Novozymes Chief Says 2G Ethanol Market Can Endure Oil Price Drop

Source: By Andrew Noel, Bloomberg • Posted: Wednesday, January 21, 2015

Novozymes A/S (NZYMB), the world’s largest maker of enzymes used in biofuel to washing powder, said the market for second-generation ethanol plants that run on agricultural waste can withstand the current fall in oil prices.

If the price of oil sank to about $40 a barrel over the long term, demand for so-called 2G technology would be effected, according to Chief Executive Officer Peder Nielsen. Demand for biofuel enzymes increased 10 percent in the fourth quarter, bolstering profit in the period.

Novozymes, which opened a 2G ethanol plant in Italy in October 2013, is betting that depressed prices for oil, a key cost component in corn farming, will rub off on the cost of the crop, helping to improve its competitiveness. Added to that, is the environmental awareness that will be raised with the United Nations Climate Change Conference in Paris this year, Nielsen said.

“If oil were to stay at $40 forever, then I would argue that the value of the option we are offering would get smaller,” Nielsen said in a phone interview. “I think it will climb back up to $80 a barrel. Oil is the main input for corn. It’s not a given that corn gets expensive.”

Novozymes expects the volume of first-generation ethanol that uses crops, rather than crop-waste, to remain at steady levels in 2015. The Bagsvaerd, Denmark-based company had envisaged supplying 15 second-generation ethanol plants by 2017 when it inaugurated the plant in Crescentino, Italy. That may now take until 2020, Nielsen said.