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.
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.
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.
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.”