at the data.

Stover economics.

According to DuPont’s analysis, stover economics look pretty good for growers in and around their Nevada, Iowa project. Bottom line, growers can realize $36 per acre in increased profit by removing 2 tons per acre of corn stover. The increased cost of fertilizer replacement is more than offset by yield gains and stover income. And the yield gains have been confirmed in 93% of field trials.




Here’s the catch, though. Nevada, Iowa is among the most feedstock-replete areas of the country, when it comes to corn stover. What about the rest of the country?

Some data to consider:

1. National corn yields are 5% lower, at 171 bushels per acre (projected for this year by USDA)

2. 80% of farmland is in corn-soy rotation rather than continuous corn, according to USDA.

3. Roughly one-third of farmers practice no-till techniques, according to USDA.

Going back to the DuPont data, let’s note.

1. Without no-till, stover yields drop by 1.1 tons per acre for continuous corn, and 1.2 tons for corn-soy rotation.

2. Without continuous corn, stover yields drop by 1.2 tons per acre for no-till, and drop to zero with tilling.

So, let’s re-do that last DuPont chart, to show how this maps out against the nation’s supply of corn stover. The average is 0.379 tons per acre.


The stover income would fall from $36 per acre to $6.82 per acre, for the average acre.

Energy Crop economics

Let’s look at a leading energy crop candidate, switchgrass, which Genera Energy described as “likely the most studied biomass crop in the US and is one that Genera has had success with as a sustainable and economical feedstock”

In an article published this summer at, authors Susan Harlow and Richard Perrin suggested that switchgrass may well produce animal feed instead of a biofuels feedstock.

Rationale? A production cost of $65 per ton in the Upper Midwest based on yields of 3.5 tons per acre— including a $200 per acre establishment cost. More importantly, the authors point out that “refineries…will have to pay at least its value as livestock feed, which is expected to be about $95 per ton of DM (equivalent to $83 per ton of 15%-moisture hay).”

And establishment opportunities may be limited, for the authors note that “marginal cropland that can produce corn at yields higher than 60 to 70 bushels per acre, corn is likely to be more profitable [than switchgrass].”

The Bottom Line

Stover economics work well in selected areas like Iowa — but it’s far from universal. Roughly 6 million acres have the optimal economics (7 percent of 93 million acres) — enough for 25 biorefineries of the current standard size, or about 500 million gallons. And that’s assuming that all of the optimized growers are within 30 miles of one of these biorefineries. As it happens, areas with high corn yields such as the Midwest have lagging rates of no-till farming, according to USDA.

Where corn yields drop below 70 bushels per acre, switchgrass economics are fine, says Genera. For high-yielding land using continuous corn, and no-till — stover pick-up looks great. But there’s a lot of acreage in the middle where corn is going to continue to be the crop of coice, but stover is less likely to work.

For the rest, it is going to be about producing energy crops — and we are looking at several years to establish those at sufficient scale to support a biorefinery.

All of which suggests that building out cellulosic biofuels is going to be a lengthy process, stretching well into the 2020s if these numbers hold up.

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.

September 11, 2014

The Ginsu Knife of Biofuel Litgation: Butamax vs Gevo

Jim Lane 

It’s like the selling of Ginsu knives, the legal dispute between these two companies. No matter how much you hear….but wait, there’s more!

This week, we heard from Butamax that the District Court of Delaware has issued an order scheduling two further rounds of patent infringement actions pending between Butamax and Gevo (GEVO) for resolution.

The next phase of litigation, involving three Butamax patents asserted against Gevo, will begin in September 2014 with the discovery process and trial is scheduled for August 2015. Thereafter the remaining cases, involving three other Butamax patents asserted against Gevo, will recommence later in 2015 with trial scheduled for as early as April 2016.

The news is not all that new — these two rounds of litigation have been long discussed in the Digest and have been on the books — if not on the exact calendar — for a year or more.

Some of the scheduling has to do with the status of litigation that was originally expected to go froward this summer — the first phase. These suits were postponed based on their similarity to an upcoming Supreme Court case.

Bottom line, the Supremes will hear this fall, rule next spring (we expect) — and then phase two and phase three litigation is scheduled for summer 2015 and summer 2016.

According to Butamax, “Butamax continues to assert a total of eight patents against Gevo. Meanwhile, all of the cases involving patents asserted by Gevo against Butamax have either been ruled in Butamax’s favor or dismissed.”

Worth reminding readers that we have reported that almost all of the cases were dismissed on application by Gevo, which is waiting to sue until Butamax is in production and therefore creating actual harm.

Gevo’s final case against Butamax was dismissed by the Court in August 2014, following an Action Closing Prosecution from the Patent Office rejecting all claims.

Butamax also requested Patent Office re-examination or inter partes review of a total of 15 Gevo patents, of which 14 are ongoing and 1 has concluded in Butamax’s favor. Gevo requested re-examination of four Butamax patents, all of which are ongoing.

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.

August 24, 2014

Playing The Advanced Biofuel Lottery

by Debra Fiakas CFA

Over the past six months advanced biofuel producers have raised $450 million in new capital.  The industry has finally gained traction after shifting focus from strictly cellulosic ethanol technologies to a mix of biochemical and renewable fuels.  Few if any of the advanced biofuel companies ‘climbed up out of the red,’ but we suspect the investors who had a chance to participate in these deals thought they had got a whiff of profits.  Indeed, Gevo, Inc. (GEVO:  Nasdaq) promised to achieve breakeven at its Luverne, Minnesota plant this year as the ethanol and isobutanol producer was raising capital for renovations and capacity expansion.  The stock still languishes below a dollar per share.

If we take the view that so-called smart money participated in these transactions and that the capital infusion will have a catalytic effect on operations, then the public advanced biofuel companies could be strong growth stocks.  I looked at each of the public biofuel developers  -  PEIX, MEIL, GEVO, AMRS, REGI and KIOR  -  that have raised capital in the last six months to see which one looks like a strong buy.

None of them have earned a dime in profits for shareholders, so we are unable to make a comparison using a valuation metric such as price to earnings or price to cash flow.  In terms of price-to-sales, Pacific Ethanol (PEIX:  Nasdaq) and Renewable Energy Group (REGI :  Nasdaq) are the most interesting, with stocks that trade at 0.40 times sales.

However, a relatively low valuation metric might not be the most compelling factor.  A short interest has built up in shares of Kior, Inc. (KIOR :  Nasdaq), a developer of cellulosic gasoline and diesel, that is near a quarter of the company’s float.  The stock is trades for pennies per share in modest volumes, largely because by all accounts it is on its last leg so to speak.  KiOR raised $10 million earlier this year, but still needs more capital to stay in business. Reportedly, management miss a loan payment and long-time investor Vinod Khosla seems to have lost interest.  However, a last minute infusion of capital or a sale of the company to a strategic investor would likely drive the stock higher from the current price level.

Amyris, Inc. (AMRS:  Nasdaq) has also won the disrespect of short-sellers who are not impressed with the company’s specialty chemicals and biofene business model.  Just over a quarter of AMRS has been sold short.  Near the end of June AMRS shares formed a so-called ‘low pole warning,’ suggesting the stock could sink lower.  However, the stock almost immediately began trading new momentum and traded dramatically higher in the last week, as the company announced the availability of a new loan facility to support development of farnesene technologies.  A short-squeeze could change things.  I believe a majorty of shares was shorted at prices between $3.50 and $4.20.  Thus any development that might push the shares above $4.20 would likely put some fear into the hearts of short-sellers.  The stock has tested the $4.20 price level twice in recent weeks and failed both times, so it might be worthwhile to watch AMRS closely.

The only stock left on our short-list of advanced biofuel developers is that of Methes Energies International Ltd. (MEIL:  Nasdaq). The company raised $5.0 million in new capital through the sale of common stock in May this year.  The shares were sold at $2.00 per share, leaving everyone who participated in the offering under water as the stock has steadily downward ever since the deal was priced.  The company has announced a string of accomplishments over the past couple of months and appears to be on the cusp of delivering its first shipments of biodiesel valued t $6.0 million.  Investors have not been impressed, but it is possible they are missing an important turn.

In my view, the odds a bit better with any of these stocks than lotto…and a few a priced better than a lottery ticket! 

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.

August 19, 2014

Amyris Aims For Huge Second Half

Jim Lane amyris logo

The Pharaohs of Farnesene continue to pick up momentum.

In California, Amyris (AMRS) reported a net loss of $35.5M for the second quarter of 2014 on sales of $9.3M, with a 5.4 percent increase in sales over Q2 2013. Renewable product sales were $4.4M for the quarter, while “Recognized grants and collaborations revenues” reached $4.9M.

In announcing results, the company highlighted:

• End of quarter cash, cash equivalents and short-term investments balance of $90.2 million.
• Lowest farnesene production costs to date and successful start of fragrance molecule production.
• Addition of Braskem as a new collaboration partner for renewable isoprene and Natura for cosmetics sector.
• Produced and shipped jet grade farnesane, now in use in commercial flights at 10% blends with Jet A/A1.

In addition, the company affirmed guidance for doubling renewable product sales year-on-year and achieving cash flow positive from operations in second half of 2014. Specifically, Amyris expected for 2014:

Inflows. Renewable product sales to be over $32 million, doubling our 2013 renewable product sales, and to achieve positive cash margin from products. In addition, we continue to expect collaboration inflows, a non-GAAP measure, in the range of $60 million to $70 million by the end of the year.
Expenses. Cash operating expenses for R&D and SG&A in the range of $80 million to $85 million and capital expenditures less than $10 million in 2014.
Earnings. Positive cash flow from operations during the second half of the year and to achieve positive EBITDA in 2015.
Payback. Cash payback for our Brotas biorefinery in the next two years (following 2013 start-up year), based on plant cash contributions of $10 million to $15 million in 2014 and $40 million to $50 million in 2015.

“With two new collaboration partners, continued progress on renewable product sales, and our best operational performance to date, we’re well positioned to double our renewable product sales this year over 2013 and deliver positive operational cash flow in the second half of this year. In May, we completed a $75 million convertible note financing and, since quarter-end, increased our cash balance sheet with payments from our ongoing collaborations as well as additional inflows from new collaborations,”said John Melo, Amyris President & CEO.

“We rounded out our developing product portfolio for the tire industry when Braskem joined our collaboration to develop and produce renewable isoprene, and our expanded collaboration with Kuraray for liquid rubber. With TOTAL, we obtained industry certification for sales of our renewable jet fuel and have begun sales of jet fuel. We continue to experience strong demand for sustainable products that perform better than the alternative and are cost competitive, while solving the supply challenges our customers face in growing their business,” concluded Melo.

The analysts react:

Rob Stone and James Medvedeff, Cowen & Company

Q2 non-GAAP loss was 36c (vs. St. 30c) on $8.2MM (vs. St. $12.4MM). Product costs are improving, but COGS reflected higher-cost inventory. New collaborations and product segments are encouraging, raising our PT to $3.50 (vs. $3.00), but expected product sales for 2014 are heavily H2-weighted. Execution risk on a steep ramp and potential dilution from converts keep us at Market Perform (2).

Product revenue of $4.4MM missed our $7.0MM estimate. A new fragrance molecule was not yet shipping. Three new products should launch in 2015, and a total of 10 molecules supports expected growth.

Adjusting Our Model for Smaller 2015 Ramp, Slower Cost Reduction. We now project 2014-15E losses of $1.01 and $1.23, on sales of $76.3MM and $115MM, vs. prior ($0.64) and ($0.35) on $76.5MM and $196MM.

Pavel Molchanov, Raymond James & Company

After a period of retooling while in the “overpromise and underdeliver” penalty box, 2013 and 2014 have been Amyris’ first years with operations truly in commercial mode, and the outlook for the rest of 2014 (and beyond) is encouraging. There is visible commercialization progress, but the top line’s reliance (for now) on partner-based R&D revenue makes quarterly results very choppy. We maintain our Market Perform rating.

* Brotas: steady as she goes. The 50 million liter Brotas plant in Brazil made its first farnesene shipment over a year ago and is back online (following its 1Q downtime). Recall, as of last November, the initial 2014 target has been for product sales to at least double – likely conservative after last year’s shortfall. This target remains in place, and our current “guesstimate” for product sales is $38 million for 2014, up ~2.5x.

* $3.50/gal diesel: intriguing target, but we’ll believe it when we see it. It is on the Total front that the most interesting revelations came out of yesterday’s call. Amyris is working on a framework for producing renewable diesel in Europe – as part of the fuels JV with Total – with a long-term target cost of $1.00/liter, or $3.50/gallon. The feedstock is… to be disclosed later, so we can’t help but feel some skepticism. The working assumption is that the first large diesel plant will start up in 2017, with two or three by decade’s end. If true, this would solidify Total’s status as one of the most active strategics in bioindustrials.

Valuation. Consistent with peers, we apply a discounted cash flow approach to arrive at a DCF value of $2.90/share.

The Digest’s take

The analysts don’t see much upside in the stock for now — a ramp-up in price over the past year has absorbed most of the short-term potential. It’s highly intriguing that the company is targeting $3.50 diesel with a Total/Amyris plant as soon as 2017. That’s big news, if it materializes — but we would expect a move away from the spot Brazilian sugar market in order to facilitate this. Cellulosic sugars would be appropriate targets for anything sold in the aviation to avoid food vs fuel debates.

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.

August 01, 2014

Solazyme: Return On Dream (and ROI Next Year)

Jim Lane solazyme logo 

Signature AkzoNobel deal expansion highlights Solazyme’s Q2 results.

But there’s something more to this company than the cash that sustains it, though sustain it cash does, and necessarily so.

In California, Solazyme (SZYM) and AkzoNobel announced that they have expanded their multi-year agreement with supply terms targeting 10,000 MT annually of algal oils for a new proprietary surfactant and with funding for the joint-development. The parties said that they expect Solazyme’s algal oil to replace both petroleum- and palm oil-derived chemicals. Product development is expected to commence immediately, and the parties anticipate entering into a definitive supply agreement as they near completion of product development.

At the same time, Solazyme announced a net loss for the quarter of $42.9M on Q2 revenues of $15.9M. For Q2 2013, the company lost $25.8M on revenues of $11.2M.

The 43% revenue jump

In May, Solazyme’s joint venture with Bunge (BG) started producing commercially saleable products at the Solazyme Bunge Renewable Oils plant in Brazil and has subsequently begun shipping. Both oil and encapsulated lubricant, Encapso, products have been manufactured using full-scale production lines that include the 625,000L fermentation tanks. In addition, Solazyme expanded its customer base and increased total output by >40% from Q1 2014 to Q2 2014 at its Clinton/Galva processing facility in Iowa.

Reviewing the commercial highlights

Highlights include:

  • AlgaVia brand launched at the International Food Technology (IFT) Food Expo, Solazyme’s High Stability High Oleic oil won a prestigious 2014 IFT Innovation Award, and Solazyme added key food ingredient customer, and distribution agreements. Solazyme secured an important new AlgaVia Whole Algal Flour customer, and also signed agreements with two of the top North American food ingredient distributors to meet demand in the US and Mexico.
  • Signed agreement with a leading North American oleochemicals company to commercialize microalgae-derived oleic acids. The agreement is to commercialize kosher certified high oleic algal oils for the oleic fatty acid market. The Soleum base oils, the company says, offer “performance, safety and sustainability.”

Solazyme’s progress

The Solazyme view

“Solazyme made important progress in the second quarter on its commercialization path,” said Jonathan Wolfson, CEO of Solazyme. “We are now manufacturing product in three facilities on two continents. We are shipping multiple oils and have increased production volumes out of our Clinton/Galva, Iowa operations, and we have begun production and shipment from the Solazyme Bunge Renewable Oils plant in Brazil. We are also building commercial momentum, including an expanded multi-year agreement with AkzoNobel involving funded joint development and targeting up to 10,000 MT of oil per year.

“In food ingredients, we launched our AlgaVia brand and won the highly prestigious IFT Food Expo innovation award. We have more work ahead as we progress on our production ramps and continue to build our commercial pipeline, but I believe we have the products, the plants, the capital and the team to execute moving forward.”

“We are continuing to drive fiscal discipline and balance sheet management as we ramp our capacity and focus on delivering products to our customers,” said Tyler Painter, CFO and COO of Solazyme. “We achieved a number of milestones this quarter and continue to strengthen our sales and market application efforts across our targeted markets.”

View from The Street: Bear side, Mike Ritzenthaler, Piper Jaffray

Initial commercial volumes at Moema prove anticlimactic on limited commentary. The framework (non-binding) collaboration expansion with AkzoNobel announced on the call is for up to 10 kMT/yr, and even if converted to a binding sale agreement, still leaves the majority of the 100 kMT capacity unsold. We believe that, ultimately, low sales volumes and high fixed costs will beget poorer than expected economics in an effort to secure volumes. We remain concerned about the alarming cash burn rate, the very limited visibility/obfuscation into tangible production metrics (in order to gauge the underlying health of the ramp), and lack of firm off-take agreements in place, in addition to the standard start-up risks that we have outlined previously. Maintain Underweight rating and $4 target.

View from The Street: Bull side Rob Stone, Cowen & Company

Q2 financial results missed the St., impacted by plant startup and 1x expenses. However, revenue grew 29% Q/Q, shipping customers increased 50%, the AkzoNobel partnership was extended, Encapso is expanding outside N. America, an important food ingredient customer was signed, and Algenist added customers and countries. Revenue grew Q/Q in every segment: Algenist $6MM (+21% Y/Y, 22% Q/Q), funded R&D $6.9MM (+10% Y/Y, +37% Q/Q), chemicals, fuels and nutrition $3MM (vs. $0 last year, +26% Q/Q). At Clinton there are 15 Customers (vs. 10) and 75 Qualifying; Algenist +40% Store Count. Maintain Outperform rating and $18 price target.

View from The Street: Bull side Pavel Molchanov, Raymond James

“The key inflection point for scale-up is materializing in 2014. The balance sheet is also in great shape, with by far the largest cash balance in the peer group, implying optionality of yet-to-be-disclosed growth initiatives. The adjusted loss per share of $(0.43) was below our estimate of $(0.37) and consensus of $(0.36), the delta coming from higher operating expenses, same as in 1Q. Total revenue of $15.9 million was exactly in line, with upside in R&D revenue offsetting slightly slower-than-expected growth in product sales. The latter, while not increasing quite as rapidly as we had modeled, rose 84% y/y (and 23% q/q) to a new record. This was the second quarter with sales from the Clinton plant, where output jumped 40% q/q.

Clinton customer count rises to 15. January marked the first of Solazyme’s major scale-up milestones, as production began at the Clinton, Iowa plant, built with Archer Daniels Midland. Production will ramp over 12 to 18 months until reaching nameplate capacity of 20,000 metric tons per year. Product from Clinton has been shipped to 15 customers to date, up from 10 in 1Q, and another 75 industrial customers (an impressively long list) are prequalifying product. Positive cash flow on deck for 2015. Outperform 2 – Target price = $12.50;

The Digest view

You get a lot of insight from Solazyme’s progress as to the general direction of the industry. Consider this cool chart from Cowen & Co’s Rob Stone:

Screen Shot 2014-07-31 at 6.18.02 AM

The key takeaways, in our view:

1. Ramping capacity and utilization are the story for 2014-17. The company has gone from less than 20,000 metric tons last year (and less than 1 million tons less than four years ago) to a projected 401,000 metric tons by 2017. Utilization is modeled to grow to 85% by 2017.

2. Multiple product lines and application sectors. Algenist skin care products started the company on its road to revenue and profit. It remains a dominant product along with R&D revenue even by 2014. Despite strong YoY growth rates, it is expected to be swamped by fuels and chemicals by 2017, which by then would represent 65% of the revenues.

3. Higher margins in personal care and skin creams.

4. It will have taken 14 years from start-up to $1B in revenues.

The Bottom line

Look at that AkzoNobel announce — tailored algal oils will be replacing not only dread petroleum but (for some) dread palm oil. Up until now, the alternatives have been to pay one heck of a lot more to use an alternative, or simply stop consuming a given product in order to show support. Look how the equation has changed. And that’s not exactly Ed Begley Jr. embracing a new world order – that’s AkzoNobel.

Consider where they are making this product. Anywhere you can grow sugars in reasonable quantities. It happened to be Iowa and Brazil. It could have been sugarbeets in Idaho or Russia, or sugarcane in India or Pakistan or Angola, or ultimately synthetic sugars made by companies like Proterro wherever you can find water and CO2 in concentrated quantities. Any country could have capacity — everyone has access to the riches of the new world.

Because the new world doesn’t consist any more of somewhere you sail to. It’s found within. You don’t have to grab some advantaged geography rich in mineral wealth, to be pumped or dug out of the ground until the country’s wealth is exhausted. It’s not renewable oil, it’s renewable wealth, and distributed opportunity.

A number of years ago, Solazyme put this graphic out. It remains a Digest favorite — just a simple graphic that shows all the places where renewable products touch and change everyday lives.


Now, investors will see things through a slightly different lens — not just a case of making a difference, but making one with an attractive yield at an attractive rate of return. Rate matters. They would, for example, measure Van Gogh’s Starry Starry Night by the metric of a financial return. There is more to life than the cash that sustains it, though sustain it cash does, and necessarily so.

Solazyme just changed the world. It happened in your lifetime, you got to see it. Lucky you.

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.

July 05, 2014

A Deal A Day At Renewable Energy Group

They are hoopin’ it up in Ames, Iowa these days.  Local producer Renewable Energy Group (REGI:  Nasdaq) completed the acquisition of Dynamic Fuels, Inc., one of the first renewable diesel biorefineries in the country.  The Dynamic Fuels facility located in Geismar, Louisiana has 75 million gallon annual nameplate production capacity. Renewable Energy Group (REG) already had eight other fully operational biorefineries with a nameplate production capacity near 250 million gallons per year.  REG also has a demonstration plant in Oklahoma for renewable chemicals.

It was a two-part deal.  First REG struck a deal with for most of the assets of Syntroleum Corporation for 3.5 million shares of REGI common stock.  The deal included a 50% ownership interest in Dynamic Fuels.  Shortly after the Syntroleum acquisition in early June 2014, REG paid $18 million in cash to Tyson Foods for the remaining 50% interest.  Tyson may also be paid up to $35 million over the next decade depending upon production volume.  REG will also repay Tyson for $12 million in debt owed by Dynamic Fuels.

REG is not only on the prowl for production capacity.  The company has used the acquisition strategy to build out its technology portfolio.  Earlier this year REG paid $40 million in cash and stock for LS9, Inc., a developer of renewable industrial chemicals.  REG may pay an additional $21.5 million over the next five years if certain milestones are reached.  LS9’s technology relies on the fatty acid metabolic pathway of microorganisms, which are used to transform a variety of feedstocks into detergents and other renewable chemicals.  Included among those feedstocks is glycerol, which is a by-product of REG’s biodiesel production processes, making for very nice synergy between the two companies.

Investors responded warmly to the LS9 acquisition, driving REGI shares from a price near $9.75 in early February 2014 to just over $12.50 in early May.  Unfortunately, mixed signals from the first quarter 2014 financial results reported in early May, were fodder for some disappointment and the stock began a slide back down to the $10 price level.  Perhaps investors also began anticipating potential dilution from  the company’s $125 million convertible note deal that was completed in late May 2014.  The Dynamic Fuels to near a key line of resistance near the $11.50 price level.

The question for investors is whether the stock has sufficient momentum to break through and remain above the resistance line.  Based on the Average Directional Index, a trend indicator, the stock is indeed trending higher and the signal is  relatively strong.  Let me also note that the Moving Average Directional Index is quite favorable and is currently signaling higher prices ahead.

