14 March 2008 10:42 [Source: ICB]
Out from the shadow of biofuels, bio-based chemicals have returned to the agenda, says McKinsey's Jens Riese
Clay Boswell/New York
WHAT WILL it take for bio-based chemicals to provide the versatility and economics of petrochemicals, perhaps even to supplant some of them?
There already exist numerous chemicals for which the bio-based route has a dominant position, such as lactic acid, citric acid, most amino acids and of course, ethanol.
Still, inexpensive and versatile petrochemicals have been the chemical industry's fundamental building blocks for the last century. Interest in alternatives has only gathered momentum with concern for the unpredictability of the oil markets.
To encourage such work, the US Department of Energy's Biomass Program published a seminal report four years ago identifying a dozen sugar-based building blocks that might "economically and technically support the production of fuels and power in an integrated biorefinery."
The list was "a good start" that triggered a great deal of additional research, says Jens Riese, principal in the Munich office of global management consultancy McKinsey & Co. "It therefore deserves a lot of credit," he says. "Some chemicals on the initial list survived recent screening. However, others turned out to target only niche markets, and there are now new options available with lower cost and higher revenue potential."
Among the survivors are succinic acid - Dutch life and materials sciences firm DSM recently teamed with French starch, derivatives and polyols manufacturer Roquette to develop a fermentative pathway - and 3-hydroxypropionic acid, which US agribusiness Cargill is developing (see page 21).
"The bio-based building blocks have a great potential to become the 'ethylenes and propylenes' of the future - or rather, to complement these. In our work with chemical companies, we have identified a number of other fermentation chemicals with a high market potential," says Riese.
"There are also opportunities to marry the 'green' product trees with the petrochemical trees," he adds. "There are some very interesting bio-based intermediates but you have to combine them with chemicals routes to capture the full potential."
With oil spiking over $100/bbl and natural gas around $8/m Btu, petrochemicals have lost much of the feedstock advantage they once had, and activity around bio-based chemicals has significantly increased.
"Until a year ago almost all resources were shifted to biofuels, but now there is a revival of bio-based chemical research," says Riese.
Still, petrochemicals remain buffered from immediate competition by the large amount of capital invested in their manufacture. Furthermore, the feedstocks for bio-based chemicals - sugar, starch and oil - have seen a parallel increase in price, he notes.
"Companies don't know how the hydrocarbon-to-carbohydrate feedstock spread will develop in the future," he says. "It appears clear that the times of $20/bbl oil are over. But many argue that the times of $2/bushel are also over - at least partially due to the success of biotech in the fuel sector."
Two factors may help bio-based chemicals. First, many chemical markets are growing, and new plants are being built. For these, legacy assets are not a factor, only process economics. Second, climate change and energy security agendas provide additional incentives to shift from oil and gas.
The short to medium-term potential for bio-based chemicals is as replacements, according to Riese. "The market exists and does not need to be developed, with all the effort and uncertainty that entails. At the same time, there is much interest in longer-term efforts to build new product trees based on bio-intermediates."
As for a "green premium," or extra value attached to the "bio-based" label, he says it is modest. Market research shows that very few people are willing to pay more for a "green" product, and the extra amount they are willing to spend is very small.
"This pricing potential should be exploited," Riese suggests. "But in most cases, we do not recommend that our clients bet on a premium. Regulatory mandates or subsidies that allow a more costly product to compete are a different story, as they are more reliable."
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