Can These Companies Prove Big Oil Wrong?
Mar 30th 2013 10:00AM
Updated Mar 30th 2013 10:06AM
Despite being a year of steady progress, 2012 showed the world that industrial biotechnology is still not quite ready for the limelight. Big Oil shifted its focus to more proven thermocatalytic technologies that plan to transform the nation's abundance of natural gas into fuels and high-value chemicals. Massive development deals involving hundreds of millions of dollars are few and far between for aspiring biotechnology companies these days.
Established energy companies are chasing more certain returns with their investments in renewable chemicals, but that hasn't stopped a determined group from developing their platforms. Here's a list of companies accepting Big Oil's challenge of "don't tell us; show us."
Infecting the status quo
The brightest company investors can get their hands on is renewable-oils manufacturer Solazyme , which is hardly reeling from a lack of major energy company investments. This disruptor has partnerships and joint ventures in place with several big companies and recently received a $120 million loan from the Brazilian Development Bank. The loan actually has a negative interest rate after factoring in inflation rates for the Brazilian real.
The company will have manufacturing capabilities on three continents next year. Europe will initially be home to the company's nutritional efforts, while Brazil will boast the largest and most diverse product lineup with Bunge. A smaller facility with ADM in America's heartland will be on call for partners, with potential for big expansions as needed.
Big Oil isn't the only one pivoting. Amyris has transformed itself over the past year to focus almost exclusively on high-value chemicals. Initial plans to produce large amounts of sustainable diesel and jet fuels landed Total -- which is still going all-in on Amyris -- but also dampened the company's financial situation. Investors will get their first glimpse of how full-scale industrial biotechnology works, as Amyris' first commercial facility ramps up production through the second half of the year.
In the majority
Investors shouldn't make the mistake of thinking that all of the action is happening from publicly traded companies. It's quite the opposite. Numerous private companies are among the front-runners for bringing bio-based chemicals to the market. Some have even raised more money and are targeting a wider range of products than Amyris, Solazyme, and Gevo.
Genomatica has developed one of the premier industrial biotechnology chemical platforms to date, with plans build a biorefinery capable of producing more than 100 million pounds of butanediol per year by 2015. In all, the company's platform can produce more than 20 chemical building blocks that enable a wide range of oils, fuels, polymers, solvents, resins, coatings, and more. Unlike competitors trying to manufacture and sell their own products, Genomatica will license the technology it develops to the industry for rapid deployment at a fraction of the cost.
Investors hoping to get into the shining star of bio-based chemicals had their hopes dashed last summer, when the company withdrew plans for an IPO. It wasn't alone. Several renewable companies, including waste-to-fuels company Enerkem, nixed IPOs last year, citing unfavorable market conditions (poor industry performance) as the their main concern. Whether Genomatica holds an IPO anytime soon remains to be seen, but it will be one for investors to watch.
On the algae front, companies such as Algenol and Joule Unlimited are turning heads with their initial commercialization plans. In the same week that ExxonMobil and Synthetic Genomics stated that their algae technology was "at least 25 years away," Algenol announced that it had achieved peak production rates of more than 9,000 gallons of ethanol per acre per year. Corn ethanol achieves a yield of just 400 gallons on the same basis.
Algenol is targeting even higher yields for its platform, which will be important if the company wants to keep up with Joule Unlimited. The company is developing a modular commercial algae platform that may ultimately produce 25,000 gallons of ethanol and 15,000 gallons of diesel per acre per year. Steering clear of IPO talks, Joule has raised more than $110 million in private financing since its inception.
Foolish bottom line
Can these companies and others like them show Big Oil that there's real merit behind biocatalytic processes? Everything hinges on development and the mitigation of unknown factors surrounding the technologies. It will be difficult to decipher in much detail, but investors will want to keep an eye on production costs coming from Solazyme and Amyris in the next several years. Industrial biotechnology should capture huge pricing advantages with cheap and non-volatile sugar prices, compared with the currently favored feedstock of natural gas.
The article Can These Companies Prove Big Oil Wrong? originally appeared on Fool.com.Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio, his CAPS page, or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and emerging technologies. The Motley Fool recommends Total and owns shares of Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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