What is less clear for REGI is an absolute value for the stock.  Technical indicators are silent on just how far the stock might go.  From a fundamental standpoint, it is not very difficult to come up the raw data for an earnings forecast.  The consensus estimate for the year 2015, is for $0.82 per share on $1.13 billion in sales.  At a multiple of 20 times earnings, a price of $16.40 seems justified, given the company’s improved competitive position.  Only one of the analysts has a price target of $16.00 while the mean price target is $13.67.

It seems prudent to accumulate shares of Renewable Energy Group at price levels below $11.50.  For those with long positions at lower prices levels, that will ensure a profit in the long-term.  The stock closed out trading last week with a strong volume and the engulfing pattern that formed at the week-end suggests the climber higher will continue in the new week.  However, given the volatility in REGI shares, it seems more likely than not the the stock will again present a strong buying opportunities from investors.

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.

April 18, 2014

Cosan: Brazillian Sweetheart

by Debra Fiakas CFA

The first thing we think about Brazil in the context of alternative energy is sugar cane and ethanol.

In the last growing season Brazil producer 596 million tons of sugar cane, a feat that secured Brazil’s position as the largest sugar cane grower in the world.  About 55% of the crop was used to producer ethanol and the balance ended up as sugar.  Brazil’s sugar cane industry association has predicted that despite a severe drought, the 2014-2015 growing season will be even more productive with expected sugar cane production in the range 632 million tons to 636 million tons.  About 40% of Brazil’s sugar cane is produced by a highly populated group of independent farmers. 

Investors are perhaps more interested in the processors.  The three largest processors in Brazil include Cosan Ltd (NYSE:CZZ), Sao Martinho and Acucar Guarani.

Like many of the other sugar cane processors Cosan is integrated backward in to sugar cane growing and as well as forward into ethanol production.  Cosan controls the world’s largest sugar cane processor Raizen, SA in a partnership with Royal Dutch Shell.  Riazen has a capacity to crush as much as 65 tons annually, but only reached 62 million tons in the 2013-2014 growing season.  That represents approximately 10% of Brazil’s sugar cane crushing capacity.  The company earned $4.5 billion in sales in the last twelve months, representing 15.7% growth over the prior year.   Cosan earned a 3.2% net profit during the year.
Raizen is expected to benefit from government support for ethanol production.  The Brazilian national development bank recently announced major financing package for the construction of Raizen’s cellulosic ethanol project in Sao Paulo state.  The plant is apparently designed to rely on Iogen’s cellulosic ethanol technology and is estimated to require US$90 million for construction.  Raizen management has bragged that within ten years it will have as many as eight plants producing advanced ethanol.  Already the company has pledged to invests US$7 billion to increasing sugar cane crushing capacity by 50% or 100 billion tons. 

Cosan trades on the NYSE under the symbol CZZ and has been on a long-term downward journey since the beginning of last year.  That has left the stock trading at 11.4 times forward earnings.  Before investors jump to buy these seemingly cheap shares, it is well to look at the long-term and short-term character of the stock’s trading.  The stock has been attempting something of a seasonal recovery over the past month as the company has just released its financial results for the year ending March 2014, which coincides with the last growing season.  The upward trend appears to be proceeding with some strength, but it might be prudent to wait for the stock to take a bit of a breather before loading up for a long position.
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.

March 29, 2014

Gevolution 2014: Gevo's Progress, And Detours

Jim Lane

This week, Gevo (GEVO) reported its year-end results, generally in line with expectations, with a $0.35 loss per share and $24.6M in the bank. Given the company’s rate of progress with isobutanol, the cash burn rate, the low share price, and high prices for ethanol — the company announced that it is “transitioning the Luverne plant to the production of both isobutanol and ethanol…Producing both ethanol and isobutanol allows Gevo to fully utilize the Luverne plant and increase cash flow as Gevo continues to commercialize its isobutanol production capabilities.”

“Our original vision was to focus our efforts on one product,” said CEO Pat Gruber. “However we now are confident that we can leverage the flexibility of our technology and more fully utilize all the operating units in the plant to produce ethanol simultaneously with isobutanol. Needless to say, the expected additional cash flow is a benefit as we work to maximize the learning per dollar as we scale up our technology.

“Therefore, we plan to run three of our fermenters to produce ethanol, while the fourth fermenter will remain dedicated to isobutanol production. We are calling this configuration “side by side”, meaning both ethanol and isobutanol could be produced concurrently.

Analyst reaction

Rob Stone and James Medvedeff, Cowen & Co:

The economics now favor, and the science now enables, concurrent production of isobutanol and ethanol at Luverne. However, we believe ramping to full nameplate, regardless of configuration, is still at least several quarters away.

Luverne is shifting to concurrent production of ethanol and isobutanol, to take advantage of current wide ethanol spreads. The initial mix will be three fermenters producing ethanol, one producing isobutanol. We believe this demonstrates the flexibility of the GEVO technology, and highlights successful isolation and eradication of sources of infection. It may have been influential in attracting the two licensing LOIs signed since October. Important side benefits include more stable flows of corn mash, water recycling, and solids removal (animal feed) from the plant, the opportunity to optimize operations at higher production rates, and reduced cash burn.

Mike Ritzenthaler, Piper Jaffray

The decision to produce ethanol ‘side-by-side’ with increasing isobutanol production rates will be controversial – but ultimately we view as a positive for cash (with spot ethanol EBITDA margins >$1/gallon) and provides more stable operating parameters. This will further aid isobutanol optimization efforts that have seen ~71% of target gallons per batch and a lift to 1-2 batches per week on average (from 1-2 batches per month in December). We are adjusting our estimates due to incremental ethanol sales that we did not previously factor into our model.

We expect ethanol production to start in mid-May and reach a 15k gallon/year run-rate starting in 3Q13, resulting in FY2014 Sales of $45 million. Ultimately, however, we see ethanol production at Luverne tailing off in 1H15 as isobutanol continues to ramp. This results in FY14E revenues of $45.4 million (from $14.5 million) and ($20.7) million in EBITDA, from ($36.5) million previously.

This should make the technology package more attractive to potential licensors while investors should welcome the cash flow attributes of ethanol production as isobutanol production ramps, in our view. Our price target is based on 5x our FY15 EBITDA estimate (from FY15 EBITDA discounted to 2014), with $0 million in net debt and 49 million shares.

Progress with the Process

Gevo reported in this cycle the following process improvements:

• Commissioned a proprietary system to sterilize corn mash.
• Proven that its two key technologies, our isobutanol producing yeast and our GIFT system, work at commercial scale utilizing full corn mash to produce isobutanol.
• Achieved up to 71% of our targeted gallons per batch goal.
• Produced isobutanol that met quality targets.
• Demonstrated that the company can manage infections during fermentation, achieving over 100% of goal, although not with the consistency or reliability that we need.
• Operated all of the fermenters and GIFT systems and they performed as expected.
• Begun the integration of the water recycle streams, and achieved greater that 90% water recycle in fermentation.

The Licensing Option

On March 6, 2014, Gevo announced that Porta Hnos signed a letter of intent to become the exclusive licensee of GIFT in Argentina to produce renewable isobutanol. Porta is a 131 year old family owned company in Argentina that produces liquor, vinegars and has a 120 m3/day corn ethanol plant (approximately 12mgpy).

In addition, Porta has designed and built two 250 m3/day ethanol plants for others and they are working on two more ethanol plants for 2014. Half of all current ethanol plants in Argentina were designed by Porta, and they have a joint venture with Alpha Laval to provide separation and evaporation expertise.

Offtake and testing: the Q4 highlight reel

In Q4 2013, Gevo began selling bio-isooctane for specialty fuel applications such as racing fuel. Gevo’s renewable isobutanol from Luverne, Minn. is being converted into bio-isooctane at its biorefinery at South Hampton Resources. Initial volumes are being used for testing purposes.

Also in Q4 2013, the U.S. Army has successfully flew the Sikorsky UH-60 Black Hawk helicopter on a 50/50 blend of Gevo’s ATJ-8 (Alcohol-to-Jet). This testing is being performed as part of the previously announced contract with Gevo to supply more than 16,000 gallons to the U.S. Army. Gevo’s patented ATJ fuel is designed to be the same as petroleum jet fuel, and to be fully compliant with aviation fuel specifications and provide equal performance, including fit-for-purpose properties.

In December, Gevo announced that Underwriter Laboratories approved the use of up to 16% isobutanol in UL 87A pumps, providing all of the service stations across the country with the assurance that isobutanol blended gasoline will work in their current gasoline pumps without the need to purchase new equipment.

The Move to Ethanol

Let’s be frank about this — for a long time, Gevo has taken a dim view of the first generation biofuels it now proposes to produce. “1st generation biofuels created conflict,” the company noted earlier, citing that refiners lose volume, pipeline companies lose volume, customers get lower energy fuel and ethanol producers struggle with the blend wall, with the push for ethanol causing more conflict.”


The company switched “back to ethanol” once before, in fall 2012, at the time its contamination difficulties were becoming more apparent at scale. “Gevo has successfully demonstrated commercial scale isobutanol production, has navigated idiosyncratic biocatalyst challenges in past scale-ups, and elected to utilize the Luverne asset while the contamination controls are optimized,” Piper Jaffray analyst Mike Ritzenthaler wrote in 2012. Adding, that “the biologists are working to improve the production strain and fermentation parameters to enable better control of competing reactions, a process that in our experience will take a handful of months at most to optimize.”

“The switch to ethanol does not reflect any change in strategy,” Ritzenthaler added. “Management is electing to operate the facility rather than conduct the strain improvement at such a large-scale.”

Having noted all that, Gevo has been consistent in touting the “carbohydrate market” and superior US productivity in this regard, compared to the oil market — as much or more as they have waded into the ethanol-or-isobutanol question.

Doubtless, given normal price environments and steady-state operations in ethnaol and isobutanol, they would generally produce isobutanol. The switch to ethanol reflects the “Market opportunity driven by the spread between carbohydrate and oil” as they have detailed in many presentations. With oil topping $100 and corn sub-$5, Gevo is clearly seeing that the time to produce alcohols is now — and if isobutanol is not yet ready for immediate scale-up, the other alcohol will do nicely.


But there’s a caveat in their strategy. Spreads are high, but they vary, and often quickly. CEO Pat Gruber has been out front with the industry on warming about the dangers of selling the “same” molecule with the “same” price and performance, as this slide illustrates.


Further to that point, one has to consider how much damage has piled up on the Gevo “brand” over the past two years, with the well-publicized difficulties in getting to full production at Luverne — while discussions of a conversion at Redfield seem to have pushed off into the distance. On the potential for selling into markets with a damaged brand, Gruber was stark in his assessment, here:


Gevo’s legion of admirers will be quick to point out that the company’s struggles are not untypical for introducing first-of-kind technology, and they are temporary in nature — causing delays rather than failure — and that the brand of the company is strong with partners like Coca-Cola and the US Army. With a strong brand, Gruber took the view that even a “same” product at the “same” price and performance could have very strong sales prospects, here.


The delays with isobutanol

The delays have been, for its investors and stakeholders, frustrating to say the least. Two years ago, the company was “on track for isobutanol production in 2012″ and expected to be bringing Redfield online in 2013.


We didn’t hear much back then about the time delays associated “Learning to run a ‘new-to-the-world’ process at the scale of our Luverne plant with 1 million liter fermenters requires a lot of work. Working through the issues that arise creates the crucial know-how needed for steady full scale production, expansion, and licensing,” as Gevo reflected on its progress in its latest update.

The company’s strong management team — especailly in managing start-ups with first-of-kind-technology — caused many to underestimate the challenges of scaling this technology. “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,”

Piper Jaffray analyst Mike Ritzenthaler wrote in May 2012. He added in July: “Based on our background and observations, we believe startup is proceeding remarkably well, and we are confident that Gevo’s team can quickly handle normal startup issues, should they arise.”

The biojet options

The company’s struggles with isobutanol have to some extent overshadowed its successes with biojet fuel — passing Army tests with flying colors, and proceeding rapidly towards an adoption of an approved ATJ (alcohol to jet) fuel spec in the not-distant future. The company’s South Hampton demonstration plant has been supporting those efforts.


The isobutanol option

The company would like to produce all-isobutanol no doubt about it: as Pat Gruber pointed out, “isobutanol and its derivatives can serve multiple large markets.” But here’s the caveat, he warned in 2013: “low cost isobutanol is the enabler,” and frankly, Gevo’s yields and throughput is keeping its isobutanol out of all those juicy verticals.


The Bottom Line: the vital importance of getting back to isobutanol

Let’s be clear about restating this: Gevo has never spun a story about a “single molecule” strategy. But they simply have not showcased their ethanol capabilities in this respect. Ethanol has been a sub-optimal fallback. They’ve been much more excited about opportunities with isobutene and renewable jet fuel, for example.


Why? As Gruber warned the industry at ABLC 2012, “drop-in fuels can realign value chains. Refiners gain volume, pipelines too. Downstream logistics costs decrease, consumers get a better product, and there’s no blend wall.”


As we outlined in the Bioenergy Project of the Future series, staring with a first-generation ethanol plant is a great idea. Stating with that technology a while while other technologies are introduced: that’s fine, for a while, But falling back on first-generation fermentation is not a demonstration of production flexibility, in a 19 million gallon facility that is unlikely to be able to compete with the likes of POET and its fleet of 100 million gallons plants, based on economies of scale.

So, this is a temporary move, based around cash conservation, aimed according to analyst estimates at improving EBITDA by an estimated $15.8M in 2014. Coincidentally, about the same amount of capital the company parted with in early 2013 in a $15M share buy-back program. The company also takes the view that it helps to solidify its licensing story, by giving licensees a side-by-side production opportunity in isobutanol and ethanol.

We’re a little skeptical, here in Digestville, about the long-term value of that strategy. Short-term, while the company works through what is proving to be a 3-year scale-up effort, it makes sense. Should ethanol prices hold up, it will certainly help with earnings and cash – though it will tie-up talent, working capital, and divert the focus to some extent. We’ll see shortly how Gevo navigates those waters — as it continues to make steady, if slow, progress towards its game-changing isobutanol ambitions.

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.

March 23, 2014

As KiOR Stumbles, Aemetis Soars: What Made The Difference?

Jim Lane

Is it just coincidence that KiOR’s stock is down sharply as Aemetis has been on a tear? 
Just a lucky break for ethanol based on attractive “crush spreads”? Or something important about the strategy and how it has played out?

On a clear morning last October at ABLCNext in San Francisco, two companies joined us on stage to discuss their technologies, and their pathway to commercialization.

They had a lot in common.

Both companies produce advanced biofuels for the American domestic market. Both utilize advanced technologies deployed at commercial-scale in the past 24 months. Both are publicly-traded stocks. Both were founded in 2006-07, after the Energy Policy Act of 2005, but before the Energy Independence and Security Act was signed in December 2007.

Both at one time numbered Vinod Khosla among their shareholders (one also had Bill Gates, while the other had Sir Richard Branson). Both have intelligent, highly-educated, passionate and driven people.

Just this week, one of those companies, KiOR (KIOR), announced a $347 million annual loss and related a series of challenges in their technology and financing that led it to declare “substantial doubts about our ability to continue as a going concern.”

The other, Aemetis, (AMTX) announced record quarterly and annual gross profit, record operating income and adjusted EBITDA (including $54.2 million in Q4 revenues and $11.3 million in gross profit), and 54 million gallons of production.

What made the difference?

In our 10-part series The Bioenergy Project of the Future, published in late 2010, our interviews led us to conclude that the winning strategy was likely to be about using, as Aemetis CEO Eric McAfee once outlined it to The Digest, “first generation assets and positive cash flow as a basis to adopt advanced fuel and chemical technology, lowering risk while building an operations team, revenues and cash flow.”

Since then, there have been an big number of new advanced biofuels technologies coming to scale: INEOS Bio, KiOR, Beta Renewables, Amyris (AMRS), Aemetis, BioProcess Algae, Dynamic Fuels, Neste Oil (NEF.F), Diamond Green Diesel and Gevo (GEVO) to name a few — with POET, Abengoa (ABGB), GranBio, Raizen, and DuPont (DD) ready to join the list in upcoming months. REG (REGI) has been producing advanced biofuels at scale all along, and has expanded remarkably.

None have followed the Bioenergy Project of the Future playbook exactly — and some of them have bypassed the script altogether and chosen a different strategy as a path to commercial success, and we’ve wished them all well, as we always do here in Digestville.

But at this juncture, they are worth repeating, the first five steps.

Five steps to success from the Bioenergy project of the Future

Step number one: Buy an existing ethanol or biodiesel plant, or equivalent. Why? We learned that projects “not only have to demonstrate technological prowess in bioprocessing, we have to demonstrate financial and management acumen to all our stakeholders – the community, policymakers, lenders, and customers. As well as to begin to establish that eco-system of relationships in our community that will serve us later on, when we add-on riskier and more advanced second-generation features.”

Step number two: a graduated series of bolt-ons, beginning with the collection of cellulosic (or residue-based, that is to say, lower-cost, non-food) biomass. First, we have to demonstrate that we can build a sustainable ecosystem around the harvest and delivery of biomass.

Step number three: Add renewable chemicals. We heard that “If we have learned anything from the stories of hot companies like Amyris, Gevo, Solazyme (SZYM), or Cobalt Technologies, as well as exciting pure-plays like Genomatica, Heliae, Verdezyne, Segetis, Elevance, or Rivertop Renewables, it is the importance of producing chemicals or other bio-based materials first to generate revenues, before taking the company further down the cost curve and up in scale in order to make competitively-priced renewable fuels.”

Step number four: Add renewable fuels. No longer are we producing advanced biofuels “because we can”, as a demonstration of technology. We are demonstrating the power of our network of relationships in the community, and the power of our growing balance sheet. Now that capacity expands and we begin to saturate some of the market we developed in high-value organic acids, we turn to the fuel market with a capacity expansion effort.

Step number five: add algae. ”Monetize the CO2,” we heard. By adding technologies that will help create renewable fuels from the CO2 we are producing as a byproduct, adding economic strength as well as reducing our carbon footprint.

Looking at Aemetis’ run of success

The strategy of the company has generally been clear for years – which is generally summarized in Step One of the “five steps to success”: buy an existing ethanol or biodiesel plant (or, own one already), and begin to aggressively bolt-on technologies that improve the financials of the business.

We’ve seen a number of companies go that route. Amyris, Gevo, Raizen, POET, Green Plains (GPRE), and REG among them, in addition to Aemetis. Some investors may feel that the “Add ingredients slowly and stir” part was to an extent overlooked at Amyris, KiOR, and Gevo — certainly, the pressure to keep up a very high pace towards commercialization is something that all VC-backed firms feel.

Virtually all ethanol plants have been bolting on and improving. Water efficiency, energy efficiency, corn oil extraction, and so on. Some more boldly than others. Diversification of feedstock has been a hallmark of REG’s successful strategy in biodiesel — but we hear less about it in the ethanol business.

“Our fourth quarter 2013 results reflect a year of record financial performance and significant progress for Aemetis,” said McAfee in a statement accompanying the results. “During 2013, we diversified our feedstock. After retrofitting and restarting our plant in May 2013, we processed about 84 million pounds (42,000 tons) of grain sorghum; became the first US ethanol plant approved by the EPA to produce lower-carbon, higher-value Advanced Biofuels (and to receive D5 RINs) using sorghum/biogas/CHP; and upgraded our India plant by constructing and commissioning a biodiesel distillation unit. These efforts translated into record levels of revenue from our India operations, and company-wide records for operating income and Adjusted EBITDA,” he added.

The company certainly benefited from the relatively high “crush” spread between energy and feedstock prices — but also, Aemetis put itself in a position to earn D5 RINs and utilize diversified feedstock. As Jack Nicklaus once observed, “If I played well and prepared myself properly, then all I had to do was control myself and put myself in a position to win.”

But we’re struck by the way that the Aemetis run adhered to the playbook based on all those interviews with industry back in 2010. Buy an ethanol plant. Add cellulosic feedstock. Think fuels, but also think chemicals and other high-value and high-demand markets (such as jet fuel). Think about monetizing CO2 via algae. Those were ideas that were — four years ago, everywhere, on everyone’s mind.

It is reminiscent of something else right out of the Jack Nicklaus playbook: “Don’t be too proud to take lessons. I’m not.”

The steps to success: who employs what, and how

In the case of step two, most companies skipped it — either working with traditional feedstocks or counting on other companies to successfully shepherd the aggregation of biomass. Gevo and Amyris have continued to work with traditional corn and cane as feedstocks. Valero partnered with Darling (DAR). But others have developed aggregation systems and direct relationships with growers: KiOR, Beta Renewables, POET, DuPont and Abengoa among them. Raizen and GranBio are working with bagasse, already aggregated at ethanol plants in Brazil. Most of them will tell you they learned a lot from the process.

In the case of step three and step four, the decision to produce chemicals first and fuels later has been a choice embraced only by a few, primarily Gevo and Amyris amongst those who have reached scale. Solazyme will join them when their plant opens in Brazil. Most — like Dynamic Fuels, Neste Oil, REG, POET, DuPont and Abengoa — have opted for the fuels market. In part that is because of the role of RINs in the marketplace, the renewable fuels credits that add value to the fuels side (and are valueless for chemical off-takers). That’s part of the design of the Renewable Fuels Standard — not only to incentivize obligated parties to buy advanced alternative fuels, but to ensure that producers have a financial incentive in the nearer-term to make $3 fuels when there are $5 chemicals to be made.

In the case of step five, the decision to embrace algae as a pathway to monetizing the CO2 that vents from a first-generation ethanol plant — well, Green Plains is well advanced down that pathway in its BioProcessAlgae JV.

Why companies struggle

As I outlined in a private note to readers two months ago, why sector executives tell The Digest is that “it comes down to knowledge, and how you use it, adding that “if you have real dialogue by the real leaders about the real issues, the best technologies and companies will be able to gain the knowledge and competitive edge they need. And I believe…that no company can succeed without industry-leading knowledge in every aspect of its operations.”

But we’ll add one more factor we hear about. Time. It’s very tempting, in the digital age, to want new manufacturing technologies to proceed to scale and commercial success in very short time frames — to meet corporate hurdle rates or expected rates of return from investment in venture funds. It’s a competitive market for capital, after all, and companies with elevated risks require the potential for elevated returns in order to attract capital at all.

The Bottom Line

Let’s keep the results of one quarter or year in perspective — in the months ahead, the technology of KiOR is expected by its owners to reach steady-state operations and its fortunes would then revive in the financing markets.

And, the economics of sorghum and biogas, or the RIN values for advanced biofuels, may not prove as attractive in the coming months as they have in the past several, for Aemetis.

But in 2010, when we spoke to executives about the Bioenergy Project of the Future, we did hear a drumbeat of interest in the model based on building “first generation assets and positive cash flow as a basis to adopt advanced fuel and chemical technology, lowering risk while building an operations team, revenues and cash flow.”

It’s been a long-run for Aemetis and KiOR, both — and their stories are still in incomplete form.

But it’s clear enough to us here in Digestville that there’s not much we’re seeing now that we didn’t hear about back in 2010. As Socrates once remarked of The Republic, the ideal city-state, “it exists in the heavens, like a constellation, as a pattern for those able to see it. And seeing, they can found a Republic in themselves.”

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.

March 19, 2014

Can KiOR Continue As A Going Concern?

Jim Lane

KiOR LogoDelayed 2013 results includes going concern statement. Future Khosla financing contingent on milestones. Default looms as soon as April. Financing after August unclear.

