Bio-based intermediates will reduce price volatility

22 June 2011 11:47  [Source: ICB]

Clay Boswell/New York

How might buyers benefit as bio-based intermediates flow into the market over the next few years? An analysis of feedstock volatility yields insight

Intermediates pricing is volatile at the best of times, but the extraordinary fluctuations of recent years and the overall trend toward higher values have put a heavy burden onto both buyers and sellers.

In the past six months alone, new record highs have been recorded for a long list of intermediates that includes maleic anhydride (MA), phthalic anhydride, phenol, acetone, caprolactam (capro), acrylonitrile, methyl ethyl ketone (MEK), methyl isobutyl ketone (MIBK), methylene chloride, perchloroethylene (perc), bisphenol A (BPA), purified terephthalic acid (PTA) and propylene glycol.

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A new value chain could reduce volatillity
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A big part of the problem is crude oil. Fifty years ago, it was as cheap as it is versatile, an ideal platform on which to build the golden age of the chemical industry. In the past few years, however, its price has shot to record highs, plunged to unexpected lows, and scrambled back to the heights along a jagged, unpredictable path.

Every petrochemical has been affected by these gyrations. Many are also affected by a problem that has arisen downstream of the refinery: crackers, the industry's source of basic building blocks, are shifting to lighter feedslates, with the result that propylene and butenes have become increasingly precious, as have the many intermediates derived from them such as acrylic acid and 1,4-butanediol (1,4-BDO).

Challenges such as these are nothing new for the chemical industry, which has always managed to adapt. This time, however, there is a difference that could fundamentally change the dynamics in play - bio-based production.

For the past decade, a host of companies have dedicated themselves to making the economics of bio-based production work for commodity chemicals. Many schemes have been discarded, and yet a surprising number have progressed to the latest stages of development and even early commercialization.

Some of these projects target intermediates whose full potential could never have been realized as petrochemicals because the cost of production would have been too high. Examples include glucaric acid (US-based Rivertop Renewables), furan dicarboxylic acid (US-based Avantium) and succinic acid - a particularly versatile molecule being developed by at least seven companies - Mitsubishi Chemical, Myriant, BioAmber, and two partnerships, BASF/Purac and DSM/Roquette.

Succinic acid is an interesting case, in that much of its potential consists in providing an alternative, bio-based pathway to three intermediate chemicals that already have large markets as petrochemicals: 1,4-BDO, tetrahydrofuran (THF) and gamma-butyrolactone (GBL). The conversions are well developed; only the cost of producing succinic acid has prevented deployment. Over the past decade, however, industrial biotechnology has made tremendous strides, and many targets described in the US Department of Energy's seminal 2004 study, Top Value-Added Chemicals From Biomass, are now well within reach.

US-based BioAmber, for example, has been producing succinic acid at a 2,000 tonne/year plant in France since January 2010, and plans to build a 20,000 tonne/year plant at a North American location will be announced next month.

The company, which recently raised $45m in venture funding, has attracted multiple partners. DuPont has supplied a technology for the conversion of succinic acid. Japan's Mitsui & Co. will distribute BioAmber's succinic acid in Asia. Another Japanese firm, Mitsubishi Chemical, is providing additional technology and studying the feasibility of building a BioAmber succinic acid plant beside a planned polybutylene succinate plant in Thailand. US-based agri-product company Cargill has provided a bacterial strain that BioAmber believes will double output and cut production costs by 25%.

Many other projects targeting traditionally petrochemical intermediates have also achieved sufficient progress to draw the interest of major players in the chemical industry. For example, Dow Chemical has partnered with US-based OPXBIO on acrylic acid. Mitsubishi Chemical, the UK's Tate & Lyle and Italy's M&G each have separate partnerships with US-based Genomatica on 1,4-BDO. Germany-based Lanxess and US-based Cargill both have partnerships with US-based Gevo on isobutanol and related butenes.

Several chemical majors have their own in-house programs, too. France's Arkema, Germany's BASF and Japan's Nippon Shokubai are all developing bio-based routes to acrylic acid. Arkema and Germany's Evonik are each working on methyl methacrylate (MMA).

The synthetic pathways they employ are diverse. Some are purely chemical, others are purely biotech, and then there are hybrids of both, but they are alike in yielding products insulated from the petrochemical chain.

