Market outlook: Genomatica expects others to join its bio-butadiene programme

09 November 2012 11:33  [Source: ICB]

US renewable chemical process technology firm Genomatica expects more partners for its bio-butadiene (BD) programme following its partnership with Italy-based chemical producer Versalis and bioplastics company Novamont.

"We expect other major players to join our bio-BD programme as we are seeing quite a lot of interest," said Christophe Schilling, CEO of Genomatica. "We're having conversations with just about every BD producer, consumer or downstream derivative consumer across the value chain."

Genomatica capsule

 Bio-based butadiene could be a game-changer

In July 2012, Genomatica announced the signing of a memorandum of understanding (MoU) with Versalis and Novamont to form a partnership in bio-BD.

The three partners aim to form a joint venture that develops a comprehensive process technology and engineering package to license to companies for the production of BD from biomass.

Versalis also would be the first licencee of this technology to build a bio-based BD plant. Its elastomers business is a major consumer of BD.

The next step in the BD partnership with Versalis and Novamont would be to sign a definitive agreement, but Schilling would not provide a timeframe for this.

Compared with Genomatica's first programme in butanediol (BDO) introduced in September 2008, where the company had to actively reach out to potential partners, the bio-BD programme has attracted interest on its own, said the CEO.

"We didn't have to go out. People came to us," said Schilling. "This reflects the dynamics of the BD market as well as the credibility we have established in BDO. People believe we can succeed in producing BD from biomass."

Genomatica aims to develop process technology for the production of commodity chemicals that will beat conventional processes on a cost basis, the CEO said.

"It's all about achieving significant cost leadership positions with partners - both in terms of capital investment and operating costs," said Schilling.

"We're looking for better economics - not just to label something green."

The company also plans to "unlock a broad range of feedstocks" to achieve lower costs.

"The ideal biomass is inexpensive biomass. This can range from purpose-grown energy crops such as switchgrass and energy cane, to straw, depending on geographic region," said Schilling.

BDO UPDATE

Meanwhile on the BDO front, Genomatica's joint venture project with Novamont to convert a plant in Adria, Italy, to 40m lb/year of bio-BDO production, is on track for completion towards the end of 2013, he noted.

Christophe Schilling

"The real opportunity is in the ability to unlock alternative feeds not linked to agricultural food commodities. Biomass-to-chemicals will be a disruptive dynamic to the chemical industry."

Christophe Schilling
CEO - Genomatica

While Genomatica owns 20% of the BDO venture with Novamont owning 80%, it is not contributing any capital to the project. Rather, its 20% equity stake on top of additional licensing payments, represents the value of its BDO process technology, explains Schilling.

"Our model is based on licencing. We don't put in any capital for projects," he said.

The BDO plant in Italy will use conventional sugar feedstocks - most likely dextrose from corn. There are several mills in the region near Adria, Italy, said Schilling. However, Genomatica eventually plans to be able to produce BDO from biomass.

The CEO describes its BDO process as a semi-continuous process. "The fermenters are operated in a fed-batch process which gets completed in less than 48 hours. Then the broth is injected into a continuous downstream process to produce BDO," he said.

In February 2012, Genomatica also signed an agreement with Japan's Mitsubishi Chemical to exclusively negotiate definitive agreements for a joint commercial operation in Asia for the production of BDO using Genomatica's process technology.

The companies are currently evaluating locations for the plant, which would likely be in the standard range for a Genomatica-planned BDO plant.

Its standard range is between 100m-130m lb/year (45,000-60,000 tonnes/year).

BIO ADIPIC ACID

Genomatica also has intellectual property on producing other chemicals such as adipic acid from bio-based materials. However, no announcements have been made in this area.

"Products like adipic acid fit right in with our overall strategy, which is to focus on the production of basic and intermediates chemicals," said Schilling.

"We only focus on commodity prioducts that have markets in the multi billions of dollars, and with large end-markets. We believe this is the quickest and most efficient way to commercialisation."

IPO PULLED

In August, Genomatica pulled its planned initial public offering (IPO) in the face of difficult equity market conditions for bio-based chemical companies. Instead it announced it had raised $41.5m (€32.0m) in a private financing deal with Versalis, joining existing investors in the latest round.

"We have no burning need to go public. It was just one of many options to raise capital. When we filed over a year ago, we were very clear it was to provide optionality," Schilling said. "However, I wouldn't rule out an IPO in the future."

The market environment has been brutal for publicly traded stocks of renewable chemical companies. The excitement following a number of high profile IPOs in recent years has faded dramatically.

US-based Gevo, which is developing bio-isobutanol, went public in February 2011 at $15/share. As of early November, it traded at around $2. US-based Amyris, which focuses on a wide range of renewable based chemicals and fuels, went public in September 2010 at $16/share. Shares rose to a high of nearly $39 by January 2011 before tumbling to around $3.

"Clearly, there is scepticism and disenchantment in the market, but that's not the full picture. The technology we're developing and the product quality and competitiveness absolutely fit the bill of what's needed," said Schilling.

He describes the bio-based chemical sector as going through a "weeding out process" as it matures. "The stock market is very sensitive to any slight hiccups from these companies," he said.

Schilling points out that Genomatica's implied valuation has risen significantly with its latest round of financing.

"We can only control what we do, and we're very focused on developing process technologies and working with committed partners to bring those to commercialisation," he noted.

CHALLENGES

One of the greatest challenges facing bio-based chemical companies is gauging the changing spread between carbohydrate-based and petroleum-based feedstocks, said the CEO.

In some aspects, the dynamics have been favorable for bio-based firms as high crude oil prices have led to higher prices for commodity chemicals and low natural gas prices in the US have resulted in a shortage of BD, which is dependent on oil-based naphtha cracking.

However, agricultural commodity prices also have risen, presenting both a challenge and an opportunity.

"The real opportunity is in the ability to unlock alternative feeds not linked to agricultural food commodities. That's where biomass comes into play. Biomass-to-chemicals will be a disruptive dynamic to the chemical industry in a positive way. It is a tremendous opportunity," said Schilling.

"Producers should keep in mind that the technology can be developed to where their fossil-based product competitiveness could be undermined. Plus, the resulting lower feedstock volatility is a huge selling point for biomass-to-chemicals," he added.

Another challenge for a licencing business model in bio-based chemicals like Genomatica's is that the commercialisation timeline is driven by the partner building the project. However, that is the trade-off for a less capital intensive business model.

Schilling questions the business model of bio-based chemical firms employing capital to build projects: "If you have to build the plant yourself, is that because you can't get anyone to licence your technology out of the gate?"


By: Joseph Chang
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