In Texas, KiOR (KIOR) announced a $347.5M net loss for 2013, and issued a “going concern” statement that focused on its ability to raise future capital to sustain operations and build its next plant.

In a 10-K filing with the SEC made today, the company said that “Currently, we have ceased work on a series of optimization projects and upgrades at the Columbus facility and are bringing the facility to an idle state,” and warned:

“If we are unsuccessful in finalizing definitive documentation with Mr. Khosla on or before April 1, 2014, we will not have adequate liquidity …This will likely cause us to default under our existing debt and we could be forced to seek relief under the U.S. Bankruptcy Code.”

Excerpts from the KiOR 10-K are provided below. The complete statement is available here.

Excerpts from the KiOR statement

We have substantial doubts about our ability to continue as a going concern. To continue as a going concern, we must secure additional capital to provide us with additional liquidity. Other than the Commitment from Mr. Khosla to invest in us a cash amount of up to an aggregate of $25,000,000 in available funds in a number of monthly borrowings of no more than $5,000,000 per month, we have no other near-term sources of financing.

Because the Commitment is subject to the negotiation and execution of definitive financing documents and the achievement of performance milestones, we cannot be certain as to the ultimate timing or terms of this investment.

If we are unsuccessful in finalizing definitive documentation with Mr. Khosla on or before April 1, 2014, we will not have adequate liquidity to fund our operations and meet our obligations (including our debt payment obligations) and we do not expect other sources of financing to be available to us. This will likely cause us to default under our existing debt and we could be forced to seek relief under the U.S. Bankruptcy Code (or an involuntary petition for bankruptcy may be filed against us). In addition, any new financing will require the consent of our existing debt holders and may require the restructuring of our existing debt.

If we successfully achieve our performance milestones that allow us to receive the full Commitment in the near term, we expect to be able to fund our operations and meet our obligations until August 31, 2014, but will need to raise additional funds to continue our operations beyond that date.

During the first quarter of 2014, we commenced a series of optimization projects and upgrades at our Columbus facility. The optimization projects and upgrades are targeted at improving throughput, yield and overall process efficiency and reliability. In terms of throughput, we have experienced issues with structural design bottlenecks and reliability that have limited the amount of wood that we can introduce to our BFCC system. These issues have caused the Columbus facility to run significantly below its nameplate capacity for biomass of 500 bone dry tons per day and limited our ability to produce cellulosic gasoline and diesel.

We have identified and intend to implement changes to the BFCC, hydrotreater and wood yard that we believe will alleviate these issues. In terms of yield, we have identified additional enhancements that we believe will improve the overall yield of transportation fuels from each ton of biomass from the Columbus facility, which has been lower than expected due to a delay introducing our new generation of catalyst to the facility and mechanical failures impeding desired chemical reactions in the BFCC reactor.

In terms of overall process efficiency and reliability, we have previously generated products with an unfavorable mix that includes higher percentages of fuel oil and off specification product. Products with higher percentages of fuel oil result in lower product and RIN revenue and higher overall costs. We have identified and intend to implement changes that we believe will further optimize our processes and increase reliability and on-stream percentage throughout our Columbus facility.

We are also aiming to make reductions to our cost structure by, among other things, decreasing natural gas consumption by the facility. While we have completed some of these projects and upgrades, we have elected to suspend further optimization work and bring the Columbus facility to a safe, idle state, which we believe will enable us to restart the facility upon the achievement of additional research and development milestones, financing and completion of the optimization work. We do not expect to complete these optimization projects until we achieve additional research and development milestones and receive additional financing.

Subject to our ability to achieve these additional research and development milestones, our ability to raise capital, our ability to successfully complete our optimization projects and upgrades and the success of these projects and upgrades in improving operations at our Columbus facility, we intend to begin construction of our next commercial production facility, which we do not expect to occur before the second half of 2015 at the earliest. We will also need to raise additional capital to continue our operations, build our next commercial production facility and subsequent facilities, continue the development of our technology and products, commercialize any products resulting from our research and development efforts, and satisfy our debt service obligations.

Currently, we have ceased work on a series of optimization projects and upgrades at the Columbus facility and are bringing the facility to an idle state. These projects were targeted at improving throughput, yield and overall process efficiency and reliability and to address problems we have had to date in the Columbus facility with structural design bottlenecks and reliability issues, operations below nameplate capacity, unfavorable product mix and higher costs due to overall process inefficiencies.

As a result of this cessation of operations, we are unable to estimate 2014 production levels.

Subject to our ability to achieve these additional research and development milestones, our ability to raise capital, our ability to successfully complete our optimization projects and upgrades and the success of these projects and upgrades in improving operations at our Columbus facility, we intend to begin construction of our next commercial production facility, which we do not expect to occur before the second half of 2015 at the earliest. We will also need to raise additional capital to continue our operations, build our next commercial production facility and subsequent facilities, continue the development of our technology and products, commercialize any products resulting from our research and development efforts, and satisfy our debt obligations.

We have generated net losses of $347.5 million, $96.4 million and $64.1 million for the years ended December 31, 2013, 2012 and 2011, respectively, as well as total of $525.5 million of operating losses and an accumulated deficit of $574.3 million from our inception through December 31, 2013. We expect to continue to incur operating losses until we construct our first standard commercial production facility and it is operational.

As discussed above, we have substantial doubts about our ability to continue as a going concern and we must raise capital in one or more external equity and/or debt financings to fund the cash requirements of our ongoing operations. Other than the Commitment from Mr. Khosla, all of our other committed sources of financing are contingent upon, among other things, our raising $400 million from one or more offerings, private placements or other financing transactions, which we do not expect to occur prior to the completion of the optimization projects and upgrades at our Columbus facility.

Analyst reaction

Piper Jaffray’s Mike Ritzenthaler writes:

“We are downgrading shares of KIOR to Neutral (from Overweight) and lowering our price target to $1 (from $3) following the company’s 10-K filing yesterday…additional liquidity in the form of $42.5 million of convertible debt was raised in 4Q13. In our opinion, it no longer seems reasonable that a substantial liquidity infusion outside of expensive ‘just in time’ insider debt is likely over the next 12 months.

“We believe that the pace of the commercial scale-up in 2014 will be too methodical to keep investors interested in the company’s progress. Additionally, rising levels of expensive insider debt will likely be the only material source of funds to compensate for quarterly cash burn, and we see no reason to believe that covenant issues will abate over the coming 12 months (indeed, they will likely intensify as the ‘cash loop’ gets larger). Ultimately, we believe that investor patience will be worn too thin before Columbus is capable of operating at nameplate capacity, absorb all the fixed production costs, and turn a gross profit — allowing the company’s auditors to remove the going concern language from its filings and finally enabling the company to pursue a healthier balance sheet.”

Cowen & Co’s Rob Stone and James Medvedeff write:

“Q4:13 included a $196MM write-down of Columbus and Natchez engineering work; Columbus is expected to remain idle until R&D on improvements is completed (likely six months). A $25MM commitment from Khosla could fund operations through August, but more funding will be needed. We are suspending our rating and price target due to lack of visibility on continued operations and funding sources.”

Raymond James’ Pavel Molchanov writes:

“While we are still fans of the technology platform, we have slim confidence in positive catalysts over the next six to 12 months, and the prospect of equity dilution is also concerning.

“With $25 million of cash at year-end, given the commitment from the company’s largest shareholder, KiOR also needs to raise capital for near-term funding needs. We don’t doubt the company’s ability to raise the funds, but there is no escaping further near-term dilution – which is especially painful given the current market cap. As such, the “going concern” statement included in the 10-K should not come as a major surprise – the auditors required the statement because the company does not have committed financing to cover a full 12 months of costs.

“The good news is that Vinod Khosla, one of Silicon Valley’s wealthiest venture capitalists and the primary shareholder who owns a controlling position in the stock, remains committed to the story. The company has received a $25 million commitment in interim funding from Khosla until additional long-term financing can be secured. This commitment, together with cash on hand, covers expected costs through August.”

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.

March 18, 2014

Gevo: Are We There Yet?

by Debra Fiakas CFA

The renewable chemicals and biofuel company Gevo, Inc. (GEVO:  Nasdaq) is scheduled to report fourth quarter 2013 financial results on March 25th.  Analysts have a couple of weeks to prepare questions for management during the earnings conference call.  Top on the list has to be got to be about Gevo’s recent agreement to license its novel isobutanol technology to Porta Hnos of Argentina.  Porta Hnos is a well established ethanol producer so if the license is consummated, it is expected that this partner has the ability to execute on plans to produce isobutanol for the South America market.

Isobutanol is popular as a solvent, but it has a plethora of applications across several industries.  It is used in paint solvents, varnish removers and automobile polish.  Importantly it is a building block for plastic bottles and synthetic textiles.  It even has a use in food production as a flavoring agent.  That all adds up to the kind ‘very large market opportunity” that generates strong sales and profits.

Gevo has already begun production for other markets and the company has several off-take agreements and supply agreements in place, including Sasol Chemical Industries and Land O’Lakes Purina Feed.  The company has also been diligent in putting together development agreements with high profile customers like Coca Cola and the U.S. Army to build the market for its isobutanol made from the fermentation of sorghum, barley wheat or corn.

In December 2013, Gevo announced successful test flights by the U.S. Army with a Black Hawk helicopter fueled up with a 50/50 blend of Gevo’s alcohol-to-jet fuel and conventional jet fuel.  The test was part of the Department of Defense program to get all of its craft certified to operate on alternative fuels.  Gevo already had agreed to supply up to 16,000 gallons to the U.S. Army for test purposes, but has yet to get a long-term supply contract.  Thus another great question for Gevo management is what visibility they have into the DOD’s plans for USING alternative jet fuel.

In the most recently reported twelve months Gevo claimed $8.5 million in total sales, resulting in a net loss of $62.6 million.  This is well below revenue levels in previous periods.  Indeed Gevo has had a fairly erratic track record as its isobutanol sales are still at an early stage and have not yet replaced the sale of ethanol that had previously been produced in the company’s Luverne, Minnesota plant.  The cash burn was nearly as discouraging.  Gevo used $52.5 million in cash in the most recently reported twelve months.

The logic of converting an ethanol plant to isobutanol production is understood.  Unfortunately, while we appreciate the route Gevo has mapped out, the journey seems to be taking some time.  What we really need to understand is “ARE WE THERE YET?”  In December 2013, the company raised about $25 million through the sale of common stock and warrants.  Some of the money will be used to ramp up production at the Luverne plant.

A review of recent trading patterns in GEVO has not been encouraging. Many of the technical formations in recent months point to continued bearish sentiment.  One source of concern for shareholders has been the suppressive effects of the recent common stock issuance on near-term trading.  Shareholders need to know if the pain of dilution is going to be worth it.
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.

March 04, 2014

Solazyme and the Year of Living Dangerously

Jim Lane
solazyme logo

Solazyme steps up to slay the scale-up dragon.

Will the company stay on its scale-up schedule, at the final step where Amyris, Gevo and KiOR ran into crushing delays?

In California, Solazyme (SZYM) announced results for the fourth quarter and full year ended December 31, 2013.

The Results

Q4 Revenue (vs Q4 2012): $11.3M (+34%)
Q4 Net (vs Q4 2012): -$33.3M (+35%)
2013 Revenue (vs 2012): $39.8M (-10%)
2013 Net (vs 2012): -$116.4M (+40%)

So — widening losses, falling annual revenue. So, why the excitement amongst most of the analysts?

2013 Highlights

Scale-up: Completed construction at 20,000 MT Archer-Daniels-Midland Company (ADM) facility in Clinton, IA; downstream companion facility operated by American Natural Products in Galva, IA; neared completion of 100,000 MT SB Oils facility in Brazil.

R&D Partnerships: Partnership inked with Mitsui & Co., new JDA with AkzoNobel, and extension of JDA agreements with Bunge Limited and Unilever.

Offtake: 10,000 MT supply agreement inked with Unilever; also, agreements with Goulston Technologies and Koda Distribution Group.

New platforms: Development announced with myristic, oleic, erucic, capric and caprylic Tailored oils.

Algenist Sales Growth: Algenist revenues totaled $19.9 million in 2013, a 21% increase versus 2012. The Algenist brand also won the 2014 Marie Claire Prix d’Excellence de la Beauté in France. Algenist was unanimously selected by the judging panel.

Bunge's Moema sugar mill
Bunge's Moema sugar mill

Bunge’s Moema sugar mill

The analyst bulls speak:

Pavel Molchanov, Raymond James

Price target: $12.50. The versatility of Solazyme’s algae-produced oils opens the door to wide-ranging opportunities across the fuel, chemical, personal care, and nutrition markets. While fully recognizing the inherent execution risks in early-stage industrial biotech, we are bullish on the roadmap to commercialization, with two major proof points during 1H14. The balance sheet is also in great shape, with the largest cash balance in the peer group, virtually eliminating equity dilution risk over the next 12 months. We reiterate our Outperform rating.

Ben Kallo, Tyler Frank, Baird

Price target: $18. We reiterate our Outperform rating and are increasing our price target to $18 following SZYM’s Q4 earnings. SZYM made critical strides during Q4 and the first part of 2014 in commercializing its Clinton, IA factory and began commissioning its factory in Brazil. Although scale-up risk remains, early runs show that SZYM can produce and sell several types of oils at commercial scale. We will continue to follow its production ramp and would be buyers of the stock at current levels.

Rob Stone, James Medvedeff, Cowen & Co

Price target: $17.00. The Q4:13 loss per share of 49c was wider than St. (38c), but essentially in-line with our (48c) estimate on higher expenses, mainly Clinton startup costs. Clinton is in production. Moema has begun fermentation at 125K liter scale; full production is expected in March/April. We cut estimates to a more conservative ramp/ASP/GM profile, but raise our PT to $17 (vs. $14) as startup risks are easing.

The Bear: Mike Ritzenthaler, Piper Jaffray

Price target: $4.00. We maintain our Underweight rating and $4 price target on shares of SZYM following a 4Q print that included a GAAP EPS loss of ($0.40) on revenues of $11.3 million versus PJC estimates of ($0.28) on $11.8 million. Looking past the shortfall in sales relative to our estimate and the company’s guidance, our main takeaways from the results and the call last evening are that product prices will not likely be above $2k per MT this year, that Solazyme likely lacks sufficient liquidity to ramp both Clinton and Moema to full rates, and that the Moema startup is likely a 2Q event (versus management’s previous target of 1Q).

In the Outlook


Molchanov notes: “Clinton producing, Moema is next. On December 23, we noted that Solazyme is on the cusp of two major milestones along its commercialization roadmap. The first of these materialized on January 30, as commercial-scale production began at the Clinton, Iowa plant, a project built in collaboration with Archer Daniels Midland.

“Consistent with past commentary, production at the Clinton facility will ramp over 12 to 18 months – along a back-end-loaded “S curve” – until reaching nameplate capacity of 20,000 metric tons per year. (Year-to-date, 500 metric tons among three distinct products have been produced, with selling prices averaging $2,600/ton and the high end at $3,700/ton.) Over time, there is room to expand capacity to 100,000 metric tons per year.

“This also happens to be the capacity of the Moema plant in Brazil (a joint venture with Bunge), which is currently being commissioned, with fermentation set to start in March and product recovery in April. At that point, Solazyme will be the first player in the algae bioindustrial arena to have achieved commercial-scale production in both North and South America.”

Ritzenthaler cautions: “Notables from the call include pricing pressure and further delays at Moema. Management stated on the call that they do not expect initial ASPs to be above $2k per MT – a harbinger, in our opinion, of the effects of building capacity ahead of demand. We do not share management’s confidence in their long-term margin targets, with straight-forward production economics combining with what we believe to be a lower level of pricing power to paint a very different picture. With the Recovery area still under construction, and four weeks to the end of 1Q14, the startup of Moema on an integrated basis will almost certainly be a 2Q event.

Positive cash flow

Molchanov says: “Positive cash flow on tap for 2015. While the ramp-up of production will certainly not be linear – as is always the case in industrial biotech – we anticipate utilization rising to 50% in 4Q14. This translates to a nearly four-fold increase in total revenue from 4Q13 to 4Q14. To be clear, Solazyme can get to positive cash flow at the corporate level (in 2015) even before full utilization at either Clinton or Moema.”

Kallo & Frank add: “Two commercial factories ramping in 2014. Clinton is currently producing ~500 MT per month and Moema is on track to begin commercial production by Q2:14. Importantly, SZYM scaled three different oil-based products at Clinton and has a fourth underway. Management believes the ramp of both (Clinton and Moema) facilities will take 12-18 months and expects to be cash flow positive by 2015.

Averaged price target (4 analysts)

$12.87. Feb 28 closing price: $12.27.

Reaction from Solazyme

“2013 was a year of great progress for Solazyme as we readied our first major capacity projects, signed new commercial supply agreements, added important joint development partners, and further expanded our portfolio of Tailored oils,” said Jonathan Wolfson, CEO of Solazyme. “In the first half of 2014, we are focused on successfully executing Solazyme’s entry into broad commercial operations. We have begun shipping multiple products from the Clinton/Galva, Iowa facilities and are deep into commissioning in Brazil as we complete the first-of-its-kind 100,000 MT Solazyme Bunge Renewable Oils (SB Oils) facility at Moema. In these early days we are focused on generating consistent and reliable production for our partners, ahead of accelerating our production ramp later this year.”

“Solazyme’s 2013 results included 21% growth in our most commercially mature business, as our Algenist skin care line expanded its product offerings and geographic footprint. We also delivered on all of our joint development milestones for our partners,” said Tyler Painter, CFO of Solazyme. “We anticipate continued growth in these revenue streams in 2014 and look forward to growing product revenues from commercial supply of our products later this year as we ramp commercial production. In the meantime, Solazyme remains in a healthy financial position as we complete our first plants and prepare to broadly scale operations.”

The Digest’s Take: The Year of Living Dangerously

2014 is Solazyme’s take-off year. After more than a decade as a development-stage company, now begins the real-scale up of operations and revenues.

We’ll know about scale-up by year-end — by then, SZYM will be past the Hillary Step where AMRS, KIOR and GEVO stumbled…or not. We also should know if the product demand is there at prices that meet the market’s anticipations.

Incremental steps along the way. Mechanical completion on all aspects in Q2. And look for any warnings on the commissioning process in Q3, plus news on the customer front.

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.

February 08, 2014

Biofuels Companies Rev Up While Oilcos Sputter

Jim Lane 

What’s going on – aren’t biofuels supposed to be dead, and fracking changing everything forever in oil & gas?

Yet, tough times for growth at the public oil companies, while bellwether renewable fuel equities are on the rise.

Why aren’t results tracking the hype?

It’s earnings season — time to look away from the pundits, the fans, and the Las Vegas oddsmakers — and look squarely at who made how much, where, when and why. And time to draw some conclusions and look ahead towards the 2014 calendar year.

Neste Oil (NEF.F)

Renewable diesel owner/operator

2013 in review

Overall, a strong year at Neste.

Comparable operating profit totaled EUR 604 million (2012: EUR 355 million), a 70% increase in comparable operating profit, while net cash from operations totaled EUR 839 million (2012: EUR 468 million). The fourth quarter more than held up its end with a Q4 profit of EUR 164 million (Q4/2012: EUR 77 million). Return on capital was 11.8% (2012: 5.0%) and earnings per share were EUR 1.92 (2012: EUR 0.70).

CEO Matti Lievonen commented: “This was the first full year of operations at Renewable Fuels with all plants running at full capacity. The business succeeded in increasing its sales and customer base, particularly in the US, and opened up a new market in Australia. Margins were very strong, both in Europe and North America, during the summer, but declined towards the end of the year. The use of waste- and residue-based feedstock was successfully expanded to 52% of total renewable inputs. Renewable Fuels recorded a full-year comparable operating profit of EUR 273 million compared to a loss of EUR 56 million in 2012.

The 2014 outlook

In the global economy, volatility is expected to continue. Diesel is projected to be the strongest part of the barrel, and gasoline margins are expected to improve seasonally during the spring and summer. While demand for premium-quality base oils is continuing to grow, base oil margins are likely to remain under pressure due to overcapacity.

Vegetable oil price differentials are expected to vary, depending on crop outlooks, weather phenomena, and variations in demand for different feedstocks, but no fundamental changes in the drivers influencing feedstock price differentials are expected. Price differentials between vegetable oils are likely to widen from the current narrow levels during the year 2014 in both Europe and North America.

Uncertainties regarding political decision-making in the US are likely to be reflected in the renewable fuel markets. Examples of pending decisions include the volume targets for biomass-based diesel and renewal of the Blender’s Tax Credit, which both impact the US market. The reintroduction of a US Blender’s Tax Credit for biofuels would impact the result positively. Weakening of the euro against the US dollar would also have a positive impact on the result. Overall, the company is forecasting a full-year comparable operating profit of EUR 500 million in 2014.

Novozymes (NVZMY)

Integrated supplier for renewable fuels fermentation technologies.

2013 in review

Also a good year at Novozymes. All financial targets were met or exceeded for 2013 following a good fourth quarter. Organic sales growth was 7% (5% DKK, 8% LCY), EBIT grew by 6% and net profit by 9%, and the EBIT margin increased by 0.3 percentage point to 24.7% compared with 2012.

Peder Holk Nielsen, President and CEO of Novozymes, comments: “Today we close the books on an eventful 2013 for Novozymes. We delivered a good finish to the year and ended at the high end of our guided ranges for sales growth and above that for earnings. We also signed a number of landmark agreements within Biomass Conversion and BioAgriculture that will enable Novozymes to change the world together with its customers. The outlook for 2014 is positive. We expect that our diversified growth platform will enable us to deliver good sales and EBIT growth. We also expect that The BioAg Alliance will receive the final green light from regulators soon, so we can hit the ground running on developing novel, game-changing BioAg solutions for farmers worldwide.”

The 2014 outlook

2014 is expected to show a continuation of trends seen in 2013. As a result, the outlook for 2014 is positive with good underlying sales and EBIT growth. The outlook includes the expected financial impact from The BioAg Alliance with Monsanto. The BioAg Alliance does not affect the outlook for organic sales growth, but is expected to have a negative impact on sales growth in LCY and DKK of up to one percentage point. The BioAg Alliance is expected to have a positive impact on the EBIT margin of between a half and a full percentage point. All in all, including The BioAg Alliance, Novozymes expects organic and LCY sales growth of 6-9%, sales growth in DKK of 4-7%, EBIT growth of 6-9% and an EBIT margin of 25-26%.

The longer-term for Novozymes

Novozymes is projecting that it will sell enzymes to at least 15 plants by 2017 with a ramp-up in 2015-16. This will include Beta and non-Beta projects.
Another projection is that Beta Renewables will have 15-25 new facilities contracted in 2015-17 (Novozymes made this forecast in 2012, and has not changed it.) Contracted doesn’t mean that the facilities will be complete , and buying enzymes at that time — but, ultimately, sales from those 15-25 projects are expected to be 1B DKK.

Novozymes is also projecting that “The biofuel market in the U.S. moves toward E15” — but Novozymes spokesman Johan Melchior put those expectations into context earlier this week. “At the time of launching those targets (one year ago), E15 appeared to be the way to increase the ethanol consumption in the US. Today, it is a little more opaque as to what could drive ethanol consumption higher. It could be E85, or it could still be E15.

Generally, growth in Novozymes’ corn ethanol business in the U.S. is not predicated on a growing ethanol production. We have launched a series of new technologies to this industry, which is generating a lot of growth today. We have innovation in the pipeline to secure growth in the future. Of course, underlying ethanol volume growth is preferred, but it is not a requirement for growth.

