Corporate giants ‘building empires’ in advanced fuels

Source: Amanda Peterka, E&E reporter • Posted: Thursday, April 19, 2012

Major corporations — most notably, oil and gas giants — are “building empires” in advanced biofuels as partners for startups that need cash and expertise, according to a market analysis released yesterday.

Lux Research Inc. says 79 percent of companies scaling up in alternative fuels are connected to large companies.

Serving as hubs for biofuels companies, Lux said: BP PLC, Valero Energy Corp., Royal Dutch Shell PLC, France’s Total SA, Honeywell UOP LLC, General Motors Co., Boeing Co., Chevron Corp., DuPont and Waste Management Inc.

“As alternative fuel technologies go to market, aligning with the right partners is a necessary stepping stone,” Andrew Soare, a Lux research analyst and the report’s lead author, said in a statement. “The massive incumbent fuel producers, refiners and distributors can be the competition, but they’re also the key to integrating novel technologies into a century-old industry.”

Most of the partnerships have formed since 2005, when Congress first passed a renewable fuel standard mandating that the country produce a certain amount of advanced biofuels.

There are now 800 connections among the 753 organizations that Lux is tracking. So advanced biofuels companies are connected by 5.75 degrees of separation, the report says; a “mega-cluster” of connections, with the major oil and gas firms as hubs, now includes 537 companies.

“For us, going into the next series of deployments, I believe the most appropriate financing source will be through partnerships with large strategic partners who are already in the manufacturing or feedstock value chain,” Lee Edwards, CEO of Virent Inc.,said in a recent interview.

Virent, a company formed in 2002, is developing a thermocatalytic process to make drop-in fuels. The company is the shining star of corporate partnerships, Lux said.

In May 2006, the company signed on Honda Motor Co.and Cargill investors. Two years later, Virent established a joint agreement with Shell, which also became an investor. Since then, Virent has also formed a joint venture with Coca-Cola make plant-based plastic bottles and a research partnership with Virdia Inc.

Along with providing investments, corporations bring validation to advanced biofuels startups

“If you have a huge oil company willing to say, ‘Yeah, we’ve put in X bunches of dollars,’ it makes a bank feel pretty good,” said Jim Imbler, CEO of biofuels company ZeaChem Inc., which has formed partnerships with Chrysler Group LLCand Procter & Gamble.

The Lux report credits partnerships with bringing about successes in initial public offerings. Several advanced biofuel companies have recently turned to the public market in a bid to finance projects (Greenwire, April 13).

“What we’ve realized is fuels is the highest-risk, most complex and most capital-intensive product to scale,” Amyris Biotechnologies Inc. CEO John Melosaid at a recent conference in Washington, D.C. “You need a very strong balance sheet, or you need a partner with a very strong balance sheet.”

Where are the universities?

Some of the partnerships in the biofuels industry are more unconventional than others.

LanzaTech NZ Ltd., a New Zealand company that recently purchased the bankrupt Range Fuels plant in Georgia, has formed partnerships with the largest steel companies in China. LanzaTech is using the natural gas produced by those companies to make advanced biofuels.

“We’re talking about a small biotech company — us — having a relationship with the largest steel company in China,” LanzaTech CEO Jennifer Holmgren said at the same conference in Washington, D.C. “Who would have ever thought we would be making biofuel at a steel company?”

Most of the biofuels companies that have formed partnerships are in the biotechnology world, rather than in thermochemical processes, according to Lux Research. Their technologies convert sugars to fuels using enzymes.

Technology developers Novozymes North America and Amyris, which both have developed biotechnology processes using enzymes and fermentation, have formed “mini-networks” in the biofuels sector.

In the last two years, 57 percent of the new partnerships have been in the research and development sphere, not in commercial or financial agreements.

“The [advanced fuels] space was not transitioning seamlessly from the lab to a commercial facility, and by 2010, when technical goals were not met, the research presence exploded,” the Lux report says.

Although it’s true for most biofuels companies, partnerships with high-profile corporations don’t always lead to successes in the commercial world. Qteros Inc., for example, has partnerships with both BP and Valero but has downsized due to financial and technical hurdles, according to Lux.

And while corporate partnerships have dominated, Lux expects to see in the future more startup alliances and cross-industry partnerships.

The one type of partnership that’s missing from the cellulosic ethanol sector is with universities.

While universities are also conducting research on new feedstocks, fermentation organisms and pretreatment systems, they have not formed partnerships with cellulosic ethanol companies.

“Universities are not as plugged into the networks as you would think,” Soare said in a recent interview, suggesting that the industry may be missing some basic research.