Grupo de Economia da Energia

The future of biofuels IX: The diversity of strategies and future of bio-economy – by comparing Shell, Braskem and Amyris

In biofuels on 05/09/2011 at 00:30

By José Vitor Bomtempo

In previous articles, we have studied the oil companies’ biofuels strategies. In particular, we discussed the Shell, BP, Total and Petrobras’ activities. The main conclusion from these analyzes is a diversity of view and approach to “biofuels” business.

In this article we will extend the discussion about the diversity of strategies that can be observed in the development of bio-economy, by comparing Shell, Braskem and Amyris. This comparison illustrates the remarkable variety of strategies for innovation and entrepreneurial initiatives that indicates the construction of the bio-products industry.

There are many ongoing projects worldwide involving technology-based start-up alongside companies established in different industries such as oil & gas, chemical, biotechnology, and agribusiness. How have companies been building their history in the new industry? Are these strategies converging or diverging?

Finding a typology of strategies and initiatives can help in understanding the ongoing process. This article is an initial attempt to find elements for the construction of this typology.

We will then compare Shell, Braskem and Amyris. We will describe briefly each case and then compare them.

Shell

The Shell case has already been discussed in article V. In order to avoid reiterating the development presented, we introduce here only the main subject that summarize the evolution of Shell’s presence:

  • 2005 Strategic Plan established that Shell would not make part of the production of first-generation biofuels. Focus would be on new technologies and high developed biofuels. In the 2005 technology report, cellulosic ethanol and gasification technologies (BTL) are identified as main technology to Shell.
  • Five innovative projects started by technology-based companies are chosen by Shell in a kind of “experiment” in search of a dominant design: Iogen (2002, cellulosic ethanol), Choren (2005, thermochemical diesel route), Codexis (2006, new biofuels and bio-products by enzymatic process from sugars), Virent (2007, fuels and chemicals from sugars by chemistry conversion) and Cellana (2007, a Shell / HR Petroleum joint venture for producing algae).
  •  Since 2010, Shell performs some activities that redefine its strategy: it terminates Choren partnership (2010), constitute a joint venture – Raízen – with Cosan, leader of the Brazilian ethanol industry. Codexis and Iogen are included in the joint venture. In 2011, Shell terminates Cellana partnership, thus abandoning the algae business.
  • A recent statement (June 2011) made by Vice President of Strategy Portfolio and Alternative Energy summarizes the Shell’s current view: It’s very hard at the moment to say which technologies will win.” Therefore, Shell keeps the view of an industry in which there is no definition of winning technologies, but the first-generation ethanol from sugarcane becomes strategic for the company for developing high developed biofuels and the future supply of the liquid fuel market.

Braskem

Now we describe the Braskem case. Braskem is a worldwide large-scale petrochemical company whose sales are around US$ 15 billion in 2010. In 2010, Braskem introduced the green polyethylene (PE) or biopolyethylene produced from ethanol. This is a process innovation based on a technology already known: converting ethanol into ethylene. Braskem, through Salgema, had experience by using this technology in the 1980s for the production of vinyl chloride monomer for producing PVC. In the early 1990s the technology was set aside.

The green PE is exactly the same PE based on natural gas or naphtha. Thus, except in the production of ethylene, the entire production chain is maintained. All complementary assets are preserved and no change is needed in the production chain. The development costs are estimated at about US$ 5 million.

The impact of green PE was significant and certainly much greater than expected by the company. The innovation won awards and international highlights. The initial project would be 100,000 ton/year and it has been duplicated. Commercial production, 200,000 ton/year, started in 2010. The company managed to develop partnerships with large end-users – Procter & Gamble, Natura, Shizeido, Danone, Johnson & Johnson, Toyota – which started using the green PE and, in many cases, identifying its renewable origin and environmental qualities. In the packaging sector, the development of this relationship has always been rare and virtually absent in the Braskem history.

Hoping to explore a history of innovation in renewable plastics, Braskem set a goal to be the world leader in sustainable chemistry in 2020. A new product using similar scheme already has been developed: green polypropylene. A 50,000 ton/year plant – small size in relation to the petrochemical scales – is under construction. This production volume would be intended to market test. Likewise the green PE, green PP would be identical to the petrochemical product.

In the exploration of renewable chemical innovations, Braskem has changed its P&D structure, by allocating most of its funds, from 30% to 40% for the new line of research. However, the current P&D budget, about $ 50 million annually, is not expressive in comparison with Braskem’s annual revenues and it seems to be modest in relation to the company’s ambitions regarding the line of renewable chemicals.

Amyris

The third case is about Amyris. The company is a biotechnology start-up established in 2003 to produce artemisinin, a new malaria drug. Amyris has adapted the knowledge developed in the pharmaceutical biotechnology industry to enter the biofuels and bio-products sector. An innovative process of fermentation was developed using knowledge of synthetic biology. Yeast has been modified in its metabolism to produce sugars from hydrocarbon molecules (isoprenoid, for example). Isoprenoids may have 5, 10 or 15 carbons. The 15-carbon farnesene is so far the best known when hydrogenated produces a high-quality diesel.