In the context of the company’s overall financial targets, it is also important to remember that U.S. corn ethanol currently only accounts for 14% of our business. This is of course significant, but it remains a smaller part of Novozymes’ business.

The Ethanol sector: Green Plains Renewable Energy, Pacific Ethanol, Aemetis

Let’s look at the ethanol companies, which have been on a complete tear, with an average share price gain of 54.53% in the past three months.

Pacific Ethanol (PEIX)
11/6/13 closing price $3.82
2/6/14 closing price $6.67
Gain: 74.6%

Pacific Ethanol announced this week it will implement yield-enhancing technology at its Magic Valley, Idaho plant. The company chose ICM Inc.’s Selective Milling Technology as a component in its process to increase corn oil production and boost ethanol yields by increasing available starch for conversion.

Neil Koehler, the company’s president and CEO, stated: “We are committed to increasing our product yields, diversifying our revenue streams and improving profitability. We began commercial corn oil production with an ICM-designed system at our Magic Valley plant in mid-2013. SMT complements these operations by increasing both corn oil and ethanol yields and positions our Magic Valley plant for the potential future production of advanced biofuels that builds upon the SMT platform.”

Last month, the company announced it has retired in full its $14.0 million senior convertible notes.

Green Plains Renewable Energy (GPRE)
Closing price 11/6/13: $15.77
Closing price 2/6/14: $23.50
Gain: 49.0%

In Nebraska, Green Plains Renewable Energy announced 4Q net income of $25.5 million compared to net income of $6.7 million for the same period in 2012. Revenues were $712.9 million for Q4 2013 compared to $883.7 million for Q4 2012.

Net income for the full year was $43.4 million, or $1.26 per diluted share, compared to $11.8 million, or $0.39 per diluted share for the same period in 2012. Revenues were $3.0 billion for the full year of 2013 compared to $3.5 billion for the same period in 2012.

“Green Plains generated operating income of $51 million in the fourth quarter and a company record of $108 million for the full year of 2013,” stated Todd Becker, President and Chief Executive Officer. “We have invested in our assets and employees which, we believe, will continue to drive our financial results in the future.” During the fourth quarter, Green Plains’ ethanol production segment produced approximately 209.6 million gallons of ethanol, or approximately 100 percent of its daily average production capacity.

Aemetis (AMTX)
Closing price 11/7/13: $0.20
Closing price 2/6/14: $0.28
Gain: 40.0%

Aemetis announced this week that its 50 million gallon per year capacity biodiesel and refined glycerin production facility in Kakinada, India has been upgraded to produce high-quality distilled biodiesel. The Aemetis plant was built in 2008 using advanced technology to produce biodiesel and refined glycerin using large volumes of lower-cost, non-food by-products from the edible oil industry as feedstock to supply the biofuel, pharmaceutical, and industrial markets.

The Aemetis plant is the only distilled biodiesel producer in India and is one of the only plants in Asia capable of producing large supplies of biodiesel that meet the rigorous European Union (ISCC) standards. During 2013, approximately $20 million of biodiesel was produced by the Aemetis plant in India and delivered to customers in Europe.

What’s driving the results?

These are good years, with strong outlooks for two businesses very much at different ends of the biofuels spectrum — one an enzyme supplier for fermentation technologies associated primarily with ethanol, the other an owner/operator of thermocatalytic refining capacity associated primarily with drop-in renewable diesel. Both have significant operations outside of renewable fuels, but are aggressive in terms of their ambitions in this sector, and realizing substantial results herein.

Reinforcing that there’s very good money to be made in renewable fuels — which may trouble some who fondly remember the days when it was more about a movement than an industry, and small biodiesel co-ops and ethanol co-ops were the order of the day.

But investment chases dollars — and stability — capital being a coward as well as greedy. Growth flows from growth. It demonstrates that the sector is not for the faint of heart — neither Novozymes nor Neste has had a series of free passes handed to them in building up their respective businesses (at one point, one crazy environmental group named Neste the worst company on earth, owing to their use of palm oil) — but the sector is definitely capable of generating the kinds of cash flows that even a hard-hearted, carbon-skeptic Wall Street financier would take an interest in.

Over at the integrated oil companies

Bad fourth quarter and a so-so year at ExxonMobil, Shell, Chevron and BP.

Shell reported a 71% drop in Q4 profits. Exploration costs, production drops and a weak refining & marketing environment were all to blame. Shell’s been backing out of projects — its ethane cracker in Louisiana, and it’s dropping out at Eagle Ford after acquiring 100,000 acres in 2010. Production dropped 4.7% compared to Q4 2012.

Chevron reported a production drop of 3.5% with revenue down 3.6% and earnings down 18,3 percent compared to 2012. Like Shell, they have dumped their oil shale project.

ExxonMobil. Earnings dropped 24% YoY, and costs rose 7%. Q4 was a little better, down 13% over Q4 2012. Production dropped 1.8% compared to Q4 2012. Both exploration & production and the refining & marketing businesses were down — profits dropped by half in the downstream.

BP. Profits are down 28% compared to Q4 2012, and 23.4% for the full year compared to 2012

The bottom line

For investors

Short-term. The Biofuels Digest Index, up 1.2% in the past year. Ethanol equities up 54%. A basket of Chevron, BP, Shell and ExxonMobil, down 1.9% in the same period. Neither looks all that great given the big run-up in the S&P 500, but certainly there’s a delta between the two that’s worth some thinking. Especially given that the BDI was somewhat dragged down by the weak performance of BP and Shell, two components of the Index.

Mid-term. Here’s the bad news on fracking. Polish reserve estimates were cut by 85% after drilling began, and operations in Romania were challenging given environmental opposition. On renewables: we recently projected 6B+ gallon in new advanced biofuels projects scheduled to be online by 2019. That’s just over 400,000 barrels per day — just enough to provide some pause for thought for the mid-term investor.

Long-term. If you are thinking long-ish term in the energy space, the production declines, fracking challenges, and the cancellations with respect to oil shale (kerogen oil) tend to confirm that the world is looking at $100+ production costs in terms of the marginal fields that will be needed to keep up with the IEA’s forecast for sharp increases in energy demand through 2035. Clearly, the space is ripe for another technology breakthrough either in fossil oil or renewable yields.

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.

February 01, 2014

Dyadic: Congenial Customer Relations

by Debra Fiakas CFADyadic Logo

A continuous quest to find companies that can turn sales into profits has turned up an unlikely font of cash.  Dyadic International (DYAI:  OTC/PK) is a developer of industrial enzymes.    Back in the day the company sold enzymes to the rag trade to create those fancy jeans with the stone washed look.  More recently Dyadic has worked with Abengoa (ABGB: NASD) and Codexis (CDXS : NASD) in support of their renewable fuel processes.

Dyadic uses the fungus Myceliopthora thermophila in a fungal expression system for gene discovery, expression and the production of enzymes and proteins.  Dyadic ferments the fungus, called C1 for short, at commercial scale to speed up time to new product introduction and reduce cost.  The company has been successful in getting its innovations protected with a series of U.S. patents  -  an important shield in the somewhat crowded industrial enzyme playing field.  The most recent patent award came in November 2013 for a method to use novel combinations of enzymes to convert lignocellulosic biomass into fermentable sugars.

Yet, let’s get to the cash flow news.  In the twelve months ending September 2013 the company claims to have earned $15.7 million in sales from customers, largely to sales of enzymes to animal feed producers.  The company declared a net loss in the annual period but claims to have squeezed $5.7 million in operating cash flow out of $15.7 million in total sales.

The thing is, Dyadic’s financial news is unverified.  The company issues press releases and submits reports to OTC Markets where its stock price is quoted.  However, it files no reports with the Securities and Exchange Commission and does not have its books audited.

Investors have to treat Dyadic as a private company, conducting the sort of intense scrutiny needed to dig into information held close to the vest.  Even though the OTC Markets calls for financial reports from quoted companies that are in a style and format reminiscent of SEC reports, it would be ill advised to assume that preparation of reports to OTC Markets are as vigorous.  One plus for Dyadic is an audit of its annual report by a recognized regional auditor.

Dyadic and its founder/CEO Mark Emalfarb have a colorful history.  It is worthwhile to check out the story as a means to get perspective on Dyadic’s present reporting and trading circumstances.  It involves a Hong Kong subsidiary, allegations of accounting improprieties, quite a lot of finger pointing and numerous lawsuits.  The dust appears to have settled on most of it and the company has moved on to new product introductions and customer relationships.  Still Dyadic has still not resumed filing reports with the SEC and that leaves DYAI quotation on the OTC Pink service.

Approximately 27,000 DYAI shares trade each day.  The recent $0.08 spread between the bid and ask prices is surprisingly narrow for an OTC quoted security.  It is a company with some blemishes.  What is more, a position in DYAI could be one of the more time consuming in your portfolio, given the level of due diligence required to manage the risk. 

Yet recent developments suggest there could be more sales and cash flow in Dyadic’s future.  Dyadic is to have received a $1.0 million milestone payment from BASF related to research work and licensing in the December 2013 quarter.  A long-time relationships with Abengoa is about to enter commercial stage as that company’s cellulosic ethanol plant in Kansas goes into volume production in 2014.  Royalty payments should follow.  Dyadic is brewing up its second target protein for Sanofi that will ultimately end up in pre-clinical tests.  As long as Dyadic management can keep its customer relationships congenial, it prospects are certainly looking up.

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.

January 23, 2014

Renewable Energy Group Acquires LS9

Jim Lane

A stunner at NBB. Renewable Energy Group (REGI) deploys its balance sheet — and takes aim at renewable chemicals — as it acquires the storied LS9.

In Iowa, Renewable Energy Group (REGI) announced it has acquired LS9 for a purchase price of up to $61.5 million, consisting of up front and earnout payments, in stock and cash. Most of the LS9 team, including the entire R&D leadership group, will join the newly named REG Life Sciences, LLC, which will operate out of LS9’s headquarters in South San Francisco, CA.

Under the terms of the agreement between REG and LS9, REG paid $15.3 million in cash and issued 2.2 million shares of REG common stock (valued at approximately $24.7 million based on a trading average for REG stock) at closing. In addition, REG may pay up to $21.5 million in cash and/or shares of REG common stock consideration for achievement of certain milestones over the next five years related to the development and commercialization of products from LS9’s technology.

The technology

LS9’s proprietary technologies harness the efficiency of the fatty acid metabolic pathway of microorganisms and are expected to make a wide range of renewable chemicals for large, diverse markets such as detergents and personal care, as well as renewable fuels. LS9’s technology platform can utilize diverse feedstocks including conventional corn and cane sugars, low-cost crude glycerin from biodiesel production, and cellulosic sugars. LS9 is a cornerstone investment for REG Life Sciences, which also plans to develop adjacent and complementary fermentation technologies.

All about LS9 here in our 5-Minute Guide to their technology and story.

Follows the Syntroleum acquisition

Last month, REG announced that it would acquire substantially all of the assets of Syntroleum Corporation (SYNM), and assume substantially all of the material liabilities of Syntroleum, for 3,796,000 shares of REG common stock worth $40.08 million at today’s market close.

Syntroleum has pioneered Fischer-Tropsch gas-to-liquids and renewable diesel fuel technologies, has 101 patents issued or pending, and owns a 50% interest in Dynamic Fuels, LLC, a 75-million gallon renewable diesel production facility in Geismar, Louisiana.

”Syntroleum and its 50%-owned subsidiary Dynamic Fuels represent an attractive entry path for REG into renewable diesel,” Oh continued. “They have invested substantial resources in their Bio-Synfining technology, which enables the economical conversion of lipid-based biomass into diesel and jet fuel. Their technology and products complement our core biodiesel business.”

Restarting in Iowa and Texas

In October, REG was primping up its core biodiesel business in Iowa when it held a ribbon cutting ceremony to formally open their recently acquired biodiesel refinery in Mason City and announced it has begun a $20 million project to upgrade the plant to a multi-feedstock facility. REG completed the acquisition of the former Soy Energy, LLC refinery on July 31, 2013. REG immediately began efforts to repair and re-start the plant and began producing biodiesel on October 1.

And back in July, REG re-opened the former North Texas Bio Energy plant it bought in November. The waste cooking oil and fats biodiesel plant in Western Bowie County can produce 15 million gallons of biodiesel annually.

Reaction from REG and Khosla

“This acquisition is a major step in realizing REG’s strategy to expand into the production of renewable chemicals and other products,” said Daniel J. Oh, Renewable Energy Group President and CEO. “The industrial biotechnology platform and robust patent portfolio LS9 has been building will now be combined with REG’s proven production and commercialization capabilities to accelerate the commercial introduction of renewable chemicals to meet increasing customer demand for sustainable products.”

“LS9 is a leader in developing technology for the next generation of chemicals and fuels to be produced from renewable feedstocks rather than petroleum,” said Vinod Khosla, founding partner of Khosla Ventures, an investor in LS9. “REG’s proven capabilities, track record for execution, and access to lower cost feedstock make it an ideal partner to commercialize LS9’s technology.”

What’s it all mean?

Two takeaways.

1. LS9′s investors bail with a so-so deal. Keep in mind, LS9 raised $75 million in its four public funding rounds. $5M in 2006′s Series A, $15M in a 2007 Series B, $25M in a 2009 Series C that brought in Chevron in addition to Flagship, Khosla and Lightspeed, and $30M in a 2010 Series D that added BlackRock. Not to mention sweeteners given to insiders, and the founder’s stock.

But there’s upside in the REG shares — if the shares double — and LS9′s team hit their milestones — the investors may recoup their investment and more.

2. Renewable diesel and chemicals. That’s what’s hot and that’s where REG is pointing its long-term strategy, as a complement to biodiesel, as it charts its path forward and also puts its strong balance sheet to work.

Is this more about renewable diesel or chemicals? We think the latter, short-term. The Syntroleum acquisition creates the short-term capacity for renewable diesel – LS9′s strengths lie also in areas such as surfactant alcohols — and other designer molecules. And we see REG having the market heft to take this to scale when the technical readiness is there.

The feedstock problem

As with biodiesel, LS9′s technology bumps up against a feedstock problem — it requires reasonably pure sugars, for now. Although Jay Keasling’s lab has done work to expand LS9′s capabilities to waste biomass.

Jim Lane  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.

December 19, 2013

REG Enters Renewable Diesel With Syntroleum Purchase

Jim Lane

In Oklahoma, and Iowa, Renewable Energy Group (REG; NASD:REGI) announced that it would acquire substantially all of the assets of Syntroleum Corporation (NASD:SYNM), and assume substantially all of the material liabilities of Syntroleum, for 3,796,000 shares of REG common stock worth $40.08 million at today’s market close.

The purchase price subject to reduction in the event that the aggregate market value of the REG common stock to be issued would exceed $49 million or if the cash transferred to REG is less than $3.2 million).

“This will help us grow our advanced biofuel business, enhance our intellectual property portfolio, expand our geographic footprint and launch REG into new customer segments.”” said REG CEO Daniel Oh.

Syntroleum has pioneered Fischer-Tropsch gas-to-liquids and renewable diesel fuel technologies, has 101 patents issued or pending, and owns a 50% interest in Dynamic Fuels, LLC, a 75-million gallon renewable diesel production facility in Geismar, Louisiana.

”Syntroleum and its 50%-owned subsidiary Dynamic Fuels represent an attractive entry path for REG into renewable diesel,” Oh continued. “They have invested substantial resources in their Bio-Synfining technology, which enables the economical conversion of lipid-based biomass into diesel and jet fuel. Their technology and products complement our core biodiesel business.”

Syntroleum’s Board of Directors unanimously approved the asset purchase agreement and recommends that Syntroleum stockholders vote in favor of the transactions contemplated by the asset purchase agreement at a special meeting of stockholders to be convened for that purpose.

“Today’s announcement marks the culmination of our comprehensive process to review Syntroleum’s strategic alternatives to enhance shareholder value,” said Syntroleum President and CEO, Gary Roth. “We are confident that REG’s multi-feedstock business model and the combination of our strong management teams is the best path forward for Syntroleum.”

Syntroleum’s Board of Directors also has approved a plan of dissolution for Syntroleum pursuant to which Syntroleum will be liquidated and dissolved, in accordance with Delaware law, following consummation of the asset sale and subject to stockholder approval of the plan of dissolution at the special meeting.

The asset sale is expected to close in the first quarter of 2014, subject to satisfaction or waiver of the closing conditions.

More on the story.

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.

December 16, 2013

Total and Amyris Take Another Step Down The Aisle Towards Commercial Biofuels

Jim Lane amyris logo

Total elects to bottle up the IP and protect itself against Amyris “hardship” as it advances towards commercializing key biofuels.

In California and France, Amyris (AMRS) and Total announced the formation of Total Amyris BioSolutions B.V., a 50-50 joint venture that now holds exclusive rights and a license under Amyris’s intellectual property to produce and market renewable diesel and jet fuel from Amyris’s renewable farnesene. Amyris also plans to initiate sales of renewable jet fuel in Brazil once it achieves ASTM validation.

“The joint-venture Total Amyris Biosolutions is a first step towards the commercialization of our renewable diesel and jet fuels. We are in the phase of scaling-up the industrial process and we expect to start commercialization within the next few years, once our joint research and development goals are met,” said Philippe Boisseau, President, Marketing & Services and New Energies, and a member of TOTAL’s Executive Committee. “As far as commercialization is concerned, the new joint-venture will benefit from the know-how and customer access of TOTAL, which operates in more than 130 countries and is aiming to become a key supplier in renewable fuels,” Boisseau added.

“The formation of this joint venture, anticipated by our streamlined collaboration agreement signed last year, paves the way for us to initiate our fuels commercialization efforts globally, building on Amyris experience with renewable diesel in Brazil and the growing demand for lower-emission jet fuels worldwide,” said John Melo, President & CEO of Amyris, Inc. “TOTAL has been a strategic partner for Amyris for the last three years and a model of how global companies can leverage our inspired science to deliver sustainable solutions for a growing world,” Melo added.

Background to the JV

In July 2012, the Company and Total entered into a series of agreements to establish a framework for forming a joint venture to produce and commercialize farnesene-based and farnesane-based diesel and jet fuels and to provide the Company with convertible debt financing for research and development relating to the JV Products, including a Master Framework Agreement, a second amendment to the Technology License, Development, Research and Collaboration Agreement, Securities Purchase Agreement and Registration Rights Agreement.

The interim JV

The July 2012 Agreements contemplated that the Parties would form an interim joint venture entity in advance of the completion of the R&D Program to provide Total with (i) certainty that the Parties’ joint venture would receive the proposed intellectual property licenses from the Company and (ii) an option for Total to purchase the Company’s interest in the interim joint venture in the event the Company were to experience a financial hardship prior to the formation of the production and commercialization joint venture. Consequently, the Parties incorporated JVCO on November 29, 2013.

The Parties have agreed that JVCO’s purpose is limited to executing the License Agreement and maintaining such licenses under it — until one of three outcomes occurs.

They are:

1. Go. Total elects to go forward with either the full (diesel and jet fuel) JVCO commercialization program or the jet fuel component of the JV commercialization program.
2. No-Go. Total elects to not continue its participation in the R&D Program and the JV.
3. Buy-out. Total exercises any of its rights to buy out the Company’s interest in the JV.

Timing on the go / no-go

A final decision from Total on whether to proceed with commercialization is generally due no later than early 2017.

Following a Go Decision, the Articles and Shareholders’ Agreement would be amended and restated to be consistent with the shareholders’ agreement contemplated by the July 2012 Agreements.

The Bottom Line

There are two way to look at this interim JV — a bundle of sudden excitement at Total about the technology as it burns through milestones — or, Total seeing enough investment to date and promise going forward to bottle up the technology rights inside a JV, should Amyris be sold, founder, or otherwise be diverted from carrying on with its obligations under the original 2012 agreement. Looks to the Digest like the latter. Which is good news for all parties.

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.

November 18, 2013

Renewable Fuels Proposal: "Complete Capitulation to Big Oil"

Jim Lane

Obama, in trouble on healthcare, sounds the retreat on renewable fuels; industry groups aghast as EPA targets next-generation, non-food biofuels for biggest cuts; slashes corn ethanol also.

Major push-back expected following “complete capitulation to Big Oil”.

What are the political, economic drivers? What’s the impact, and how will industry respond?

In Washington, the EPA released its 2014 proposed standards and volumes for renewable fuels. The volumes, as widely expected, include substantial reductions from the statutory standards in the original Energy Independence & Security Act.

The announced proposed volumes met with united outcry from biofuels trade associations, and sniping criticism over the continued existence of the Renewable Fuel Standard from food and oil industry groups. Oil refiners were remarkably silent on a day which handed them a significant regulatory victory.

As analysts began to pore over the detail, the EPA’s proposal won support from Jason Bordoff, former Special Assistant to President Obama and Senior Director for Energy and Climate Change at the National Security Council — and senior Piper Jaffray equities analyst Mike Ritzenthaler wrote that producers would find work-arounds or alternative markets to maintain revenues and cash-flow.

In today’s Digest, we have a complete wrap-up of reaction, plus as look at the proposed rule, the EPA’s rationale, the advanced biofuels vs corn ethanol dilemma, the options to change EPA’s proposal in the comment period, and the industry’s short-term and long-term options should the rule be finalized as proposed.


Continue reading "Renewable Fuels Proposal: "Complete Capitulation to Big Oil"" »

November 17, 2013

Everything Going for KiOR - Just Not Very Fast

Jim LaneKiOR Logo

What’s up with the cellulosic biofuels leader? Good news, bad news?

If you have ever spent any time reading up on ion thrusters — a next-gen engine technology that NASA recently employed on the Dawn spacecraft — you might chuckle when you think of the plight of poor KiOR (KIOR).

The good news about ion thrusters is that they can ultimately achieve speeds of 200,000 miles per hour, ten times that of the Space Shuttle. The bad news is that the Dawn took four days to accelerate from zero to 60 miles per hour.

Yep, zero to 60 in four days. Not exactly the Tesla (TSLA) of outer space. And that’s the story, as it happens, with KiOR.

It’s got everything going for it except pace.

Consider the background. You have one of the first next generation advanced biofuels plants at commercial scale. The woody biomass feedstock promises a way around the food vs fuel conundrum and promises new economic opportunity to the timber-rich US Southeast. The fuels costs are expected to be competitive with fuels made from fossil crude oil. Plus, the drop-in, renewable fuels offer a complete solution to the problem of blend walls and automotive infrastructure.

Not to mention, a celebrated cleantech investor in Vinod Khosla — recently augmented by Bill Gates — and the equity package for a second commercial plant all sewn up.

But the whole enterprise — well, it’s been a slow and steady tortoise, hasn’t it? How soon will it perform at capacity? For answers to your questions, let’s look at the progress in Q3.

The Tale of the Tape

In the third quarter, KiOR used 10,373 tons of wood chip feedstock, well short of the 45,000 tons the plant would consume at full capacity. Overall plant utilization was 23 percent. Reflective of 41% uptime and running at 50-60% capacity.

Production of 323,841 gallons of fuel was reported, a substantial gain over last quarter, when production was 75,000 gallons.

Overall yield was 31 gallons of cellulosic fuel per ton of feedstock, if we simply divide the fuel production into feedstock use — what we don’t know is how much bio-oil is being produced that was not upgraded to fuel. The process is supposed to yield, in this generation of the technology, north of 70 gallons of bio-oil per ton of feedstock. Suggesting that either yields are way short of optimal, or there’s a lake of 400,000 gallons of bio-oil awaiting upgrade — or, possibly, not suitable for upgrade.

