EBOOM CAPITAL: Big Companies Pursue Different Next-Gen Biofuel Technologies

While the ethanol subsidy debate rages in Washington, D.C., the big oil and chemical companies continue their small experiments into next-generation biofuels. 

“Small” because these activies pale dramatically compared with the billions of dollars in profits they reap from their regular businesses. Example: ExxonMobil’s US$600 million investment over 10 years to develop oil from algae equals $15 million per quarter, compared with the company’s Q1 2010 profit of US$6.3 billion.

Furthermore, these companies won’t be channeling more money and effort into these experiments until U.S. energy policy is settled. 

EBOOM CAPITAL reviewed what the “Bigs” are doing and which technologies they are pursuing. The results make it clear that investors won’t be buying shares of these companies for their next-gen biofuel prospects. Here’s the score in the early innings:

BP plc (NYSE: BP) (Q1 2010 revenue/profit: $74.4 billion/$6.2 billion) will become the second largest next-gen biofuels producer in the U.S. in 2012 with its $98 million acquisition on July 15 of the cellulosic biofuel business of Verenium Corporation (NASDAQ : VRNM) . 

Other next-gen activities:

• A joint venture with DuPont, called Butamax Advanced Biofuels, to develop and commercialize biobutanol. 

• A $500 million investment over 10 years in the U.S. in the Energy Biosciences Institute. Partners are the University of California Berkeley, the University of Illinois, Urbana Champaign and the Lawrence Berkeley National Laboratory.

• Collaborations with Martek Biosciences Corporation (conversion of sugars to biodiesel) and Mendel Biotechnology (feedstock development).

BP’s conventional ethanol activies: 

• A 50-50 US$1 billion deal with Tropical BioEnergia SA in two conventional ethanol refiners (one operating to date) in Brazil using sugar cane as feedstock.

• A partnership (Vivergo Fuels) with Dupont and British Sugar in a $400 million conventional ethanol plant in the UK using local wheat as feedstock.

Royal Dutch Shell plc (NYSE: RDS:A) (Q1 2010 revenue/profit: $88 billion/$5.56 billion) claims it distributes 9 billion liters (2.37 billion U.S. gallons) of biofuels annually, making it the world’s largest biofuels distributor. The company obscures the fact that this is conventional crop-based ethanol, not to be confused with next-generation biofuel made from non-crop sources. 

Shell’s next-gen biofuel activities include:

• A 50 percent equity interest in Logen Energy, a Canadian company which has been producing cellulosic ethanol from wheat straw at a demonstration plant since 2004 (2010 production: 200,000 U.S. gallons).

• An unspecified equity interest in Virent Energy Systems, Inc. of Madison, Wisconsin, which opened a demonstration plant in 2010 converting plant sugars into gasoline.

• A joint venture, called Cellana, with HR BioPetroleum of La Jolla, California, to build a pilot plant in Hawaii to grow marine algai and produce vegetable oil for conversion into biofuel.

In conventional ethanol, Shell has a non-binding agreement with Cosan Limited (NYSE: CZZ) to form a joint venture for producing ethanol from sugarcane in Brazil.

E.I. du Pont de Nemours & Company (NYSE: DD) (Q1 2010 revenue/profit: $8.84 billion/$1.13 billion) has a biofuels collaboration with Danish food and enzyme company Danisco called DuPont Danisco Cellulosic Ethanol LLC (DDCE).

DDCE has a 250,000-gallon-per-year demonstration-scale refinery in Tennessee, will announce plans this year for a commercial-scale plant producing cellulosic ethanol from corn stover, and intends to build a second commercial cellulosic ethanol plant using switchgrass as feedstock.  Eventually, DDCE will license its technology to other next-gen ethanol producers.

Other next-gen activities:

• A joint venture with BP plc, called Butamax Advanced Biofuels, to develop and commercialize biobutanol from starch and sugar feedstocks as well as from algae.

• A collaboration with POET LLC to build a plant demonstrating DuPont’s cellulosic ethanol technology.

ExxonMobil Corporation (NYSE:XOM) (Q1 2010 revenue/profit: $90 billion/$6.3 billion) is focusing its next-gen biofuel activities on a $600-million 10-year collaboration with Synthetic Genomics, Inc (SGI) of La Jolla, California, that began in July of 2009 to develop algae biofuels. 

On July 14, 2010, the companies announced the opening of a greenhouse testing facility. Next milestone, expected in mid-2011, is the opening of an outdoor test facility.

Valero Energy Corporation (NYSE: VLO) (Q1 2010 revenue/profit: $19.64 billion/-$0.13 billion), North America’s largest independnent oil refiner and marketer, had revenue and operating income of $570 million and $57 million from the 10 conventional ethanol plants it acquired last year from bankrupt Verasun.

Valero also has interests in next-gen startups Qteros (Massachusetts-based company working on converting woody biomass and fast-growing grasses to cellulosic ethanol), ZeaChem (Oregon-based plant working on converting poplar trees to cellulosic ethanol), Terrabon (Texas-based company working on converting sorghum to petroluem-equivalent fuel) and Solix (Colorado-based company working on growing algae for conversion to biofuels).

Archer Daniels Midland Company (NYSE: ADM) (Q ending March 31, 2010 revenue/profit: $15 billion/$425 million) will have conventional ethanol production capacity of 1.8 billion gallons per year by the end of 2010, eclipsing POET as the largest producer in the U.S.  ADM also produces 450 million gallon of biodiesel, mostly refineries outside the U.S.

ADM has collaborations with Deere & Company (NYSE: DE), Monsanto Company (NYSE: MON) and ConocoPhillips (NYSE: COP) on research to turn crop residues into feed and bioenergy products.

Photo credit: ExxonMobil algae development

DISCLOSURE: The writer has no positions in, or professional connections with, these companies.