Several applications may be developed from this family of isoprenoids, depending on each case of a specific chemical finishing: elastomers, lubricants, cosmetics products, aviation fuel, fragrances, etc. Amyris considers isoprenoid a sort of platform to explore potentially commodities markets (fuels) and specialties.

Amyris has developed itself initially from venture capital funds (Vinod Khosla and others) and American agencies such as DOE. In 2010, the company made the IPO, raising US$ 85 million. In 2011, Total became company’s shareholder with interest of 22% corresponding to US$ 135 million.

Amyris was perhaps the first of a series of companies to come to Brazil for developing its innovative project. A research center in the Campinas region was built where 50 people are employed. The research center took part of the construction of a pilot unit and a demonstration unit.

In 2011, the company began production in semi-business scale, as hired production, for the cosmetics market. Two other larger size units are under preparation for the production of biodiesel – sugarcane diesel, as it has been called – to be used experimentally on city buses in Rio de Janeiro and São Paulo.

In an attempt to expand the opportunities for innovation sought and seek complementary assets and unavailable skills, Amyris has been characterized by experimentation in terms of business models. Many different models have been used for structuring scale production and relationships with downstream chain segments. Amyris has shown an ambitious approach aimed at building a competitive position as a pioneer in industrial bio-economy.

Diversity

Shell, Braskem and Amyris can be compared from different perspectives. We have highlighted below some of them:

The Amyris’s knowledge base is a new technology based on synthetic biology, Braskem’s is the rebirth of an old technology and Shell is limited to identify the most interesting technologies for the future.

Thus, the developmental stage of their histories is quite different: only Braskem is in full business operation, Amyris begins the process of marketing or market test, and Shell, whose projects are under original or demonstration stage, holds the position of accumulating knowledge about alternatives explored.

The strategies ambitions are also different: Amyris has an aggressive pioneer strategy, Braskem seeks a leadership position in the future, but with a conservative approach, while Shell seems to adopt a more defensive and protective strategy for its fuel business.

In search of ensuring supply of feedstocks (sugarcane), Amyris established alliances with some plants. Braskem is protected by ETH, from the same group, although so far the supply of ethanol is made from the market. Anyway, a safe supply is identified by the existence of ETH. Shell, in turn, invested in joint venture with Cosan to ensure access to ethanol and feedstock.

The nature and extent of partnerships are quite distinct. Amyris multiplies and accelerates partnerships with suppliers of feedstocks, ethanol producers, and industrial and end users in various industries that could become consumers of a product from family of isoprenoids.

Braskem has an accurate focus on partnerships: resin industries focused on provide more green nature to its products and therefore are willing to value the renewable resins. Shell has established two types of partnerships, all in the form of interest: with technology-based companies that looked promising (two have already been abandoned by Shell) and with Cosan, a large ethanol producer, as joint venture.

Regarding business models, the contrast is clear. While Amyris adopts an experimental approach with many different models, which might bring a managerial complexity of hard treatment, Braskem protects its current model with products that keeps production chain unaffected. Shell has no definitions in this regard.

In terms of challenges and limitations presented by three strategies, Amyris searches complementary assets and skills in scale production and product development in very different markets where company has no experience or knowledge. The need for funds to expand company is also a significant challenge in the future of Amyris.

Regarding Braskem, in order to achieve the ambitious position of global leadership, it will be mandatory to expand its technology base and be able to do more than ethylene from ethanol. The imitation by competitors is not difficult and even demonstrable, as suggested by the Dow/Mitsui’s green PE project.

The challenge of Shell, as stated by the company as a result of projects that joined (and left), in recent years, is to choose the route and winning business model. The company states that the choice is still premature. Of course the influential complementary assets in biofuels will always be a powerful weapon for the future positioning.

Conclusion

By concluding, the cases of Amyris, Shell and Braskem suggest that the different strategy is quite different. The three cases seem to be three types of business in the new industry. It would be interesting to identify other similar projects and possibly other styles to establish a typology of strategies for innovation in biofuels and bio-products industry of the future.

A situation to be mentioned is the presence of three projects in Brazil. Several other projects have sought partnerships in Brazil, what we might call “sugar rush.” The entry forms and the role that local companies and institutions have played in the original process of innovation from foreign technologies deserved to be studied in depth. It is a subject for the next articles.

(*) This article is a result from the introduction of Braskem, Amyris and Shell: comparative cases in the new bio-based industry, prepared by Bomtempo, J.V., Alves F., Lage F. & Pereira F., IE & EQ/UFRJ, for  RRI Summer School (Réseau de Recherche sur l’Innovation), Dunkerque, France, from 08/31/2011 to 09/03/2011

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