The company is reporting 167,087 gallons of cellulosic fuel production in October — a gain of 50 percent over the average for Q3, and more than double the output for Q2.

Caveat catalystor: Those input costs

The company reported that “we saw a $2.3 million net increase in cost of goods sold relating primarily to feedstock and catalyst costs, along, to a lesser extent, with utilities, maintenance and other costs related to the ramp-up.”

In the general context of a $43 million quarterly loss and a development-stage company, we didn’t see much attention to this number in the analyst community. But, taken against a production jump of 248,000 gallons of fuels — well, it is easy to divide one number into the other and get a “feedstock and catalyst” cost jump of $9.27 per gallon. Again, we think there might be a lake of bio-oil out there. But it is a metric to watch.

Analyst reaction

Overall, analysts were bullish and share prices are up. Why? Analysts are applauding the increase in revenues and fuel production, noting the emphasis on increasing throughout from 50-60% towards 100%, and willing to wait for yield optimization to occur in 2014.

In other words, “we’ll bear the unsuitable oils or excess char for now — show us that you can shove in the woodchips.”

Pavel Molchanov at Raymond James writes:

“The first shipment from the Columbus plant in 1Q was a major milestone for KiOR and the cellulosic biofuel industry as a whole. The plant’s ramp-up since then, albeit slow, provides additional validation.

“Revenue up 3x in 3Q13: The key metric, of course, remains revenue which jumped 3x sequentially (after also tripling in 2Q) to $720,000. Production at Columbus reached 324,000 gallons, a similarly healthy ramp from 2Q, with October the best production month yet at 167,000 gallons. We continue to project that full nameplate utilization will be reached in the second half of 2014.

“Debt financing on deck: The equity round is therefore completed, putting to rest the market’s fears of more near-term dilution. The final step before construction can begin on the next production plant (Columbus II) is a high-yield debt raise, which we think will be in the range of $100-200 million. We see better than 50/50 odds of wrapping up the debt raise by year-end.

Piper Jaffray’s Mike Ritzenthaler adds:

“We maintain our Overweight rating and $5 target on shares of KIOR following the company’s 3Q13 print that included EPS of ($0.40) on $720k in revenue, both of which were in-line with management’s previous comments.

“Operations is currently focused on increasing feed rates (approximately 50-60% of nameplate in October) and is not yet optimizing yield (which partially explains why total production in October was ~15-16% of nameplate). We look forward to optimization through 2014 when the earnings power of the facility will become far more apparent.

“Columbus ramping as expected and on-stream improvements highlight the quarter. In 3Q13, KiOR shipped ~245k gallons of blendstock, at ASPs discounted to wholesale as (temporarily) expected. Management expects the discount to continue through 2013 as the facility ramps. On the call, management reiterated their target of >1 million gallons in 2013. Considering the uptime of the Columbus plant recently, we believe this production target is very achievable.”

The bottom line

Glacier, tortoise, ion thruster. Take your pick from the basket of analogies. But think in terms of tripled revenues, tripled production. Yield will have to come — and we doubt if anyone thought it would take this long, in the KiOR boardroom.

As long as investors stay with the company as it makes its Slow March to Energy Freedom — we expect great things out of KiOR in 2014 when yields come under the microscope.

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.

KiOR: Too Early to Jump In

by Debra Fiakas CFA
Kior's Columbus Facility

Last week cellulosic ethanol producer Kior, Inc. (KIOR:  Nasdaq)reported its strongest quarter production and financial results since the company first started commercial operations at its Columbus, Mississippi facility.  Kior turned out 323,841 gallons of ethanol fuel in the three months ending September 2013, bringing total production for the year to 508,975 gallons.  Along with the third quarter report, management did a bit of boasting over record production of 167,087 gallons in the month of October.  That represents a 2.0 million gallon per year run rate, but management is guiding for a more modest 1.0 million gallons.

All that good news was not enough to cover up a record net loss for the quarter of $43.1 million.  Cash production costs are still higher than revenue.  Granted some costs in the most recently reported quarter might be one-time in nature as the company settles into what they call ‘steady state’ production.  Still management has a big job ahead to ramp production level that will generate even breakeven results.

Kior has made a point of the scalability of its production technology  -  fluid catalytic cracking.  Granted it is a proven process perfected in the oil refining industry.  Management has also made a point of its wood chip feedstock  -  Southern Yellow Pine.  We have to concede the Southern Yellow Pine is available in abundance and it is priced accordingly.  Management is so confident in its production technology the company is planning a second production facility near Columbus.

Even with the $100 million Kior is getting from long-time fan Vinod Khosla and a few close friends, there is much for KIOR shareholders to worry about before production scales to breakeven in both its plants.  The company has been using about $25 million in cash per quarter to support operations in just one facility.

Since Kior went public in June 20111, the share price has been on a long-term grind downward.  There have been many more opportunities to collect shares at low levels than there have been chances to sell at peak prices.  The stock has recovered from a dramatic sell off and record low in September, but it still may be too early to jump into KIOR. 
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.

November 09, 2013

Third Quarter Earnings: Biofuels: Gevo, Solazyme, and Amyris

Jim Lanefour_horsemen-all

SZYM, AMRS, GEVO check in with Q3 results. What’s heavenly, what’s hellish?

In years gone by, it was not too hard to write up a summary of Gevo (GEVO), Solazyme (SZYM) and Amyris (AMRS)— all aimed at fuels, all in the development stage, all used synthetic biology in closed fermenters, all had big backers ranging from brand-name equity partners to big-time strategics, all went public in the same 2010-11 IPO window.

These days, much more complex. It’s a jungle of production costs, average selling prices, offtake deals, LOIs, and MOUs. Following them requires just a certain mastering of the markets in farnesene, dielectric acid, paraxylene, oleic oil, erucic acid, squalane, fragrance oils, skin cream. Oh, and fuels like renewable diesel, biodiesel, isobutanol and jet fuel, too.

But we need not look only at the complications, friend. All you have to do is locate and measure the four horsemen of the financials — the items that are critical for industrial biotechnology at scale..

As Grantland Rice was moved to observe, you might know the Four Horsemen by aliases. In industrial biotech, you might have heard them described as Revenues, Strength, Capacity and Mix. But they are the Pale Horse, the Black Horse, the Red Horse and the White Horse.

They deliver the company from the high-value, small-market products at the top end of the price curve to the lower-value, high-volume products (where fuels reside, for example). So, the Q3 results are in and what have we learned?

four_horsemen-paleThe Pale Horse: Revenues

Like the pale horse, revenues should be strong and transparent.


Total revenue for the third quarter ended September 30, 2013 was $10.6 million compared with $8.6 million in the third quarter of 2012, an increase of 24%. Revenues in the third quarter of 2013 included $4.8 million of product sales compared to $3.8 million in the same period of 2012, an increase of 27%. Going forward, Piper Jaffray’s Mike Ritzenthaler cautions: “First, that the 2014 milestones are far less granular and under control than those in 2013, and that the company will not disclose many supply agreements – obfuscating investors’ ability to gauge firm underlying demand for tailored oils.”

Digest note: Strong growth that just missed Wall Street expectations.


Aggregate revenues for the quarter ended September 30, 2013 were $7.0 million compared to aggregate revenues of $19.1 million in the third quarter of 2012. Last year’s third quarter revenues included $1.7 million of sales related to the Company’s ethanol and ethanol-blended gasoline business, a business which the Company transitioned out of in the third quarter of 2012. Of the $7.0 million in aggregate revenues in the quarter ended September 30, 2013, $4.1 million was related to renewable product sales and $2.9 million was related to collaboration and grant revenue.

Digest note: Biofene sales are gaining traction…it all depends on production capacity and cost.


Revenues for the third quarter of 2013 were $1.1 million compared to $0.6 million in the same period in 2012. They included proceeds from sales of biobased jet fuel to the U.S. Air Force (USAF) of $0.4 million, revenue under Gevo’s agreement with The Coca-Cola Company, and revenue from ongoing research agreements.

Digest note: Essentially development-stage here – the meaningful numbers await 2014 and full ops at Luverne.

four_horsemen-blackThe Black Horse: Margins, financial strength and partner relations

Like the black horse, these should be robustly positive and utterly fearsome.


Third quarter GAAP net loss attributable to Solazyme, Inc. common stockholders was $30.7 million, which compares with net loss of $22.5 million in the prior year period. Cowen & Company’s Rob Stone and James Medvedeff: add: “2013 guidance lowered, now targeting to be cash flow positive in 2015. SZYM lowered its FY:13 revenue guidance. As such, SZYM expects FY:2013 revenue of $40-$42M and expects to be cash flow positive in 2015. Piper Jaffray’s Mike Ritzenthaler strikes a cautious note in warning: “With Bunge (BG) exploring alternatives for its Brazilian sugar business, we question whether a new owner would find much novelty in the Solazyme project – we believe investors should account for this risk.”

Digest note: has the partners and the balance sheet to manage growth. But watch Bunge.


Rob Stone and James Medvedeff of Cowen & Company note: “AMRS targets $4.00 per liter cash cost by year-end, about breakeven on the lowest ASP products in the portfolio. Jet fuel is making progress, and work continues on drilling fluids, but time to volume use is not certain.” GAAP net loss for Q3 was $24.2 million compared to a loss of $20.3 million for Q3 2012. Cost of products sold increased to $8.3 million for the three months ended September 30, 2013 from $4.4 million for the same period in the prior year. “Achieved lowest quarterly cash operating expenses since our Initial Public Offering in 2010… Following quarter-end, closed initial tranche of convertible note financing for $42.6 million.”

Digest note: Has the partners and they believe; but will costs come down and capacity expand fast enough?


The net loss for Q3 was $15.9 million compared to $12.1 million for the Q3 2012. Baird’s Ben Kallo writes: “Capital raise will be needed in the near term. GEVO ended Q3:13 with ~$25.7M in cash, and we believe GEVO has enough liquidity to operate into Q1:14. We believe continued progress at Luverne and/or increased interest in the licensing of GEVO’s GIFT technology could help the company to receive funding from a strategic investor or return to capital markets..

Funding used in the development of the bio-para-xylene facility was received from Toray Industries, Inc. under a definitive agreement previously announced in 2012. Speaking of partners, in August Gevo announced the opening of its biorefinery for fully renewable paraxylene at South Hampton Resources in partnership with Coca-Cola and Toray Industries. Toray has provided capital for the construction of the Silsbee facility and has signed an offtake agreement for paraxylene produced at that facility.

Digest note: Expect a capital raise soon. The model for paraxylene is locked in and a winner, if the technology comes through.

four_horsemen-redThe Red Horse: Production capacity and timeline to scale

Like the Red Horse, these must be as urgent and swift as fire trucks racing towards a rescue.


If ever there was an argument for the supremacy of the Red Horse, it’s this: after announcing a 3-month slip at the Moema plant — and keeping in mind, leading energy analysts like Raymond James’ Pavel Molchanov had long-modeled such a slip — the stock was hammered 15 percent in today’s trading.

Solazyme CEO Jonathan Wolfson notes: “The facility in Iowa is already supplying market development samples to customers. Construction at the Brazil facility is in its final phases at over 90% complete and commissioning is underway…our timeline for oil production at Moema has been moved into 1Q14, in part to accommodate additional enhancements we are making at the facility. Stone and Medvedeff at Cowen & Co add “Two different tailored oils have been produced at 500K liter scale and a third is planned before year-end at the Clinton plant.”

Raymond James SVP Pavel Molchanov writes: “Solazyme is set to reach commercial-scale production in the U.S. and Brazil in 1Q14 – unquestionably the first player in the algae arena to claim such a feat, although it is a quarter later than management had previously targeted. It’s a minor pushout in the grand scheme of things…The trajectory of the ramp-up will certainly be back-end-loaded: while this is not much more than a guesstimate on our part at this point, we anticipate utilization of 8% in 1Q14, rising to 50% in 4Q14.

Digest note: It’s a delay at Moema, but if it is three months and if Clinton proceeds to accelerate, it will hardly matter in the long run. But this scale-up step — from a development-stage company to heavy production at scale – it’s the big one now. Risks abound – we’ll see in the next 12 months how Solazyme has prepared for the bumps in the road.


The company notes that it “operated with all six fermentors during the entire quarter at the Company’s farnesene production facility in Brotas, Sao Paulo, Brazil. The Motley Fool’s Maxx Chatsko adds: “Management expects total farnesene production for 2013 to come in at more than 4 million liters.

Rob Stone and James Medvedeff of Cowen & Company noted: “In addition to squalane, niche diesel, and farnesene for base oils, shipments may commence for other categories such as flavor and fragrance, and polymers and plastics. However, Brotas is likely to take 2-3 years to fully ramp to 40MM liter annual capacity.”

Digest note: It’s a long way to Tipperary — or, rather, the tipping point of full-scale operations at Brotas. That, perhaps more than anything, represents the discount on the valuation of Amyris compared to the underlying value of its disruptive technology. It’s a long walk to freedom, as Mandela noted.


The company notes that in August, it had “increased commercial production of isobutanol at its Luverne facility by bringing online a second production train,” and added that “Current production of isobutanol is intended to be sold into the specialty chemicals market with Sasol (SSL), specialty fuels market and converted into bio-jet fuel for the U.S. military.”

Last month, Gevo signed its first letter of intent to commercially license its GIFT technology to IGPC Ethanol. IGPC is a farmer owned co-op that owns a 150 million liter plant in Ontario, Canada and has been producing ethanol since 2008. IGPC is interested in licensing Gevo’s GIFT technology to incorporate isobutanol production at its ethanol facility.

Digest note: Customers are there, and more coming. It all comes down to the production cost — can Gevo deliver? If so, it’s a massively undervalued stock.

four_horsemen-whiteThe White Horse: Product and customer mix

Like the White Horse, these should be as dazzling as the new-drifted snow and a blend of all the colors of the rainbow.


Solazyme CEO Jonathan Wolfson notes: “Our commercial progress has accelerated with the recent announcement of two supply agreements…and advance the commercialization of our food ingredients out of our Peoria facility. This week we launched a completely new skin-care brand and product line, EverDeep, our second brand along with Algenist.”

Yep, there are supply agreements with Unilever in the (initial) 10,000 MT range, scheduled for 2014. And one with Goulston Technologies in the textile lubricants market. In addition, Solazyme and Bunge extended and expanded their JDA to enable the Solazyme Bunge Renewable Oils JV to have access to a broader portfolio of oils.

Digest note: Early days on delivering full offtake for Moema — but the momentum is there with big brands. Can Moema open on time, produce as expected, and will the customers line up at the right time. It’s all about Moementum, isn’t it?


Rob Stone and James Medvedeff of Cowen & Company note: “In addition to squalane, niche diesel, and farnesene for base oils, shipments may commence for other categories such as flavor and fragrance, and polymers and plastics.

However, The Motley Fool’s Maxx Chatsko adds: “Successfully commercializing the first fragrance molecule with partner Firmenich early next year will pave the way for higher-value products, while additional oils and fragrances being developed with International Flavors & Fragrances hold even more promise for the company’s future…The average selling price per liter of farnesene dropped considerably, but that was expected as sales of lubricants with Cosan increased in the product mix. Previously, most of the company’s sales were the emollient squalane — the highest-value product made from farnesene — to the cosmetic industry, as well as renewable diesel — one of the lower-value products offered — to various Brazilian transportation authorities.

Digest note: Very nice broadening of the customer mix — which should broaden still further as the costs come down and Amyris can start reeling in margins on bigger-market products. But how big, how soon?


In September, Gevo signed a supply agreement with the U.S. Navy to supply them with 20,000 gallons of Gevo’s renewable alcohol-to-jet-5 (ATJ-5) jet fuel and an option to increase the order to 90,000 gallons.

Gevo has previously supplied ATJ-8 jet fuel under its contracts with the U.S. Air Force for 56,000 gallons and the U.S. Army for 16,150 gallons. On July 24, 2013 Gevo announced that it had signed a supply agreement to supply the U.S. Coast Guard with up to 18,600 gallons of finished 16 percent renewable isobutanol-blended gasoline.

Digest note: For right now, it’s anchors aweigh as the company leans heavily on government contracts — look for the Sasol (SSL) relationship to take up the slack as Luverne expands.

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.

October 26, 2013

Bunge: Now Less Sugar

Jim Lane

In New York, in the wake of a $37 million Q1 loss in its sugar unit, Bunge [BG] CEO Soren Schroder, who took the reins of the company in June, announced yesterday that the trading giant is commencing what he termed a “thoughtful comprehensive review” for its sugar business, including a potential sale of all the assets.

The company, which announced a $137 million overall quarterly loss, after posting a Q4 loss of $599 million in June. The Q4 loss included write-downs and charges of $683 million, including a $327 million write-down in its sugar and bioenergy unit.

Bunge’s sugar woes

The cause of the troubles? After buying five sugar mills in 2006 and entering the sugar business in 2006, Bunge has struggled along with the entire sector in the face of low sugar prices, which declined to a low of 16 cents a pound (the May 2014 NYMEX sugar contract has since recovered to $0.183, but apparently not enough to convince Schroder of the long-term opportunities in sugar. The sugar business had swung into losses starting with the forth quarter, losing $49 million in the face of falling ethanol and sugar prices.

Bunge's Moema
sugar mill

Bunge’s Moema sugar mill

The improvement in this quarter was slight and, though Bunge projected a profit in 2014, it described its $8-$10 per tonne profit target as “difficult.”

Brazil-wide output troubles

In addition to price troubles, the sector has been hit with poor cane yields — with Bunge finance director Drew Burke, the Bunge finance director noting that “Last year’s average ATR [cane sugar concentration] was near historic lows and this year it is expected to be below that level,” and indicated that delays in the harvest would also provide challenges in terms of getting all the cane off the fields.

According to a Reuters report, sugar output in Brazil has already been trimmed nearly five percent from a high of 690 million tonnes, as some 40 smaller mills have been forced to shut down, or have been consolidated into larger operations.

The shift from sugar? What does it mean for partners like Solazyme and Cobalt

The company did not discuss its new directions in detail as it announced its quarterly results — except to say that it had not had specific discussions with any buyers. Speculation from observers ranging from outright sale of the entire unit. to a sale of selected assets as Bunge reduces exposure, to the shutdown of capacity to stem the flow of losses.

The announcement puts more strategic light on Brazil for advanced biofuels — which is recent years has been considered a haven for potential collaboration between US technologies and Brazilian producers — but often finding deployment challenges as both early-stage advanced technology developers, as well as cash-strapped Brazilian operations — struggled to form capital for large-scale deployments of new technology.

One bright spot, to date, has been the sustained entry of Bunge into the sugar business — and especially its plans to add advanced biofuels and especially high-value chemicals and tailored oils into its product mix.

Bunge and Solazyme [SZYM]


This past summer, Solazyme and Bunge broke ground on a their 100,000 metric ton renewable oil production facility adjacent to Bunge’s Moema sugarcane mill in Brazil. Construction started on schedule and the plant is targeted to be operational in the fourth quarter of 2013. It will service the renewable chemical and fuel industries within the Brazilian marketplace and will initially target 100,000 metric tons per year of renewable oil production.

A new Bunge agreement signed at the end of last year will expand the 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.

In a recent 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.

Bunge and Cobalt

Last October, Bunge’s innovation arm invested an undisclosed amount in the Series E funding round for California-based Cobalt Technologies and Bunge aid at the time that it anticipates introducing the biobutanol technology in its sugarcane mills. The companies are working Rhodia to produce n-butanol from bagasse at a pilot facility in Campinas.

Last summer, Cobalt Technologies and Rhodia announced they would begin joint development and operation of a biobutanol demonstration facility in Brazil. The Cobalt/Rhodia plant is planned to utilize sugarcane bagasse to make n-butanol; bagasse is used at sugar mills to provide process energy to drive the mill and to supply power to the local grid; the Cobalt project will utilize that fraction of the bagasse that generates power for the grid, or any residual biomass that is burned as waste.

Work was scheduled to begin in August 2012 and move to a mill site in early 2013 for integration testing. Operational testing at the demonstration plant was expected to be completed by mid-2013. The exact production capacity of the plant was not disclosed.

Not exactly a fire sale

Bunge bought the assets for $1.5 billion and CEO Schroeder said that the had a “replacement value” today of $3 billion — which indicates that the company is not exactly in a “desperate to sell at any price” mode at this time. At the same time, despite the losses, Bunge stock has been riding high, with shares recovering from a low of $69.00 in June to reach $80.11 in yesterday’s trading.

Support from the Brazilian government

This year, substantially good news came from the Brazilian government when it announced that it plans to invest $2.85 billion in renewable energy and biofuel technology research. The funds were specially pointed towards support for companies like Bunge Ltd. and Petroleo Brasileiro SA to develop high-margin chemicals and increase ethanol output. Brazil is seeking to be a leader in next generation biofuels development after a decade of underinvestment in research.

Expanding in soy, biodiesel

At the same time that its sugar and ethanol operations are in doubt, Bunge is still growing its biodiesel unit in Brazil. In March, Bunge inaugurated its new biodiesel factory in Nova Mutum, Mato Grasso, which has a capacity of nearly 110,000 gallons of biodiesel per day from soy, or 40 million gallons per year.

The bottom line

In hindsight, you can see the overall wisdom of Bunge’s strategy in advanced biofuels.

The Solazyme relationship — not to mention the stake in Cobalt — had taken Bunge from a typical Brazilian sugarcane ethanol play to a unique and dynamic venturist looking to connect its sugar and oil trading operations, through biotech that converts low-cost, renewable sugars into tailored, high-value renewable oils.

Will Bunge, in fact, hold on, in time reap the benefit from its substantial investments of time and money? We suspect they will – not only because of the company’s confidence in its strategy, but because it may be hard to find suitors for all these assets at one time, and with its advanced bioenergy investments at such a critical juncture.

If Bunge unloads assets, it may find reasons to hang on to Moema and at least one other plant, to reap the benefits of the connection between low-cost sugar and high-priced oils that it has sought.

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

October 08, 2013

BlueFire Renewables: Solid and Liquid

Jim Lane

You just can’t beat the financing of renewable fuels for all-out zaniness. Tragicomedy, anyone? Consider the case of BlueFire Renewables (BFRE).

Sometimes, the financing of renewable fuels can start to sound a little like an Abbott & Costello routine.

The planned
BlueFire plant
The planned BlueFire plant

Allow us to summarize. You can finance a liquid renewable fuel as long as the market is solid, especially if you are making solids, and the market for solids is liquid, and your liquidity is solid. Adding solids to your liquids will make you more solid, and eventually more liquid. If you know what I mean.

In other words, to get altitude, what you need is a little more grounding.

So that clears up that.

Fuel financing paradoxes and BlueFire Renewables

The paradoxes of financing renewable fuels come to mind with the news, from BlueFire Renewables (BFRE), that they have conjured up a new configuration for their long-contemplated cellulosic biofuels project in Mississippi. To which they have added wood pellet production.

The process — well, it’s been proven at pilot scale for more than a decade — is based on the old Arkenol technology that has been in place in Japan since 2003 — an acid pretreatment that releases cellulosic sugars for fermentation. BlueFire has long demonstrated production of biofuels from urban trash (post-sorted MSW), rice and wheat straws, wood waste and other agricultural residues.

Back in 2009, BlueFire was one of six companies to receive large DOE grants aimed at stimulating the cellulosic biofuels markets in time for the large cellulosic targets that were a key part of the Renewable Fuel Standard.

