Friday, June 17, 2011

Big Oil and Big Chemistry See Salvation in Bio-Feedstocks

The Earth is floating in hydrocarbons, yet the easy oil is in the hands of dictators, kleptocrats, and corrupt national oil companies. Oil is not only used for fuels, it is also used for feedstock in the chemicals, fabrics, plastics, and lubricants industries. When big international oil companies and big international chemical companies are being held hostage by corrupt tin-pot national oil companies, what do they do? They look for alternative sources and feedstocks. The most promising alternative feedstocks come from biology -- biomass and bio-oils from micro- and macro-organisms.

Many new companies and industries are sprouting up to exploit the potentially huge and profitable economic opportunities. Hundreds of $billions are at stake in chemicals, and $trillions are at stake in the fuels trade. But these fledgling biomass, biofuels, and bio-chemicals companies need financial backing, and much of their backing is coming from big oil and big chemicals.
Advancing next-generation biofuels technology from proof-of-concept to commercial reality will require major investment, a need that is being filled in part by oil giants and other industrial players. At the same time, these corporate powerhouses are staking their claims in this emerging area knowing that dwindling fossil fuel reserves will limit their existing businesses, according to Burrill & Company's annual report on the biotech industry.

"Big Oil is to biofuels companies what Big Pharma has been to biotech drugmakers," says G. Steven Burrill, CEO of the San Francisco-based merchant banking firm Burrill & Company. "It's a symbiotic relationship. Biofuels developers need Big Oil's deep pockets, global presence, and engineering expertise. At the same time, Big Oil needs a strategy beyond fossil fuels if they are to have long-term financial health."

...It's not just large oil companies, such as Royal Dutch Shell, Total, and BP that are making strategic investments in emerging biorenewables. Large chemical concerns such as DuPont and Dow Chemical are also positioning themselves to become major players in the field.

"Because of the cost and complexity of scaling biofuels to a point where they could compete with conventional fossil fuels, the early opportunities for these biofuel companies will be in the area of high-value specialty chemicals," Mr. Burrill says.

Renewable chemicals represent an enormous opportunity to companies that are challenged by the scale and cost of fuel production. Although most companies say their chemicals can compete with petrochemical-based molecules when oil is selling for $60 to $80 a barrel, with the exception of ethanol and handful of other alternatives, few renewables have reached commercial scale. As these companies ramp up operations, they are turning to renewable chemicals as a substitute for petroleum-derived chemicals for use in plastics, fibers, cosmetics, and as bulk and specialty chemicals.

These findings are contained within Biotech 2011-Life Sciences: Looking Back to See Ahead, Burrill & Company's 25th annual report on the biotech industry. The book is now available in print and electronic format at _Marketwire
A good example of a savvy biotech company jumping into these waters is Amyris, in the East SF Bay area. Amyris has developed farnesene from biomass and called it Biofene. The company plans to market the chemical to the global surfactants business, to generate cash flow to finance a frantic program of ongoing research into further bio-chemicals and bio-fuels from biomass production.

Gevo is another busy startup hoping to prosper in both the bio-fuels and bio-chemicals areas. Gevo has developed a proprietary yeast for fermenting corn sugars into butanol -- instead of ethanol. Butanol is a much higher value fuel than ethanol, and a precursor to high value chemicals. Gevo is retrofitting ethanol plants in Minnesota and South Dakota for production of bio-butanol.

One problem for these high tech startups is the emergence of abundant, cheap natural gas from unconventional sources. As Shell's Qatar GTL plant proves, natural gas can be an excellent feedstock for production of liquid fuels and chemicals if the price of feedstock is low enough.

And yet, Earth is a biological planet. Biomass of one type or another grows prolifically over the greater portion of both land and seas. Hydrocarbons are not as readily available at all locations as biomass could be. As new methods of fermentation, gasification, pyrolysis, torrefaction, etc. are developed for processing all forms of biomass, expect the smart money to discover the versatility of biology and biological products.

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