News Focus: LANXESS close to bio-isobutanol supply deal wth Gevo

19 September 2011 00:00  [Source: ICB]


LANXESS expects to sign a 10-year exclusive deal with Gevo
The world's largest butyl rubber producer is in the final stages of negotiations for the supply of bio-isobutanol from Gevo

Germany-based chemical company LANXESS is in the final stages of negotiations for obtaining supplies of bio-isobutanol from US-based renewable chemicals firm Gevo. The deal, if completed, will be a vital component for LANXESS to produce the first bio-butyl rubber in commercial quantities.

"We started negotiations in late July and expect to have the supply contract finalized by the end of the year," said Ron Commander, head of LANXESS's butyl rubber business unit, on the sidelines of Gevo's investor day in New York.

Butyl rubber is used in automotive tires, specialty medical sealants and chewing gum.

The deal is expected to be a 10-year exclusive supply agreement with Gevo, and will help LANXESS meet a goal of reducing the carbon footprint of its butyl rubber business by 25% by 2025 based on 2002 levels.

The terms of the supply agreement would "not necessarily just be price-based," Commander said at the event.

He added that in the long term, LANXESS aims to produce at least 50% of its 150,000 tonnes/year of butyl rubber at its plant in Sarnia, Ontario, Canada, from bio-isobutene.

The company plans to buy bio-isobutanol from Gevo and convert it to isobutene in Sarnia.

"We would railcar the isobutanol into Sarnia and feed it into a new dehydration facility we would build there using our technology," Commander said. However, he said no investment decision had been made yet.

LANXESS has already produced bio-isobutene in pilot plants and it unveiled the first bio-based butyl rubber at its annual meeting in May 2011. Commander said the company is the world's largest buyer of isobutene for butyl rubber production.

"We would like to see isobutanol coming from Gevo by 2013, but at the latest by mid-decade," Commander said.

LANXESS expects to produce "several tens of thousands of tonnes" of bio-based butyl rubber by mid-decade, he added.

The company has two world-scale butyl rubber production sites - in Zwijndrecht, Belgium, and Sarnia. It is building a third synthetic rubber site on Jurong Island in Singapore, scheduled to come on line in the first quarter of 2013.

The €400m ($545m) Singapore investment will be the largest in the company's history and its additional planned 100,000 tonnes/year of butyl rubber capacity will bring LANXESS's total to 400,000 tonnes/year.

Asia represents 54% of LANXESS's butyl rubber business, with half of that from China, Commander said at a media event in London in June.

Total market demand for butyl rubber amounts to 1m tonnes/year globally and is growing at a compounded annual growth rate of 3-4%/year, he noted. Gevo is retrofitting its wholly-owned 22m gal/year ethanol plant in Luverne, Minnesota, US, into an 18m gal/year bio-isobutanol facility by the first half of 2012.

It also has a plan to retrofit a 50m gal/year ethanol plant in Redfield, South Dakota, US, into a 38m gal/year bio-isobutanol plant by early 2013. The project, with local cooperative Redfield Energy, which owns the plant, is currently in the process-definition phase. Gevo will put up the capital for conversion and take an equity stake in Redfield.

Gevo is targeting bio-isobutanol production volumes of about 10m gal/year in 2012 and 60m gal/year in 2013, ramping up to 200m gal/year in 2014 and 350m gal/year in 2015, chief financial officer Mark Smith said.

The target of 350m gal by 2015 involves retrofitting nine ethanol plants, he added. Gevo currently uses corn starch and sugar-cane feedstock for bio-isobutanol production. In the future, it also plans to make use of agricultural residue and wood for feedstock, CEO Patrick Gruber said.

Gevo estimates theoretical cash costs to produce bio-isobutanol were at an average of $1.60/gal (€1.17/gal), or $1.00/gal lower than petroleum-based isobutanol from 2006-2011. LANXESS has invested $27m in Gevo and holds an 8.6% equity stake in the company, according to Gevo's latest quarterly earnings filed with the US Securities and Exchange Commission on August 3.

Additional reporting by Andy Brice in London

By: Joseph Chang
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