Given that the technology was already long-in-place at pilot scale, it had an advanced state of technical readiness compared to other technologies just then coming along — companies like KiOR, for example, were just getting underway. So, it landed $88 million under the American Recovery and Reinvestment Act, in December of 2009 (largely still untapped, at this stage, as the grant money is staged and most of it tied to future project milestones).

After the 2009 grants, the financing process started for that generation of technologies that BlueFire found itself amongst. It’s a script right out of the Marx Brothers.

“Cowcookies”, the lost Marx Brothers script

Scene, an office on Wall Street. Enter a lender, Harold P. Cheesebreath — and his prospective borrower, Al Cohol.

Cohol: (confidently) See here, it’s a no-brainer. Mandated fuel, pilot-proven technology, no food crops, carbon-friendly.
Cheesebreath: I don’t care about carbon.

Cohol: (brightly) OK, here’s a mandated fuel, demonstrated technology, and no food crops.
Cheesebreath: I don’t care for mandated markets.

Cohol: (chastened, but unbowed) OK, here’s a demonstrated technology, and no food crops.
Cheesebreath: Why can’t you use crops with a track record?
Cohol: (sighing) Because those would be food crops.
Cheesebreath: Food vs fuel? Well, I won’t finance that.

Cohol: (sadly) OK, here’s a demonstrated technology.
Cheesebreath: I don’t do first commercial projects. I’ll do your next one.

Cohol (brightening): You mean you’ll finance my second plant?
Cheesebreath: No, your next one. If you’re planning your second, I’m only interested in your third. If you’re ready for your third, I’m only interested in your fourth.

Cohol: (distressed) But that will take at least five years, to get to a fourth.
Cheesebreath. And that’s another thing, your sector is always five years away.

Cohol glumly leaves the building.

Of course, most project owners give up at this stage. Which appears to be the point of the process.

But some carry on. In doing so, they remind us of the character of Boxer, an impressively strong and dedicated horse who plays a leading role in George Orwell’s Animal Farm. At a time when the pigs running the farm had become completely corrupted, and the farm went through a great crisis, Boxer reflected:

“I would not have believed that such things could happen on our farm. It must be due to some fault in ourselves. The solution, as I see it, is to work harder.”

BlueFire soldiers on

And so, those project owners that carry on, carried on as if the fault lay within themselves and simply worked harder. In the case of BlueFire, it has been a half-decade of structure the deal, re-structure the deal, and re-re-structure the deal until you’d think that Joan Rivers had fewer facelifts.

“While the rumors, hopes and comments about our death have swirled about,” CEO Arnold Klann reflected with a sigh, “we have been trying to figure out how to finance a first of its kind commercial project without any corporate, venture, cash flow or other financial support.

“I can say with great confidence, we know at least 50 ways on how not to finance a project. I am thinking about writing a song about it to the tune of “50 ways to leave your lover” by Paul Simon. The other thought is to write a book,” Fifty shades of no financing”.

As Paul Simon wrote in 50 Ways to Leave Your Lover:

She said it grieves me so
To see you in such pain
I wish there was something I could do
To make you smile again
I said I appreciate that
And would you please explain
About the fifty ways

But Klann demurs in explaining the fifty ways. One of those optimistic types who generally insists on putting the past in the past. Instead, he’s focused on the next structure, the next financing. You have to admire that indefatigable quality; it’s the quality that Edison had.

“While it has not been easy nor fun,” he told the Digest, “I think we may have discovered the way for a pure project finance that stands alone.”

Option #51: The pellet story

What is it? BlueFire has integrated a synergistic wood pellet production plant to its proposed facility in Fulton, Mississippi. The reconfigured design will be a 9 million gallon per year ethanol plant integrated with a 400,000 ton per year wood pellet plant. The pellets will be sold under long term contracts into the European mandated renewable energy market.

Traditionally wood pellets are used for electricity generation and can be sold under long term, fixed price contracts to credit worthy utilities thereby adding financial stability to a project.

Klann explains. “This restructure provides a more robust economic model for the Fulton facility with a significant increase in projected revenues. It has become apparent in our attempts to obtain financing for the project that the right synergies and revenue model would be needed to build this first of a kind facility.

“The optimum use of biomass in the integrated facility strikes a much better balance of revenue with costs and a better utilization of resources. The more profitable use of capital and the enhanced security of projected revenue streams more closely match what the banks have been requiring in the very conservative and restricted credit markets.”

Ah, you see, there’s the lignin to be considered. A byproduct of most cellulosic biofuels processes — especially those of the enzymatic kind (as opposed to the thermochemical companies that blow through lignin’s complex bonds by meting them with heat).

And you know what they say about it. “You can make anything with lignin except money.”

But here’s the exception to the rule, Klann says. Blended with lignin from BlueFire’s process, the wood pellets create a market advantage under the international mandates for renewable energy, especially for power in the European Union.”

The state of play

BlueFire has previously announced start of construction in Mississippi and has completed the preliminary site work for the ethanol facility. The engineering and other development activities needed are already under way to add the pellet plant. Synergistic partners will be announced once the definitive agreements are signed.

The Bottom Line

Will this approach work? Only those with access to the complete data will ultimately be able to tell. But it’s significant that we haven’t heard a media-ready peep out of BlueFire for nearly 17 months as they have gone through their financing cycles. Klann and his clan are the opposite of hypesters.

So, that they are prairie-dogging this approach and sticking their heads out of the dark tunnels of financing and showing themselves to the outside world — well, it’s a good sign.

And we wish them well. More about BlueFire here.

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.

September 25, 2013

KiOR's Hard Yards of Commercialization

Jim Lane

Businessman leaping
Businessman leaping photo via BigStock

“The first cut is the deepest” goes the old saw — no more so than in first commercial, first-of-kind advanced biofuels projects – especially when they are undertaken by newly-public companies under extraordinary scrutiny.

In short, the KiOR (KIOR) story. And, as allegations fly, we look at the data on the ground and find that things are not always as they seem.

Earlier this year, Phil New, the always interesting CEO of BP Biofuels, gave a rather extraordinary address in which he suggested that the extraordinary days of technological innovation were behind the advanced biofuels revolution, and what lay ahead were the “hard yards” of commercialization — primarily, the pursuit of operational excellence.

New’s speech came to mind this week as KiOR has been struggling with a certain amount of panic on the part of biofuels observers and investors — who had handed out an extraordinary punishment to the stock this summer when the company missed (substantially, and suddenly) a 300,000-500,000 gallon production forecast for the second quarter.

Though Raymond James energy analyst Pavel Molchanov observed that the company was roughly 4-5 months behind its production ramp-up schedule and that “we can think of plenty of liquefied natural gas (LNG) plants and offshore oilfields that had delays much worse than this.”” — nevertheless, the stock dropped by well above 50%, and the plunge in equity has alarmed shareholders, made future financings more difficult, and in general spooked the advanced biofuels sector, which has frankly been on tenterhooks anyway give the delays and difficulties seen at Gevo, Amyris, Range Fuels and the like.

The Seeking Alpha controversy

A online discussion on the KiOR situation, at the popular investor site, attracted the following extraordinary post.

The SeekingAlpha update itself was relatively benign, noting “KiOR +1.7% premarket after providing Columbus facility update…As of Aug. 31, Columbus has shipped ~199K gallons of fuel YTD, with about half (~99K gal.) shipped in July and August, and the company expects to continue shipping fuel produced in July and August during September…In July and August, Columbus produced ~172K gallons of fuel, bringing YTD production to 357.5K gal. through Aug. 31.”

The response from a reader, Mark Henry, writing in the comment box, set alight a wave of web traffic with a series of stunning allegations.

Henry writes:

I worked on the maintenance, and these numbers have to be incorrect. During July and August the plant was on a shutdown and never ran anywhere near capacity. They have 2 systems (a train and B train) B train never ran the whole time. They had a PR stunt and had a tanker come in for the video…the tanker was empty coming in and it was EMPTY going out. The plant was buying few logs during the shutdown and the log yard was only about half full. They did start chipping logs near the end of august and began producing fuel, but on my last day the last tank that the product goes through before going to the tank farm was discovered to be full of tar like substance that should not be there at this stage of production. Also the plant manager has his wife working there making a 6 figure income and she does nothing. If you want to find out how much they know about the production ask them how many BTU’s of energy does it take to produce a BTU of product. They don’t know, so without government money this plant will lose money so take your money and RUN!”

KiOr logo

The Allegations

Let’s parse this into separate allegations.

1. During July and August the plant was on a shutdown and never ran anywhere near capacity.

2. “They had a PR stunt and had a tanker come in for the video…the tanker was empty coming in and it was EMPTY going out.”

3. The last tank that the product goes through before going to the tank farm was discovered to be full of tar like substance that should not be there at this stage of production.

4. Also the plant manager has his wife working there making a 6 figure income and she does nothing.

5. A provocative bu unspecific allegation relating to the BTUs.

The skinny

So, let’s go through them one by one.

We did confirm that, indeed, Mark Henry was onsite this summer working for one of the KiOR’s contractors. But, what about these allegations? Particularly the saga of the empty truck.

1. Spiking the numbers? On the production side, KiOR observes:

“The BFCC (our core technology) produces oil; we then move that to the hydrotreater which produces our fuel. Or, we can hold the oil in on-site storage and process into fuel at a later date. The BFCC and the hydrotreater are capable of running separately from each other and often do particularly during our on-going start-up phase.

Ironically, we issued the September 19 release to help external stakeholders have more of our data and not create confusion. Since the EPA reports shipments and not production, we wanted it to be clear that KiOR had in fact been producing even though the EPA report would not reflect activity.

“So, for the September 19 release (copy attached), we used detail contained in our production/shipment that is part of our normal business recordkeeping. In the release, we focused on total fuel production which is what we base our guidance on, and includes all three of our products – gasoline, diesel and fuel oil.

This is different than what EPA reports on a monthly basis through EMTS for two reasons: first, the reports do not reflect any of KiOR’s fuel oil shipments, as that product is not a RIN generating product under RFS2 (although we do sell it to customers); and second, EPA reports volumes and RINs generated in their EMTS, which for us at KiOR does not occur until the product is actually shipped from the facility, even if it is in our product tanks ready for shipment.

“We said that Columbus produced 172,398 gallons of fuels in July and August. In his note, mhenry stated that “during July and August the plant was on a shutdown and never ran anywhere near capacity.” I think part of the erroneous information revolves around the fact that this individual, in his role as contractor, may not have an understanding of the independent operations in various parts of the facility, and, as such, has assumed (incorrectly) that if any part of the facility is not in operations, then fuel cannot be produced. As I mentioned above, the BFCC does not have to run for us to produce our fuel, but it had to run at some point to produce the oil which we processed in the hydrotreater. So, the plant was producing fuel at the volumes reflected in the press release – period.

“With respect to shipments, through the end of August, we had shipped 199,071 gallons of fuel; that compares to the 141,569 reflected in the EPA report for D3’s and D7’s for the year. We are fairly certain that all or most of those D3’s and D7’s are from KiOR and the main difference can be attributed to the fact that we also shipped un-RINable fuel oil which would not appear in the EPA report.”

The Digest adds: Some of the confusion may clear up shortly, with the EPA’s new heating oil rule released today.

The new definition of heating oil adds a category to include all fuel oils that are used to generate heat to warm buildings or other facilities where people live, work, recreate, or conduct other activities. All fuels previously included in the original definition of heating oil continue to be included in the expanded definition. Fuel oils in the new category of the expanded definition that are used to generate process heat, power, or other functions are not approved for RIN generation.

Mike McAdams, president of the Advanced Biofuels Association, said:

“The Advanced Biofuels Association applauds EPA for expanding the definition of heating oil to include renewable fuel oil used to warm buildings or other facilities where people live, work or recreate. This newly expanded definition will help sustain growing renewable fuel production, particularly of advanced or cellulosic biofuels, in the heating oil market. This rule will allow actual gallons of advanced and cellulosic heating oil to be delivered this year to the market. The change also underscores EPA’s continued leadership administering the Renewable Fuel Standard (RFS) program.”

2. The video shoot. According to KiOR, “the video shoot was not a “stunt” but merely an opportunity to obtain b-roll footage of the plant. Obviously, we had to pay to bring a truck in for the day to be able to show the fueling section of the plant, but this was the safest route to take for these purposes. We had a local firm do the video for us on July 30, and there wasn’t anyone else on the grounds besides employees and contractors.

A note to readers: b-roll, that’s the generic kind of footage that is routinely provided to television stations to assist them in their news coverage. Virtually every major company in the world has a hopper full of b-roll.

3. The “tar-like substance”. We regard this — at this stage — as a indicative of normal start-up processes and particularly before steady-state operations are achieved. Let’s all keep in mind that this is a first-in-kind facility — even a mature facility might have excessive heavy oils during the start-up year. One to keep a sharp eye on, though – those incidents are supposed to fade away in time.

4. There’s the allegation about the padded payroll. True enough, according to KiOR, the “plant manager’s wife does indeed work for KiOR, but she works in a corporate function and reports to Pasadena. This individual is the Director of Health, Safety & Environment and Quality, and has also been leading our Continuous Improvement process. I can assure you that with a degree in Chemical Engineering, and leadership roles in plant management, quality management and business program management that she came highly qualified to the role and she is a real asset to KiOR.”

A further note to readers: the need for a “baseline level of staffing consisting of process engineering, monitoring staff, testing personnel, health safety and environmental personnel” is routinely disclosed and discussed in KiOR’s 10-Q SEC forms.

5. The BTUs allegation. Here in Digestville, we’d generally steer readers away from a focus on energy returns and focus on economic returns. Why? First of all, fuels need to compete on economics. Few would pay more for a gallon of fuel because it is more energy-efficient. At the same time, we make a distinction between useful energy and useless energy. For example, using flared natural gas is an attractive option in terms of the economics, if you can capture it. A process could have a low energy return but have a positive and attractive economic return because of the problem of — and opportunities with — residues or feedstocks that have low value in their natural state.

The bottom line

It’s always important — with early-stage companies — to put informal crowd-sourced commentary from well-meaning (or perhgaps not) amateur reporters into context. Take for example the b-roll footage. It’s like alleging that United Airlines doesn’t carry passengers because they shoot some generic take-off- and landing footage using a plane not carrying any passengers.

At the same time, it’s important to keep a close eye on all early-stage companies — particularly those who have gone public and are raising equity from investors with less access to the kind of data — and the means to understand it — that sophisticated early-stage investors like venture capitalists generally have.

So, it’s probably a good thing that all these questions and allegations arise, so that we all have an opportunity to get a little more “in the weeds” of start-up operations that, in looking at pilot and lab-level operations, we generally do.

As Phil New cautions, these are the hard yards. And with those, along come the Monday Morning Quarterbacks who seem to have all the answers.

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.

September 24, 2013

KiOR Shows Its Gallons

KiOR Shows Its Gallons

Jim Lane


Landmark cellulosic drop-in biofuels producer releases update on early-stage production: is the increasing gallonage enough to silence the critics?

Today, we head to the Chapel of Hard Data, and get closer to the music.

Nobody walks slower, in public, than at a wedding or a funeral. In the case of KiOR (KIOR), the critics and supporters have been shouting loud as the company makes its slow, public march up the aisle towards steady-state operations.

Most observers, sitting in the pews, have been unsure as to whether to be tossing rice in celebration, or breaking into a chorus of “Nearer My God To Thee”.

So it was highly welcome when the company this week provided an update on the operations at its Columbus, Mississippi, facility in response to the volumes and Renewable Identification Numbers, or RINs, listed in the EPA Moderated Transaction Systems monthly report issued on September 18, 2013.

In July and August, the Columbus facility produced 172,398 gallons of fuel, bringing the 2013 production total from the facility to 357,532 gallons through August 31, 2013. Approximately 83% of production was in the form of gasoline and diesel, with the remaining production as fuel oil. Production from Columbus during July and August exceeded total second quarter production by nearly 40,000 gallons.

As of August 31, 2013, Columbus has shipped 199,071 gallons of fuel since the beginning of 2013, about half of which (99,175 gallons) were shipped in July and August. The Company expects to continue shipping fuel produced in July and August during the month of September.

Reaction from KiOR

“KiOR’s Columbus facility continues to make strides toward steady state operations,” said Fred Cannon, President and CEO. “With the BFCC section of the Columbus facility currently producing additional oil, we believe that we are well-positioned to build on the progress made during July and August and to produce additional volumes of cellulosic fuel for American vehicles consistent with our most recent guidance.”

Analyst commentary

Lats month. Raymond James energy analyst Pavel Molchanov posted a thoughtful commentary on KiOR’s progress towards regular commercial operations.

Key thought: “We can think of plenty of liquefied natural gas (LNG) plants and offshore oilfields that had delays much worse than this.”

The Molchanov thesis

KiOR’s Columbus plant is North America’s first-ever cellulosic biofuel plant to achieve commercial-scale production. Large energy infrastructure projects always go through a ramp-up process, and of course Columbus uses a novel technology with its own unique set of operational growing pains. Yes, Columbus is behind schedule (by 4-5 months) relative to where management had originally expected to be at this point, hence the cut in 2013 guidance (from 3-5 million gallons to 1-2 million gallons). But this does not imply any structural flaws in the underlying technology, and 4-5 months is hardly a crisis in the grand scheme of things.

“Following last week’s 37% sell-off – an excessive, momentum-driven reaction to previously disclosed information – we are reiterating our Outperform rating on shares of KiOR. Our fundamental thesis is intact, the business model remains valid, and we think that investors open to early-stage stories should look at the current entry point (29% of our DCF estimate) as a buying opportunity. This, of course, has always been a risky stock – hence our Venture Risk suitability rating – but in that context, our stance remains positive.

“Amid a sharp market pullback,” Molchanov continued, “KiOR shares had a particularly rough week, falling 37% to an all-time low. (The small float, 21% of shares outstanding, inherently exacerbates the share price impact of any selling.) In the absence of incremental news flow, this was simply the continuation of the sell-off from August 8 and 9, when KiOR (1) reported below-guidance 2Q shipments and lowered guidance for the rest of the year, (2) raised future production cost estimates, and (3) filed a 10-Q with a going concern statement.”

KiOR vs petroleum

In the company’s August 8 announcement, KiOR signaled that it was increasing its production cost target for its proposed Natchez facility from $1.80/gal to $2.25-2.48/gal.

It’s a substantial increase, but let’s compare that to the price of the incumbent fossil-based gasoline — currently pricing at $2.97 (gasoline) and $3.08 (diesel).

Now, let’s review.

1. Priced below the incumbent, without subsidies.
2. Uses cellulosic, non-food feedstocks.
3. Drop-in fuel with no blend wall issues.
3. A here-today technology, producing fuel now and at increasing gallonages.

Would that the world had a few more of these.

The bad news

One lesson that KiOR would have benefited from is the studying the Amyris (AMRS) and Gevo (GEVO) examples of the pain that comes when missing production forecasts made as a public company.

We’ll not comment on any legal jeopardy that comes from disappointed shareholders filing class-action suits on a “we’ve been had” basis – as better experts on the protections offered in “safe harbor” statements will have a better view.

But, clearly, KiOR had expectations of producing 300-500,000 gallons in Q2 and 3-5 million gallons in Q3. This week’s announcement is consistent with a 300,000 – 500,000 gallon production in Q3 — so, a full quarter behind. The September production numbers may well be key, in terms of the company hitting 1-2 million gallons for the year.

Let’s look at this in terms of the plant’s stated capacity – 11 million gallons, or 900,000 gallons per month. Clearly, the company is producing something like 10% of its stated capacity right now.

What we don’t know is – why? Three possibilities.

1. KiOR is fundamentally far behind in terms of the technology’s production rate. Somethiing that would strike at the hearty of the business model.

2. The company is not running the technology full-time, possibly not even close — for technical reasons That could simply be a ramp-up problem — or related to issues in non-core technology. Or could be a fundamental issue that is being addressed — and would be a risk element.

3. The company is not running the technology full-time, possibly not even close — for cash reasons. When cash is short, and when production is not yet profitable at this smaller-scale facility, why make and ship money-losing gallons? Why not focus on rate and yield, and go for volume at the full-scale facility planned for Natchez?

Seen in perspective

As Molchanov says “4-5 months is hardly a crisis in the grand scheme of things.”

It’s no surprise that the enemies of biofuels are delighted to spread bad news of KiOR’s delays — with the implication that cellulosic fuels are fantasy fuels. Ensuring even more difficulty in other technologies obtaining first-of-kind commercil plant financing – causing further unexpected delays, and further shortfalls compared to cellulosic fuels mandates and expectations.

In short, a self-reinforcing phenomenon.

For now, we await the September production figures — or the corresponding RIN numbers from the plant. Should production fall below 100,000 gallons — could be a long haul towards full commercial success for KiOR, and its cash-raising opportunities are limited, given the tanked stock price.

Should production hit between 100,000-150,000 gallons — good incremental progress, though far from full-scale operations. North of 200,000 — would be a good sign that KiOR is on its way.

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.

August 13, 2013

KiOR's Columbus II: A New World of Profits?

Jim Lane

One of biofuels’ hottest companies aims to accelerate path to break-even; is a shortfall in gallons produced in Q2 meaningful?

In Texas, KiOR (KIOR) reported a Q2 loss of $38.5M, compared to a Q1 loss of $31.3M. on revenues of $239K, up from $71K in Q1. Net loss for the second quarter of 2012 totaled $23.0 million, or $0.22 per share.

The biggest news coming out of the quarterly results is that the company is looking at an additional 500 dry ton/day facility, dubbed “Columbus II”, as an intermediate step between now and building its 40 million gallon plant at Natchez. That would build potential capacity at Columbus to 24 million gallons, overall — at KiOR’s stated 72 gallon per ton yields.

According to the company, the capex for the facility is in the $177M to $225M range and the unsubsidized cost of production would be in the $2.60 to $2.80 range. The switch is prompted, according to CEO Fred Cannon, by advances from the R&D team in utilizing other feedstocks in addition to yellow pine.

According to KiOR, the construction phase would last around 13 months and reduce the time needed to bring the company to cash-positive.
“I am happy to report that Columbus has made significant operational progress and is continuing to build its on-stream performance and reliability,” said Fred Cannon, KiOR’s President and Chief Executive Officer. “In addition to making our first shipment of cellulosic gasoline in the second quarter, we more than doubled the run time of our core technology, the Biomass Fluid Catalytic Cracking Unit (BFCC), to 43% in the quarter, up from 20% in the first quarter.”

“In total,” Cannon continued, “we shipped over 75,000 gallons of cellulosic fuel from Columbus. The BFCC unit is running now and producing high quality oil that we are preparing to upgrade into fuel and ship to our customers. Over the next few months, we will focus on further building that progress and we look to push the facility closer to its nameplate capacity.”

Overall, on a per gallon basis, the company was netting some $3.18 per gallon for its gasoline and diesel shipments.

Let’s recap on the KiOR’s past and future milestones.

Q4 2012. The plant was mechanically completed and commissioning began. At the time, the company tipped that it would begin shipping fuel in Q1 and complete the commissioning process by the end of the first half.

Q1 2013. The plant shipped its first cellulosic diesel — though it was a minimal 5,000 gallons of cellulosic diesel – right before the end of the quarter. At the time, the company affirmed guidance that it would produce in the range of 3-5 million gallons of cellulosic fuel for the year. Groundbreaking for the second commercial facility, in Natchez, Mississippi, was tipped for 2H13 and expectations were raised that capacity there might be increased from 40 million gallons to 50 million gallons per year. The core technology, the Biomass Fluid Catalytic Cracking Unit, reaches 20% run-time in the quarter.