Aside from their origin, bio-based intermediates such as these aim to be indistinguishable from the petrochemical product. They will not require consumers to adapt their manufacturing processes or make new capital investments. Indeed, their success is predicated on being true drop-in substitutes; not only on the production line, but also in the market.

Producers who use them capitively will enjoy the usual benefits of backward integration, but they will also bear the volatility of agricultural markets, which can be just as great as it is in oil markets. The cost of production will rise and fall with the cost of sucrose, glycerin or whatever other bio-based feedstock is used, just as it does for products derived from crude oil.

In most respects identical to their petrochemical equivalents, bio-based intermediates will not give consumers an advantage except in applications where sustainability is an issue, and there, the premium is typically small. The cost advantage will be nil, since an intermediate's price will be the same whether it is derived from crude oil or corn syrup - at least until the market is oversupplied, buyers gain leverage, and differences in production cost become the key to dominance and survival.

For consumers, then, the primary benefit of bio-based intermediates will not be lower prices, but rather lower price volatility in markets supplied by separate value chains.

For example, the price of sugar, a common feedstock in fermentative processes, may be just as volatile as the price of oil; but combining the two costs, as the intermediates market will do, tends to smooth the price curve. It would be hard to tell by looking at a graph of historical prices, such as the one at the lower left, which presents normalized values for West Texas Intermediate crude oil and US domestic sugar 14 futures. But the second graph, which depicts the volatility of those prices across a six-month period for the past five years, shows how it is often so.

The volatility of the combined price is not always the lowest -- in fact, the price of oil was less volatile in 2010, just 3.3%, versus 5.8% for the combined price and a whopping 9.4% for sugar. It is never the highest, however, and in the long run, the advantage of a market drawing off two separate value chains becomes clearer: from 1990-2010, the volatility of the combined price fell to 4.6%, while the volatility of oil and sugar settled at 5.5% and 5.3%, respectively.


Second- and third-generation processes for the manufacture of bio-based intermediates could have an even greater effect on price volatility.

"In the short term, if you've got a process that's based on food, you've got the economic risk that these raw materials will go up in sync with oil," says William Tittle, a principal in global energy and chemical consulting firm Nexant's office in White Plains, New York, US. "It's a very complicated issue, and that's the reason why these companies see these raw materials as only an intermediate step. They're using sugar or corn today, but they're looking to move to one of these very price-inelastic feedstocks - biomass, waste - that there are huge quantities of, where there's less price sensitivity, and you don't get into this food-versus-fuel debate."

Cellulosic ethanol provides a model for this approach. Instead of sugars extracted from sugar cane or corn, microbes are fed sugars liberated from waste biomass such as sugar cane bagasse and corn stover, or even from cheap purpose-grown sources such as switch grass.

A less-developed alternative replaces sugars with carbon monoxide - ordinarily a poison, but engineered microbes thrive on the gas while producing useful chemicals.

LanzaTech, a start-up based in New Zealand, has gotten microbes to convert carbon monoxide to a range of products that include 2,3-BDO, isopropanol, isoprene, n-butanol and acetone, as well as fuel ethanol. The company intends to use the flue gases of steel plants as its carbon monoxide source.

Several partners have joined to push the technology forward. In February, LanzaTech and China's largest steel and iron conglomerate, Baosteel Group, established a joint venture to build a 100,000 gallon/year demo plant that will make ethanol. The plant is to go on line this fall. LanzaTech has also partnered with Posco, a major Korean steel producer, and Taiwan-based chemical manufacturer LCY Chemical Corporation. Earlier this month, LanzaTech announced another partnership with Japan's Mitsui Group.

Genomatica's process for producing bio-based 1,4-BDO is currently based on microbes that digest sucrose, and the partnership with M&G is developing a cellulosic process. However, the company has also partnered with Waste Management, the US-based waste collection giant, to develop a process using carbon monoxide from gasified municipal waste - a plentiful feedstock that actually has a negative value to the cities that produce it.

There is no telling when these potentially transformative technologies will be commercialized, however.

"Coal gasification has been around a long time," observe's Nexant's Tittle, "but when this has been applied to biomass, there have been problems. These problems are going to be solved because there's tremendous incentive, but you can't assume that if you've demonstrated something at the pilot scale, that commercial scale is a slam dunk."

As for the prospects of the many other bio-based processes closing on the market, he is circumspect. "This is a real horse race," Tittle says. "The fact of the matter is that it remains to be seen. That's what technology development is all about. There are elements of the unknown, and it's not obvious."

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By: Clay Boswell
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