Grupo de Economia da Energia

The future of biofuels VIII: The contrasting strategies of major oil companies and the future of the bio-economy

In biofuels on 04/07/2011 at 00:30

By José Vitor Bomtempo

The recent Ethanol Summit organized by UNICA in São Paulo, on June 6th and 7th, it seemed to be an interesting event for the line of reasoning that we have developed this series of articles. In some way, the Ethanol Summit addressed clearly – for the first time, I guess, in a relevant event in Brazil – the issue of industry of the future. Of course, many subjects of specific interest for Brazilian ethanol industry were highlighted and addressed in most, but some plenary sessions and meetings on Future and Technology addressed issues not so urgent.

Due to the Ethanol Summit, we propose a change in this blog that seems to be consistent with what we have developed: no more talk about biofuels of the future but we will talk about he new industry which includes in addition to biofuels, bio-products, biorefining and other bios that may arise. How should we name this industry?   As initial suggestion we have chosen bio-economy, which seems pretty comprehensive. Thus, we can say that the Ethanol Summit has provided a discussion of a number of questions related to the development of bio-economy worldwide and particularly in Brazil. In fact, all the videos of conference and plenary sessions can be watched here.

We will highlight in this article the plenary session O futuro do petróleo e o papel dos biocombustíveis (The future of oil and role of biofuels). The plenary session brought together executives from four major oil companies on biofuels: BP, Petrobras, Shell and Total.

The executive’s presentations were commented by Vinod Khosla, venture capital well-known person with large and significant investments in innovative projects such as Amyris, LS9, KiOR, Gevo, Coskata, Mascoma, LanzaTec and Range. In previous articles we discussed the strategies of these three companies: BP, Petrobras and Shell, and very little about Total.

Presence of Total in this group complements and gives an interesting direction to the strategic views of the major oil companies on biofuels. Shell and BP, as discussed in article V, tend to seek a compromise between the first-generation – that is, ethanol – and the pursuit of advanced technologies and innovative products. Both started operating in Brazil, especially Shell through the Raízen joint venture with Cozan, became not only a major producer of first-generation ethanol but also brought to Brazil the opportunity to develop innovative products through Iogen (cellulosic ethanol), Codexis and Virent (advanced hydrocarbons and chemicals).

In addition to Shell and BP, as discussed in article VI, Petrobras adopts a more conservative behavior but focused on finding a competitive position in the current industry than innovations that can build the industry of the future. Like BP and Shell, Petrobras has also invested in production of ethanol. However, investments in new technologies and advanced products seem to be more modest; alliances and partnerships with technology-based companies are occasional and performed with small business companies. Another great difference is the interest of Petrobras for production of first-generation biodiesel (transesterification) that is not part of the portfolio of Shell and BP.

Total – in contrast to the position of the three others – arises explicitly (so far) on the industry of the future. Note that the entry of Total in the arena of biofuels is more recent than those of competitors. Possibly, the total of investments is smaller than the other’s. But the focus is very interesting due to premise for betting on innovative alternatives. Over the past three years, Total has identified a number of technology-based companies and invested in these companies. Total has interest on the following companies today: Amyris, Gevo, Coskata and Futerro. The developmental stages are between original and demonstration ones.

Amyris is the best known of them, due to its aggressiveness of proposal (hydrocarbons in the range of diesel and other products from the fermentation of sugar by engineered yeasts) and the presence in Brazil. Total has an interest of 17% of the capital, held after the IPO of Amyris, a total of US$ 133 million. Total is the only industrial profile investor with interest on Amyris.

Gevo is a company that aims to produce biobutanol for using as fuel and platform for producing chemical byproducts. A demonstration unit is already in operation and company acquired ethanol production unit in Luverne, Minnesota, USA, in 2010,  which is converted for the production of butanol. Commercial production is expected in 2012. Gevo also conducted the IPO recently, receiving US$ 107 million at that time. Similarly to Amyris project, Gevo project is often mentioned in the specialized press as one of the highlights among the innovative projects.

Coskata is a company that intends to produce ethanol from lignocellulosic materials and other low cost feedstocks. The process combines thermochemical stage (gasification of biomass to obtain synthesis gas) and a fermentation stage (conversion of synthesis gas into ethanol). The company has a demonstration plant in operation.

Finally, Futerro is a Total and Galactic (Belgian biotechnology-based company) joint venture – for producing PLA (polylactic acid), a biodegradable polymer with interesting properties and potential applications in various end markets, but still requiring developments of process (to reduce costs) and applications in user markets. Futerro started a small plant in 2010 and it is in the initial phase of production and market development. The main competitor in the PLA is Natureworks (Cargill) that has a commercial unit in operation for some years (*).

In summary, the main Total projects have in common that they are innovative technology challenges, involving a substantial risk, but also expressing a strategic view of active participation in the construction of the twenty-first century bio-economy. Despite the provocations from Vinod Khosla, mentioning conservatism and risk aversion of oil companies on biofuels during discussion, the conclusion will toward an important role of these companies to build the industry of the future.

The complementary assets of scale production, distribution and marketing will certainly be the strategic one so the innovative projects will develop and expand in the market. But, as noted by Shell, there are still many alternatives without the perception that routes or technologies will be the winners. Some questions remain without answers: Does the uncertainty about the winning technologies justify the dispersion of strategies among the four major companies? Will we have a convergence of strategies in the next years? Will Petrobras participate actively in the world advanced fuels championship played in Brazil whose players are Shell/Cozan/Codexis/Virent, Amyris/Total? Let’s wait and see…

(*) More information here.

Click here to access other texts on this blog in English

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  1. […] previous articles, we have studied the oil companies’ biofuels strategies. In particular, we discussed the […]

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