Q2 2013. The plant ships its first cellulosic gasoline, and reaches 43% run time with its core Biomass Fluid Catalytic Cracking Unit, including a 30-day run announced in early July that occurred in June.

Steady-state operations. Last month we wrote: “The gallonage for Q2 is not nearly as important as the reaching of steady-state operations,” and we continue to emphasize that reaching continuous operations on a regular basis will provide confirmation of a successful design at Columbus – and point towards expanded success when the 40 million gallon Natchez facility is completes. The achievement of 43% run-times is encouraging — but there’s far more progress to be made and Q3 will be highly important.

Q3 2013. This is the big, big quarter. As we wrote in July, “that’s where we’ll need to see the production yields move into the 1M+ range for the quarter, if the Natchez project is going to look attractive to providers of lower-cost financing.”

Volume confusion.

Confusing in the Q2 release was the announce that the company had shipped 75,000 gallons of cellulosic fuels for the quarter, well below the 300,000-500,000 guidance the company gave in May. Why confusing? While the company tipped back in July that it has only commenced shipping fuels on June 28th – obviously, the reason for the low gallonage by quarter-end — we’re not sure here at the Digest how to square the run-time increases with the low shipments.

The plant’s nameplate capacity is 2.75 million gallons per quarter (or, 11 million gallons per year), and CEO Fred Cannon indicated that the core technology, the BFCC (biomass fluid catalytic cracking) unit had 43 percent uptime in the quarter. Accordingly, we would have, ordinarily, expected 1.18 million gallons is the plant had been running at full capacity. So, we’re left to surmise that about 1,000 tons of wood were processed during the quarter — a fraction of the plant’s capacity.

Why? Possibly, to conserve on cash while run-time was increased.

Another possibility is that the BFCC unit produced far more than 75,000 gallons of intermediates — but they were not upgraded into fuels for cost, quality, customer or logistic reasons.

Another possibility is that the yields out of the BFCC unit were lower than the 72 gallons per ton that the company has aimed for — making it possible to have high run-time but low output. The company has tipped that, having achieved continuous operation by the end of June, it will focus on increasing output in Q3, and yield optimization in Q4.

Suggesting that a combination of low yields, reduced inputs and Q2 downtime were the trio of culprits for the unexpected low gallonage for the quarter. For definitive answers, we’ll have to wait and see how the crucial Q3 shapes up.

Analyst Reaction

Ben Kallo at Baird:

We reiterate our Neutral rating and $6 price target following KIOR’s Q2 earnings call. KIOR successfully shipped its first commercial batch of cellulosic gasoline, increased run times at Columbus, and is considering a Columbus II plant in an effort to shorten the amount of time needed to become cash flow positive. Despite shipping cellulosic fuel, capital constraints remain a major overhang. Q2 misses estimates. Capital need overshadows the positives. KIOR ended the quarter ~$11.5M of cash and will need to raise capital for the construction of Columbus II or Natchez. Management has indicated a 1:2 equity/debt ratio for a potential capital raise. We need to see a successful capital raise and additional progress at Columbus to become buyers of the stock.

Pavel Molchanov at Raymond James:

KiOR reported a 2Q net loss of $0.36 per share, vs. our $(0.29) estimate and consensus’ $(0.34), reflecting higher plant startup costs. This was the second quarter with sales from the Columbus plant. Revenue jumped 3Q sequentially, to $239,000, though production volumes were still fairly slim. (Recall, KiOR announced on July 1 that continuous operations have been achieved, meaning that 2Q results cover only a partial quarter of steady-state production.) On the balance sheet, cash remained stable at $11 million; there is additional borrowing capacity under a bridge loan, though a sizable financing round has long been telegraphed by management, and we anticipate it taking place over the next several months. Columbus II Option Offers Lower Cost, Lower Risk. Building a copy of the existing plant would be able to use existing engineering while incorporating the latest catalyst improvements and potentially cheaper feedstock. The lead time to completion may be several months shorter, and startup would be aided by having an experienced team already at the plant.

The bottom line.

Reaching continuous production was an important milestone — moving from commissioning in late 2012 to continuous production in Q2 is monumentally faster than some of its peers in cellulosic and/or advanced biofuels. Confusion over production of intermediates and shipment of fuels not withstanding. But it all sets up for a hugely important Q3 — that’s when KiOR will need to show that it can raise production — in order that it can raise money for Natchez.

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.

July 19, 2013

The Economics of Biofuels: Three Drivers

Jim Lane

They’re known as the three E’s: emissions, energy security and economic development. But how do they contribute to the economics of biofuels?

And how do those economics compare to the economics of crude?

The financing of biofuels is founded, to put it as simply as possible, upon the economics of substitution. On the one hand, there’s the price of energy currently locked inside biomass; on the other hand, the price of energy currently locked inside crude oil. The monetary rationale for biofuels is a version of vive la difference.

To give a simple example, if renewable sugars are trading at 15 cents per pound, and crude oil is trading at 35 cents a pound — there’s an opportunity for converting sugar to fuels if the refining cost leaves a profit margin worth the agricultural and market risks.

Oh, there are enough complicating factors left over to keep a hive of economists busy for a year. There’s the differential in the energy value of, say, ethanol, compared to gasoline or diesel. The impact of losing mass when you blow off the oxygen to turn a sugar into a hydrocarbon. The impact of bioenergy demand on raw biomass prices. The value of co-products from biomass or oil refining. And so on, practically ad infinitum. It takes an advanced degree and a whole bunch of Tylenol to figure it all out.

But at the end of the day, the point where substitution makes economic sense is going to correlate back to the price of crude. No matter what the hoped-for margins are, or the opex of a biorefinery, or the capex — it all starts with the barrel.

The oil price: 54.40 or fight

In looking at the world of cost — an obscuring factor is that oil is generally quoted in a cost per barrel (42 US gallons), while biomass is generally quoted in a price per metric or US ton. To simplify, we have converted everything to US cents per pound. Plus, we’ve used constant dollars, so that you don’t have to constantly factor out inflation.

Today, the cost of Brent Crude oil is 35.88 cents per pound, and the IEA forecasts that price will increase to 54.40 cents by 2040.

So, here’s the good news or the bad news. If your biomass refining process at scale can beat that price — fully loaded for the raw inputs, capex, opex and margins — you’re going to find a lot of friends in the fuel markets.

Barriers? Even if your technology pencils out, there are the “3 Bewares“.

1. Beware! The technology has not yet reached scale. It may well not have fully de-risked itself, either – being somewhere in the path between concept and scale.

2. Beware! Qualified investors have more attractive options. No matter how attractive 10 percent returns might be to many investors, they weren’t sufficiently attractive to Chevron in evaluating their own solvent liquefaction technology — compared to 17 percent average corporate returns on capital, primarily from oil & gas exploration.

3. Beware! Policy and market risk frighten away investors. It could be that the requisite fuel requires a blending mandate to be assured of a market — mandates which may well be unstable. Or they may require flex-fuel vehicles, which may not be in wide supply. And so on.

If those barriers are addressed either by your technology (for example, by reaching scale, or producing drop-in fuels that negate the infrastructure risk) — then you may well have the basic economics to compete dollar-for-dollar with crude oil, and win.

It’s 54.40 or fight, though. Any technology that can’t compete with crude oil on price — must enter in to the more esoteric and unstable world of what is usually described as the 3 E’s of biofuels – emissions, energy security and economic development.

carbon-price[1].jpeg The carbon price

Whatever your take on the stability or wisdom of carbon prices, they have arrived in key markets such as Australia and the EU, and particularly in the EU there’s no reason to suppose they are going away any time soon.

What’s the value of carbon today? Well, again, we have the problem of carbon credits being generally quoted in euros per metric ton of CO2 avoided. An 8 euro per tonne carbon price works out to 0.65 cents per pound of biofuel — if you assume that an advanced biofuel reduces carbon emissions by 50 percent in a complete lifecycle.

That’s not much of an add-on or game-changer — one of the reasons why biofuels developers generally don’t take them into account when developing technology) the other reason is policy instability).

But, according to the UK government, carbon prices will begin to bite much more sharply in the next few decades. In fact, by 2040, the UK is projecting a carbon price of 12.27 cents per pound.

If you accept their projections — and many may be skeptical — that could raise your threshold “break-even” point with crude oil from 54.40 cents per pound to 66.67 cents, by 2040. That would be of material help.

The energy security price

Now, what about energy security? What’s the price of avoiding the unrest that being short on fuels brings?

Well, there are estimates all over the map. One line of thinking assigns the cost of the US Firth Fleet to the cost of oil — since the Fifth Fleet generally guards the Straits of Hormuz and is dedicated to assuring a flow of oil out of the Gulf.

Another, more conservative approach is to assign the cost of fossil energy subsidies as a cost of energy security. Generally, the subsidies are paid out to keep national populations content in a world of unstable and high energy prices — and to keep national economies producing. Those can be thought of as costs associated with being short on energy, or energy insecure.

Fortunately, the IEA has been tracking fossil energy subsidies — and it comes out to 3.70 cents per pound, if you assume that half of fossil energy subsidies go to fuel (the IEA says that it is “more than half” and leaves it at that), and that about 80 percent of the barrel goes to fuels (as opposed to chemicals and other co-products).

So, if you like to factor in energy security, you might start there, which brings your 2040 target price up to 70.37 cents per pound.

Economic development

The University of Wisconsin estimates that a biofuels refinery generates $1.82 in statewide economic activity for every $1 in sales. Now, “economic multipliers” can be all over the map — but this is a conservative estimate, on the whole — we’ve seen multipliers well north of 2.0 used in biofuels economics.

So, what does that mean? It means that a local biorefinery is going to be worth far more in overall economic impact than just the fuel it sells — and, accordingly, a nation, state, county or town has benefits that range above the direct profits, wages and equipment sales that go into our cents per pound calculation.

Making that refinery valuable to the community in terms of economic impact even if it doesn’t generate a profit.

Now, that’s a controversial benefit to work into the fuel price equation — because biorefineries are not going to be running at a loss simply because they generate overall benefit to the community. That is, unless they are owned by the community — in the same way that the NFL’s Green Bay Packers are owned by local investors, who have been able to maintain a competitive football team in a relatively small market and in 2011 sold $64 million in stock to local investors who know that “the redemption price is minimal, no dividends are ever paid, [and] the stock cannot appreciate in value.”

If you assign all that value into the enterprise — you get some pretty high “break-even” points — 73.22 cents per pound this year, and 128.07 cents per pound in 2040 (in constant dollars). Economic activity is not the same as margin — but it wouldn’t be unfair to assign some 10 percent of that impact as a value-add.

We’ve done that in our chart below. But individual investors, policymakers and technology developers will make their own choices on what to count.

The bottom line

For sure, it’s 54.40 or fight. Above the strict break-even with crude oil prices — that is, if your capex, opex, raw inputs and margin add up to more than 35.88 cents per pound today, or 54.40 cents per pound in 2040 — you’ll have a dogfight on your hands getting traction in the fuel markets.
crude-biofuels-substitution[1].png How much you want — or need to — lean on the impacts of emissions, energy security and economic development — well, it’s a tough call. In the case of economic development — what’s good for Iowa may not make you popular in Texas. What is good for the plant employee may not translate into a desire for In the case of carbon pricing — fickle friends you will find.

Nevertheless there is value in avoiding emissions, generating energy security and stimulating local economic impact. Especially the latter — though it is felt most intensely quite close to the plant, and your offtake contracting would be most successful if it also was kept local.

It may push you out to the higher-margin, lower-volume worlds of chemicals, fragrances, flavors, feed, lubricants and nutraceuticals. That’s where a lot of ventures working with algae and corn and cane sugars are generally heading now — though not all.

There’s good reason to do so. Today, the price of cane sugar is running in the 15 cents per pound range, and corn starch is running in that region as well.

But other forms of biomass look for more affordable — KiOR projects wood biomass in the 3 cent per pound range, as do POET-DSM and other makers of cellulosic ethanol from wheat straw and corn stover. The conversion rates are lower, the capex can be daunting, and there are limits to the ethanol market that are being tested now that pertain to the lack of flex-fuel vehicles — but you can see where the fuel arguments apply.

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.

July 12, 2013

Three Keys to Advanced Biofuels at Commercial Scale

Jim Lane

Is your team ready for the summit run?
Take our 3-question, 6 point quiz, and compare your route to the established routes that others have pioneered.

It’s become an cliché of late that “financing is tough” and that “the US is slowing” while “China is speeding up” on advanced biofuels. It’s also become a cliché that “cellulosic biofuels are slow, the economics are unworkable” and that “the next wav of investment will wait until 2015 or 2016, especially for commercial-scale.”

Like all clichés, they have their origin in real experience, but are generally over-broadened to represent a general trend — whether it is “white men can’t jump” or “women are lousy drivers” or “it never rains, but it pours” — it is important from time to time to re-validate the cliché against the hard data.

Here at the Digest, we see a lot of the same conditions that everyone else does. True, not every company is getting all the resources it could use, financially or otherwise. Neither did every US automotive company during the period when 200 carmakers were winnowed down to around five majors between 1920 and 1980. Not that there was anything wrong with a Stutz, DeSoto, DeLorean, Tucker, Packard, Checker or Olds — but the market generally supports a winnowing process, and financing is where it bites.

Key #1: Route to the Summit

In biorefinery financing, we have seen three trends emerge for successful projects.

1. The successful ones are generally integrated with others — so that resources such as infrastructure (e.g. rail, power, water), and biomass or residue aggregation are in place to the extent possible. Even existing refining units that can be utilized in a bolt-on strategy.

Think of this as simplifying the inputs and outputs — feedstocks into the plant and distribution of product out of the plant — so that as much financing as possible goes to the core technology, which often can be as little as 10 percent of the overall cost and footprint of an integrated biorefinery.

For this reason, we see wood biomass, sugarcane bagasse, corn stover and wheat straw projects getting the most traction, now. It’s been easier to use existing residues (bagasse), existing aggregation resources (wood) or at least an existing network of growers and delivery mechanisms (corn stover and wheat straw).

New feedstocks such as carinata, jatropha, sorghum and algae are incredibly exciting and getting closer every day — but it is tough to finance a first commercial plant when there is agricultural risk.

2. The successful projects typically involve a shared financial burden. There have been some notable go-it-alones — DuPont (DD) and Abengoa (ABGOY) come to mind, and they have really “put their back into it” on advanced biofuels in terms of getting a first commercial project going.

But there’s the Beta Renewables group – Novozymes, Chemtex, and Texas Pacific Group. Poet and DSM have teamed up. Shell and Cosan (CZZ) are in their Raizen JV and have Iogen in the mix.Fibria is tied up with Ensyn, Versalis with Genomatica. Darling (DAR) and Valero have tied up in Diamond Green Diesel, as have Tyson and Syntroleum (SYNM) Solazyme (SZYM) and Bunge (BG) have their sugar-to-oils JV. GranBio and American Process are tied in together now. Renmatix has JDAs with both UPM and Waste Management (WM)— and WM is also backing Enerkem and Fulcrum BioEnergy. British Airways has tied up with Solena. BP and DuPont tied up in Butamax.

The trend usually involves a company with access to feedstock — or at least a key cost element like enzymes — teamed up with a processor. In some cases — such as BP, BA and Eni’s Versalis unit, the tie-in is between a downstream marketer and a processing technology developer.

3. The successful projects have, so far, been the ones that are most cost-advantaged in terms of product cost — and cost advantaged within the universe of opportunity available to a given investor.

Carbon anxiety only goes so far, it turns out — it can attract players into the market in terms of inspiring them to investigate a sector. But those players will definitely measure the cost of buying mandatory renewables credits against the returns from a project, as Chevron’s many partners found out.

Enthusiasm and genuine interest will only find its way into project financing if the returns are there — measured against the other returns available to that company in other opportunities it has.

That means, generally, targeting companies not that have strong balance sheets — only — but companies that have low returns from other project opportunities. It means nothing that a biofuels venture can make a 10 percent IRR if this is measured against 18 percent available to that company in terms of its existing upstream opportunities in oil & gas.

Companies that are primarily refiners have smaller option sets than those deeply involved in upstream oil & gas exploration. Pulp & paper industries have fewer options, and challenged ones. Feedstock providers — such as companies that own large tonnages of palm residues or bagasse — see attractive upside economics in biofuels. As do owners of large caches of low-purity CO2, such as flue gas — if their other generation projects have low potential returns.

In short — it is not all about ROI. It is about comparative ROI.

Key #2: The geographies

You can divide the world according to three questions.

1. Is there a lot of carbon feedstock (e.g. biomass, CO2, etc) that has high potential but currently is sold for low values, or wasted? 3 points for Yes.

2. Is there a carbon emissions regime — e.g. mandates, carbon taxes and so on. Discount renewables targets, think only in terms of obligations. 1 point for Yes.

3. Is there a long-term energy shortage looming — e.g. rapidly declining domestic sources of energy, or a fast-growing economy that will outstrip growth in domestic resources. 2 points for Yes.

4-6 points. This region is hot to trot on biofuels, and is probably rapidly developing already, or will be.

2-3 points. This region is looking into biofuels — likes it, but the economics or existing infrastructure will weigh heavily. It’s tough to deploy alcohol fuels, tough to aggregate feedstock. If the resources are there for the products produced — look for biofuels. Otherwise, think chemicals, fragrances, flavors, nutraceuticals and other high-margin, small-volume markets where niche plays will be the order of the day for some time to come.

0-1 points. This region may make a lot of noise about biofuels — but mandates and targets will ultimately be too soft to inspire investor confidence.

Key #3: The players

Obligated customers – downstream.

As we have noted, not a good source of capital unless they lack exploration divisions. They’ll buy upgradable feedstocks – be they crude oil, bio-oil or what have you – if the economics are there. And they may wheel out their balance sheet if they see

Preferential customers – downstream – customers would prefer to use biobased fuels, chemicals or materials, but are not facing a mandate.

If you have a cost-advantaged molecule for them — especially if it smooths out volatility issues with fossil feedstocks — you may well have a winner. Green will be a tie-breaker, no more.

The bigger their balance sheet and the smaller their other opportunities, the more likely they will be to make a direct investment at scale. Otherwise, they may push technology along with a strategic investment and wait to buy the product. Or, they may co-operate in the form of testing and R&D collaboration, but not make a direct strategic investment — especially the consumer product companies will line up this way.

Growers and biomass aggregators

The best source for capital, long-term. After all, they have the real upside of a new market for their feedstock. It’s like getting a country that has discovered oil to get excited about supporting technology development that builds new applications.

The problem here? Usually they are disaggregated, and badly capitalized. Fixed-cost feedstock contracts may well help secure interest from purely financial players who can work within the project finance structure.

But seeking owners of aggregated sources of feedstock and have balance sheets — well, that should be job #1 on the list of any financier looking for dollars for a first commercial.

Government entities

Governments are pretty good at supporting long-term basic research, less so in mid-term advancement of technologies to commercial-readiness, generally terrible at helping companies to go forward to commercial scale. The best regimes are those where government has a cost-share role — limited a project sweetener of, say 20-40% of the total cost, and where there is a clear benefit to the local economy in adding value to biomass.

Carbon tax regimes are virtually useless except to the extent that they force obligate parties to get active in searching for partners. But at less than $10 per tonne for a carbon credit, it’s barely a sweetener for a bioenergy project.

Mandates are too inherently unstable to reduce financial risk. Especially when they have an offset mechanism such as the purchase of a credit in lieu of the fuel. Those regimes allow obligated parties to buy the credits until they can mount enough “why are we obligated to use non-existing fuels?” noise in government circles to tear the mandate down, or otherwise de-fang it.

Processing technology developers, catalysts, enzymes

Good source of capital for first commercial projects — no more. They rarely make early-stage investments, but often recognize that technology is coming along that needs to get through the valley of death to open up some real new market opportunity for the catalyst or enzyme maker. But the appetite for investing will rarely stretch beyond the first commercial.

Financial investors – aggregated (hedge, private equity, VC, institutions)

Good source for early-stage capital for technologies that have low market, policy risk but have technology risk. VCs will take technology risk all day long. Hedge and private equity are more interested in the “I’ll finance your third plant” strategies, if they have an interest in the sector.

Financial investors – disaggregated (retail, IPO)

Small investors beat up on technology stocks, and especially cleantech plays, and extra especially on advanced biofuels. Going public in advance of revenues and cash flow – yikes, the heat will be tough, and must be measured against the reduced cost of capital that a successful IPO can offer, and the opportunities to raise debt and equity through subsequent offerings that public entities have.

Once the revenue and cash flows are in place – once the stock has evolved from “story” to “value” — well, that’s different. But markets can still beat up on cyclical companies, badly. Look at all those revenue-generating ethanol plays.

Vehicle/engine manufacturers

Can join and even lead your R&D consortia — or help immensely with your roadmap to establishing a new fuel. Look at Boeing, practically investing aviation biofuels in terms of fostering the commercial testing and assisting where possible in fostering policy support.

Financial support – well, it will be minimal. GM has done some, Honda and Toyota too. It’s been early-stage, and not a huge amount lately.

Seed/plant developers

Generally, the Big 6 seed and plant companies have been investing where they also have technology arms that see customer sales or technology license sales down the line. BASF has been getting very active of late with companies like Renmatix and Genomatica. So, Dow’s been active as an investor in companies like OPX Bio, while DuPont has been hugely active via its cellulosic ethanol venture and in biobutanol.

Monsanto, Syngenta, Bayer — not much activity – though Monsanto has shown some interest in Sapphire Energy’s algal technologies.

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.

Photo: Mt Everest from Rombok Gompa, Tibet. Taken in 1994 by John Hill.

June 29, 2013

More Sorghum Sowers

by Debra Fiakas CFA
Sorghum Bicolor photo by Matt Lavin
The post “Ceres Plants Seeds of Success” featured seed and trait developer Ceres, Inc. (CERE:  Nasdaq).   This agricultural technology company develops seeds and traits for high-energy, low-cost feedstocks  like sorghum.  Ceres is not the only player in the sorghum game.

The presence of large agriculture products suppliers like Monsanto Company (MON:  NYSE) and Dow AgroSciences of the Dow Chemical Company (DOW:  NYSE) provide some validation of sorghum demand even if also triggering competitive concerns.  DuPont’s Pioneer HiBred (NYSE:DD) is also interested in the sorghum market.  Given the size and diversity of these companies, a position of any kind will not be a play on the renewable fuels sector.

There are a number of smaller privately held companies in the sorghum business.  Golden Acres Genetics, Ltd. acquired Syngenta’s sorghum seed inventory in June 2011.  Golden Acres is a private, family-owned company with an apparent successful history of market penetration and profitability.  Do not expect the door to open for minority investors any time soon.

There are few more small suppliers of sorghum seed.  You can find Richardson Seeds in the heart of the Texas sorghum seed country.  Richardson has been in business for a number of years and has a good reputation with growers.  A lesser known seed supplier, Mycogen Seeds, is not reticent about comparing its product line with competing seeds.  Mycogen offers six sorghum varieties.  Sustainable Seed Company is perhaps the smallest in the group, offering heirloom seed varieties.  Size may not be a factor at this point as even small player could own valuable traits that might be sought after.

Acreage in the U.S. devoted to sorghum has ranged from 15 to 18 million acres per year.  Farmers dedicate a bit more of their fields to grain sorghum than acreages for oats and barley, but considerably less than the land planted in corn, wheat and soybeans.  The U.S. Agriculture Department indicates nationwide sorghum acreage is expected to grow by 22% in 2013.  Some of those new acres are being sown in sorghum for animal field.   However, we expect more and more sorghum to end up in renewable fuel plants.
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. 

June 28, 2013

Ceres Plants Seeds of Success

Sorghum Bicolor photo by Matt Lavin
I posted about sorghum’s designation by the U.S. Environmental Protection Agency as an advanced fuel last December.  Renewable fuel producers that use sorghum as a feedstock are obvious beneficiaries.  Ceres, Inc. (CERE:  Nasdaq) is an agricultural technology company, developing seeds and traits for high-energy, low-cost feedstocks  -  sorghum included.  I expect Ceres to be on the winning end of sorghum trade as well, especially since the California Air Resources Board (CARB) has set standards for carbon intensity of transportation fuels that appear to favor sorghum over corn as a feedstock for renewable fuels.

An investment in Ceres is not for the weak of heart.  As an early stage company, Ceres is spending to build a product line and forge relationships.  Most recently Ceres announced progress with its drought resistance traits for rice.  The company has recorded little revenue and is still reporting deep losses.  By the end of the March 2013 quarter the company had accumulated $258 million in net losses.  Based on the most recently reported six months, Ceres is using about $2.4 million in cash each month to support operations.

Past the market opportunity and the strength of Ceres technology, the principal concern for investors is whether Ceres has the financial staying power to reach profitability.  At the end of March 2013, the company had $15.5 million in cash on its balance sheet and another $29.4 million in marketable securities.  Even if there is no change in spending, Ceres could last about a year and a half without missing a bill.  With regulatory changes pushing the market toward Ceres, it seems more plausible than ever that Ceres can succeed without having to raise additional capital. 

Ceres is a relatively small company with a market cap of $68 million.  The stock is trading near $2.50 per share under modest volumes.  Insiders own about a third of the company.  That might signal considerable confidence by management in Cere’s future, but it has not been enough to convince everyone.  The equivalent of about 5% of the flotation has been sold short.  That is only about a day and a half of trading volume, so do not expect much of a “short squeeze” in the event of some encouraging fundamental development.
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. 

June 25, 2013

Solazyme Breaks Up With Roquette

Jim Lane

solazyme logoSolazyme and Roquette dissolve their nutritionals JV; Solazyme to accelerate under its own flag; stock plunges.
What’s up? Who said “sorry?” on the way out the door?

It was a terse announcement that crossed the wire early yesterday morning from Fortress Solazyme, without warning except perhaps to equity analysts that hopped on a hastily-arranged call. Solazyme (SZYM) and Roquette Frères were announcing the dissolution of their two-year old joint venture, Solazyme Roquette Nutritionals.

The cause, “divergent views on an acceptable commercial strategy and timeline for the manufacturing and marketing of joint venture products” and in the announcement, Solazyme tipped that it “intends to accelerate commercialization of its suite of innovative microalgal food ingredients.”

Now, announcements by the #1 hottest company in the sector, as voted by Digest readers, that it intends to accelerate its pace of commercialization, would not ordinarily prompt a sell-off of its shares and a 13% one-day drop in its share price. Especially when that commercialization announcement is not paired with a dilutive financing event.

Simply put, the market was shaken yesterday. Our Vince Vaughn just broke up with Jennifer Aniston, and now shareholders are throwing tomatoes at the screen.

But important to note – this is styled as a disagreement on timeline, rather than technology. The primary product in question, Solazyme Roquette algal flour, has been cleared by the FDA and commissioning of what had been expected to be the next-phase in commercial capacity built-out, in Lestrem, started on time.

Positive or negative?

Here’s a Digest of reaction from equity analysts:

Pavel Molchanov: “From a substantive standpoint we think it will be neutral – and may even end up being positive in the long run. The most important point to underscore is that Solazyme has a wide range of other partnerships – including two new ones initiated just year-to-date – so the end of the Roquette relationship is much less impactful for the company’s opportunity set than the market seems to be perceiving.”

Rob Stone and James Medvedeff, Cowen & Company: “We recommend investors take advantage of share price weakness as an entry point. Breaking up the JV should have minimal, noncash financial impact. SZYM should now be able to fully consolidate this attractive, high-margin opportunity. It has retained most of the SRN employees. We believe it could readily expand capacity for this market and has ample cash to do so.

Ben Kallo, R.W. Baird: “The dissolution shouldn’t have a material financial impact in the near term. If SZYM is able to bring nutrition products to market more quickly, the dissolution would prove to be a positive for the company over the intermediate term.”

Mike Ritzenthaler, Piper Jaffray: “The history of the Industrial Biotechnology space is littered with major strategic partners pulling out of agreements that struggled during commercialization – when promise doesn’t match up with reality. Now we can add Roquette to that list…We can presume that if profitability was as near at hand as Solazyme’s management team would have us believe, Roquette’s hat would still be in the ring.”

Alyce Lomax, The Motley Fool: “Solazyme’s trip to the woodshed is hinged on actual news and, unfortunately, it’s one of the market’s biggest decliners as of this writing…but we shouldn’t rule out that the partnership’s dissolution may actually end up being better for the long term, not worse. Solazyme said that the failed partnership will not affect this year’s revenue; if it can accelerate ramping up its business, then it could be a strategic positive for its shareholders.”

Alternative production strategies

According to Pavel Molchanov, “Solazyme’s pilot and Peoria facilities will be used to meet near-term demand, but an unspecified amount of incremental capital could allow the Bunge (BG) and Archer Daniels Midland (ADM) plants to produce the ingredients, providing some optionality. Of note, both these plants remain on schedule and on budget, with the Bunge plant in Brazil on track for initial production in 4Q13 and the ADM plant in Iowa set to start up in early 2014.”

It looks like the flour for the pretty-darn-tasty Solacookies will be made in Peoria for now
Rob Stone and James Medvedeff add: “We believe SZYM could take over customer development shipments from the Peoria plant and it has the ability to expand the 20K MT Clinton plant with ADM up to 100K MT. The $125MM convert deal in Q1:13 should provide ample cash for the next phase of expansion.

But Mike Ritzenthaler cautions: “What we feel is critical for investors to keep in mind is that growth is not determined by Solazyme. Instead, demand dictates how much volume capacity is necessary to meet a given market, regardless of the expansion potential at the Moema and Clinton facilities. We believe that what investors should take away from the news this morning is that the fundamental economic undercurrent on demand for these new products is softer than expected, and we continue to advocate for a cautious approach to SZYM shares.”

Our Take

“I don’t want to to wait for our lives to be over
I want to know right now what will it be
I don’t want to wait for our lives to be over
Will it be yes or will it be sorry?”

Paula Cole, “I Don’t Want To Wait”

There’s a temptation to see these break-ups in the context of financial disagreements on the forecasts. That Solazyme sees the future in rosier terms than Roquette. That Roquette is a smart company, and is pulling back because it sees a speed-bump down the road. That technology considerations aside, Solazyme may not be able to muscle into enough markets at sufficiently attractive returns.

But that’s the conclusion that’s driven by the assumption that rates of return mean the same things to all parties — that risk lies only in technology or in market acceptance. But risk lurks also in differentiated opportunity. A/k/a “the unexpected, bigger upside opportunity for our capital in the general direction of elsewhere.” Most would be lucky to be with Jennifer Aniston; others also have options with Angelina Jolie.

To give an example, let’s say you and I were to form a business — for example, operating a gas station. Then Warren Buffett comes along and offers you, but not me, an opportunity elsewhere.

You might find yourself, regretfully, rethinking your earlier decision on the gas station. Nothing to do with the price of, or demand, for gasoline. But you might be explaining to me that we have, unexpectedly, developed divergent opinions about the right commercialization strategy and timeline for our venture. And I might be explaining to you that — to paraphrase Paula Cole: “I don’t want to wait for my life to be over – is it “yes” or is it “sorry”?

It is, for example, the reason, so far as we understand it, that Chevron downshifted away from biofuels in 2009-2010 — as we examined in “Who killed $2.18 gasoline?

At the time we wrote:

“The Bloomberg report points to an internal Chevron report, written in 2009, that concluded it would be cheaper to buy renewable energy exemptions than make renewable fuel. According to Bloomberg, a few months after the report appeared, Catchlight’s budget was scaled back. Originally the venture was intended to build 17 plants by 2029, making 2 billion gallons of renewable fuel, starting with a $370 million commitment by 2013 and a first commercial plant in 2014.

“The projects were projected to make a return on investment of between 5 and 10 percent per year, compared to Chevron-wide average return of 17 percent. According to Bloomberg, the Catchlight board said in April 2010 that there was “no urgency” in advancing the technology, set the minimum annual return at 20 percent to greenlight a project, and reduced Catchlight’s 2013 budget from $370 million to $8.9 million.”

It’s a cautionary tale in many ways.

Not the least because oil companies didn’t do a good job of forecasting the price of RINs and are now freaking out over the prospect of paying out zillions to cover the emission credits they would have hedged by building low-carbon fuel capacity. Putting the all-out war against the Renewable Fuel Standard in an interesting context.

But, in this context, consider that the classic saw with joint ventures is that “you only ever do one” not just because of divergent opinions about the joint opportunity, but divergent opportunities external to the JV.

JVs are a form of living together without getting married — sometimes partners have divergent levels of commitment when they decide to shack up — and divergent opportunities elsewhere when the moving boxes appear.

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.

June 19, 2013

Gevo Restarts Production

Jim Lane

gevo logoAs Gevo recommences the switchover to bio-based isobutanol at its first commercial plant, we look in-depth at 2012′s contamination issues — and the prospects and path forward.

In Colorado, Gevo, Inc. (NASD:GEVO) announced that it has resumed commercial production of isobutanol at its Luverne, Minn. plant in single train mode, successfully utilizing its proprietary Gevo Integrated Fermentation Technology (GIFT).

“I am pleased to report that we have been successful in operating our full scale fermentation and our GIFT separation system that separates the isobutanol from the fermentation broth. This serves to further validate our technology as we had not previously run the GIFT system at full scale. I can now say that it runs beautifully,” noted Gevo CEO Patrick Gruber.

“We plan to be producing isobutanol and operating throughout the rest of this year, bringing all of our fermenters and GIFT systems online in the third and fourth quarters, testing run rates, then ramping up production and sales in 2013 and 2014” Gruber added.

“We will sell the isobutanol we produce, using it for market development in the specialty chemicals market, in specialty oxygenated fuel blendstocks markets, and as a building block to make fuel products such as jet fuel and chemical products such as paraxylene for polyester used in the production of bottles and fibers.” Isobutanol applications for the specialty chemicals and chemical intermediates sectors include work in paraxylene with Toray (OTC:TRYIF) and Coca-Cola (NYSE:KO).


Let’s look at the 2012 problem – what it was, what it wasn’t. At the end of the day, the problem at Luverne came down to this guy and friends of his — strains of bacillus, a rod-shaped, single-celled bacteria with an insatiable appetite for dextrose, or corn sugars.

Microbial infections are a common feature of world-scale fermentation — especially in their commissioning period — they’re a common nuisance with ethanol plants, also, that have developed antibiotics and other strategies to combat them.

As Gevo CEO Pat Gruber observed, in talking with the Digest, “First step was, for us, to make sure we understood all the competitors that are chewing up the sugar, eating up yield. There’s no way to know until you do it, at scale. What matters is how you respond.”

Bacteria lurk. Picture the small white infection spots you see on a child’s inflamed tonsil when tonsillitis or strep throat strikes — and parents will know that those type of infections can go away and then suddenly strike again. Those are lurking bacteria that have found a happy home, hung up in a tube somewhere inside the body — lying in wait for the right conditions to appear, and then spring back into view.

It is not completely different with microbial contamination in fermentation systems — likewise, the microbes embed themselves in small infection pockets, and then rise up in numbers when the sugars start to flow.

“You are always going to have microbes, whether they come in through the air or water,” said Gruber. “But there is manageable, and then there is outnumbered

In Gevo’s case — given that this is a new system, producing isobutanol instead of ethanol, it was essential to understand the particular cocktail of microbes before designing a remedy. “The fixes included changing the fermentation conditions and related operating parameters,” noted Gruber, “making equipment modifications to improve sanitization, and, most importantly, improving our operating discipline—the procedures we use at the plant.

The House that Ruth Gevo Built

Let’s visit one aspect of Gevo’s changes for a moment. Interestingly, the production yeast microbe itself has not been altered. But the fermentation conditions were changes to ensure that it competes more effectively with whatever other critters get into the soup.

In its own way, not entirely unlike the way that the original (1923) Yankee Stadium, “the House that Ruth Built,” was designed with the Bambino’s batting style in mind. That facility had the “short porch” in right field tailored to Ruth’s left-handed pull swing, leaving big hitters from visiting teams to face 450-foot stretch of center field known as “Death Valley”.

The drought and the corn crisis

The path forward from 2012′s microbial infections might have looked differently if corn prices had not soared following the 2012 drought. The original backup plan for Luverne in the commissioning phase was to return to ethanol production, or to continue to produce isobutanol and work through yield and process improvement. But, as Gruber noted to the Digest, “it’s one thing if corn is $4 or $5. With corn at $7.50 and going to $8, profitable ethanol production was essentially out of the question,” so we decided to pause production last fall after generating the isobutanol we needed for initial market development.

The path to full production

“For now,” Gruber notes, “we are currently operating in single train mode. It is easier to manage one fermenter and one GIFT separation system while we learn how to run the plant at full scale. Also, it is a more efficient use of corn feedstock and we gain valuable operating experience as we go.”

Having said that, one fermenter at Gevo scale is, ahem, not exactly nothing — given that they are operating at million liter scale.

Let’s put that in the context of some other highly-successful paths to scale. Genomatica is operating at around 600,000 liter scale, Solazyme (SZYM) has reached 500,000 liter-scale, and we understand that Amyris (AMRS) is operating at something around 200,000 liter scale at the moment. Each company will find the scale that is right for their process — it is not the case that 500,000 is inevitably better than 200,000 although economies of scale apply.

The point is, operating in single-train mode with a million liter fermenter is akin to operating two at Solazyme scale, or more at Amyris scale.

The expectation is that Gevo will have all of its fermentation units running at scale by year end, and the company continues to aim towards its critical delivery dates in 2015 for its clients.

Redfield, Biofuel Energy and other projects

What about expansion of the Gevo system to Redfield and other plants, such as Biofuel Energy? “too early to say on timeline,” Gruber told the Digest. “The interest is out there. But for now we are going to be fully focused on getting the production optimized at Luverne.”

What about cellulosic sugars? For sure, Gevo has noted that companies like Sweetwater are landing deals with ethanol plants to bring cellulosic sugars into their production streams. “We can work with cellulosic sugars, for sure” said Gruber, “but our cellulosic is not ready for prime time.”

The Gevo-Butamax dispute

Next stop in the never ending battle between Gevo and Butamax over their respective patents is an August trial date over the ’375 Gevo patent, relating back to the use of a specific gene that has been knocked out to ensure high production rates for isobutanol. This is a Gevo suit against Butamax — there remains pending litigation on appeal relating to Butamax suits against Gevo for infringement on Butamax patents.

And the efforts to invalidate each others patents go on, as well. And on. And on.

The Bottom Line

It’s good news across the industry that Gevo is back to isobutanol production — and there are no voices amongst the Digesterati indicating that a slow-and-steady approach to having all the fermenters online before year end is a bad idea.

Items to watch? The August trial on Gevo’s patents. Corn prices, generally. A steady progress between now and end-of-year to having all the fermenters online. For the longer term, announcements on the Redfield second commercial facility, and progress with cellulosic sugars.

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.

June 09, 2013

Supersize My Whopper: Volt Gas Volt’s Fuzzy Math

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.

June 03, 2013

Ethanol Producers Vs. California Air Resources Board

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. 

May 24, 2013

Advanced Biofuels in the Valley of Disbelief

Jim Lane
bigstock--D-Roadsign-Of-Facts-Vs-Lies-W-42313771.jpg 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.

Advanced Biofuels stock returns

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.

May 21, 2013

The Farm Bill: 5-Minute Guide to the Energy Title

  Jim Lane
5 min clock.jpg
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


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:

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.

May 03, 2013


Jim Lane

Has Gevo whipped its problems, and whipped them good?Gevo logo

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.

analyst estimates

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.

April 13, 2013

Gevo wins a judgment in latest Butamax vs Gevo dust-up

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.gevo logo

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.

Butamax logoIn 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.

April 02, 2013

The Hydrogen Problem

Jim Lane

Hydro-Man[1].jpeg 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.


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.

March 15, 2013

Codexis Moves to the Front With CodeXyme4

Jim Lane
CodeXyme improvements.png

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.
CodeXyme manufacturing.png

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.

March 10, 2013

When Will the Fog Lift of Biofuel Investors?

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


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.


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).


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


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.


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.


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.

March 08, 2013

Phycal Captures CO2 Funding for Biofuel

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. 

February 27, 2013

Good News for Kior: EPA Greenlights Camelina and Energy Cane

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 loserslogo[2].png

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.

February 22, 2013

Earnings Season: Heading to the Biobased Scorecard

Jim Lane

harbourtown[1].jpeg 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.

February 19, 2013

The Dew Drop Inn — Who’s Dropping in What in Biofuels?

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.

February 09, 2013

KiOR and the Compression Spread

Jim Lane

logo[2].pngYou’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.

February 04, 2013

Biobased and Biofuel Investments: A System

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.

January 26, 2013

The CapEx-OpEx Fallacy, Electric Cars, and Biofuels

Jim Lane

“Electric power is cheap”, and “cellulosic biofuel costs less than $1.00 per gallon”.
English: Photo of the Tesla Model S, from the ...
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.

December 29, 2012

Amyris hits the comeback trail

Jim Lane

Amyris[1].jpgBiofene 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.

December 17, 2012

Solazyme Crosses the Rubicon

Jim Lane

Solazyme logo.pngNext-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.

December 12, 2012

Dyadic: a 5-Minute Guide

Jim Lane

Dyadic LogoDyadic 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.


140 Intracoastal Pointe Drive
Suite 404
Jupiter, Florida 33477

Year founded:


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


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

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


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.

December 10, 2012

EPA Makes Sorghum an Advanced Biofuel Feedstock

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. 

November 17, 2012

Solazyme's Hybrid Vigor

Jim Lane

Solazyme logo.pngSolazyme 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, 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.

November 14, 2012

Neste Oil: a 5-Minute Guide

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.

 P.O. Box 95

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.

Neste Oil Rotterdam.png
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.


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


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)

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.

November 13, 2012

Abengoa Bioenergy: a 5-Minute Guide

Jim Lane

Abengoa Bioenergy Logo 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

Industrial Partners

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


• 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 -
• 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

Commercial, pilot and demonstration.

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.

November 11, 2012

Gusher! KiOR starts production of US cellulosic biofuels at scale

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

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

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

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

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

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

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

Reaction from KiORlogo[2].png

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

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

Analysts react

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

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

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

Slowdown rumors addressed

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

Next steps: new catalyst

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

Capital raise coming

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

Third quarter highlights

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

The bottom line

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

More on the story

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

Disclosure: None.

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

KiOR: a 5-Minute Guide

Jim Lane

logo[2].pngKiOR, 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.


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. 


Stage: Commercial

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.

November 09, 2012

BP Biofuels: a 5-Minute Guide

Jim Lane

BP alternative energy logo.png 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.

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

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


- 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
• 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.

November 07, 2012

Is Gevo still Gevolicious?

Jim Lane

gevo logoThough 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, 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.

Gevo: a 5-Minute Guide

Jim Lane

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

Year founded:




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.

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.

November 02, 2012

Honeywell’s UOP: a 5-Minute Guide

Jim Lane

honeywell-uop-logo[1].gif Based in: Illinois


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)


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.

October 29, 2012

Amyris: a 5-Minute Guide

Jim Lane

Amyris[1].jpgAddress: 5885 Hollis Street, Emeryville, CA

Year founded:


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.


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.

October 25, 2012

Dupont Industrial Biosciences: a 5-Minute Guide

Jim Lane


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 (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 (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.

October 22, 2012

Big Biofuel Balance Sheets: A Stampede of Elephants

Jim Lane

elephant herd
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.


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 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.


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.


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.


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.


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.


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.


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.


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


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.


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.


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.


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.

October 18, 2012

Solazyme: Microbes in the Dark

by Debra Fiakas CFA

Solazyme logo.pngThe 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

Algae beakers doe.png 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. 

October 10, 2012

Emissions Standards Driving Algae Aviation Fuel Sourcing...or not

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. 

October 09, 2012

Why Aren't First Gen Biofuel Companies Making Money?

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
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.

Algae Takes Flight

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. 

September 26, 2012

Gevo Switches Refinery Back to Ethanol: Amyris Redux?

Jim Lane

gevo logoAmyris 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.

September 11, 2012

Advanced biofuels pioneer Terrabon files for chapter 7 bankruptcy: One-off or trend?

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.

Super-cali-what?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

wm logoIn 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.

September 06, 2012

Codexis and Shell Redraw the Advanced Biofuels Map

Jim Lane

codexis logoCodexis, 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.

September 04, 2012

Fly the Bio Skies: 10 Milestones in the Summer of Aviation Biofuels

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.

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

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.

August 30, 2012

The 6 Hottest Ways to Alleviate Food vs Fuel

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.

August 21, 2012

No Eeyores for KiOR

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.

August 13, 2012

Codexis, Shell to Part Company

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.

August 10, 2012

Solazyme, Gevo, Amyris earnings, outlook: the 5-Minute version

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[1].jpgAmyris 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 logoGevo 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.”

“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 logo.png

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.

July 31, 2012

Senator Inhofe: 9x Cost for Biofuels Is Too Much, but 29x Was OK for Synthetic Fuels

Jim LaneInhofe[1].jpg

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, 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

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 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.”


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.

Greenshift's New Extraction Technology a 62% Improvement, but Challenges Abound

by Debra Fiakas CFA

Ethanol vs corn
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.

July 16, 2012

Are IPOs good for early-stage companies and advanced biofuels?

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

Luca Technologies

Still in the IPO queue

Elevance Renewable Sciences
Fulcrum Bioenergy

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.

July 11, 2012

Voices from VODville: Lessons learned in the journey towards advanced biofuels

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.

July 08, 2012

Special Report on Drought and Biofuels

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.”

Crop Moisture index

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.

Ground Water

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.

July 05, 2012

Energy Independence Day

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.

June 29, 2012

KiOR IPO: One Year Later

by Debra Fiakas CFA

logo[2].png 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.

June 28, 2012

Death Valley Days: The Biofuels Financing Saga

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.

gevo logo

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.

June 22, 2012

Gevo marching: GEVOgraphy expands to Malaysia; advantaGEVOus ruling in Butamax case

Jim Lane

gevo logoGevo 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.

May 29, 2012

Advanced Biofuels, Ahead of Schedule for Gevo

Jim Lane

gevo logoNext-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.

May 23, 2012

The 10-minute guide to Dupont and advanced biofuels

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.


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.

“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.


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.

May 09, 2012

Renewable Diesel Roundup

Jim Lane

Emerald Biofuels announces new 85 million gallon, drop-in renewable diesel project in Louisiana. Why is renewable diesel scaling up so effortlessly?

Partial view of the Dynamic Fuels plant in Geismar, Louisiana

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.


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.


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.

May 08, 2012

Playing Defense: Contamination and the jitter effect in advanced biofuels

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.

May 07, 2012

Amyris drops the biofuels bomb

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.

May 02, 2012

Abengoa Buys in to Dyadic's Technology: Should Investors Buy the Stock?

Dyadic LogoDyadic 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.


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.

bioenrgiaThe 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.


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. 


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