Do You Know the Way to São Jose? Total, and its biofuels babies

February 2, 2011 |

Do you know the way to San Jose? / They've got a lot of space, there'll be a place where I can stay (Hal David, Burt Bacharach, "Do You Know the Way to San Jose")

Last year, the Digest remarked that it should have opened a Brazilian travel agency for advanced biofuels companies, in addition to operating a news service. The 16-hour flight from SFO to GRU can be GRUelling, not to mention a couple hours in the car driving up to Ribeirão Preto or San Jose dos Campos, but it certainly is getting wildly popular.

BP enters aviation biofuels in Brazil

And, today, the story of advanced biofuels in Brazil amped up considerably yesterday with the announcement that TAM Airlines in conjunction with Airbus, jatropha biofuel producer Brasil Ecodiesel, and AirBP (the specialized aviation division of BP) are jointly developing a bio-SPK manufacturing facility with a 80,000 ton per year capacity that is expected to come online in 2013.  The studies for the project are being undertaken by Yale University.

The announcement would create an even larger facility than those contemplated by agreements between British Airways and Solena for a 19 million gallon MSW-to-jet fuel plant in the UK, and an exploration underway between Qantas and Solena to construct a similar plant in Australia.

The news reminds us that, while most of the coverage of Brazil has focused on ethanol production and distribution into its well-established, subsidy-free alternative fuels market, there is substantial momentum building up in Brazil on the diesel and jet fuel side.

In fact, in addition to the jatropha and soy biodiesel production that has been expanding in Brazil, there is a substantial influx of US advanced biofuels technologies based in the conversion of sugarcane to diesel and jet fuel.

The battle for advanced biofuels domination

The battle for biofuels domination – in proving out the new technologies at scale and using them as a means to gain ascendancy over the Brazilian market as well as an export base to Europe, Asia and the US – looks like it will be fought not in the US, but in the fields of São Paulo state in Brazil.

There, in high-tech and agriculture centers like San Jose dos Campos, Ribeirão Preto, and smaller cities such as Pradopolis, companies like Gevo, Amyris, Iogen, Codexis, and Virent have gained a foothold through their own partnership efforts, and those of Cosan, Total and Shell.  The vital connection between, if you will, San Jose (US) and San Jose (dos Campos, Brazil), may well be the spine along which advanced biofuels reach scale and parity with fossil fuels.

In Monday’s lead article, we looked at Shell and its biofuels investments including Iogen, Codexis and Virent, and indentified what we believed to be the foundation of their breakout strategy, using Brazil as a base.

We also speculated that the battle may well be between the Shell-Cosan-Virent and Total-Amyris network of companies.

Today we look at the options and opportunities within the Total-Amyris network of partners and projects.

Total and its biofuels babies

Last December, Total tipped its hand on strategy when it disclosed that it will enter the Brazilian cane industry through its technology partner Amyris—who is in turn teamed with Sao Martinho—and hopes to secure 5%-10% of Brazilian cane by 2020. The country intends to produce to produce chemical products like biolubricants, jet biofuel, biochemicals, biodiesel out of sugarcane.

The French oil giant is one of the six global supermajors – along with ExxonMobil, Shell, BP, Chevron, and ConocoPhillips. Total is active in 130 countries, with 96,000 employees engaged in exploration and production of oil and natural gas, refining and marketing, gas & power and trading.

Total and Gevo

Its story in biofuels goes back to 2009, when Total announced that it would invest an undisclosed amount in a series D investment round in Gevo, the advanced biofuel company focused on development of butanol as an alternative fuel as well as chemical intermediates including polyacrylates and PETE. AT the time, Gevo counted Khosla Ventures, Virgin Green Fund, Burrill & Company, and Malaysian Life Sciences Capital Fund among its investors. In addition to producing biobutanol as a gasoline blendstock, Gevo is developing commercial technology for a pathway to  green diesel and renewable jet fuel.

Subsequently, Gevo announced plans to bring a 1 Mgy facility online in summer 2009, and is scheduled to deploy its first commercial-scale plant in the next year or so, having acquired a concentional ethanol plant in Minnesota which it is will convert over to biobutanol production.

One item to note, the Khosla connection to Total – for one of the defining threads in Total’s biofuels investment strategy has been its focus on Khosla-backed companies.

Total and Coskata

Last April, at the Advanced Biofuels Leadership Conference in Washington, Coskata announced that it closed a round of equity financing, with Total investing an undisclosed amount in the round and taking a seat on Coskata’s Board of Directors.

The proceeds of the financing would support Coskata’s bio-ethanol commercialization activities while ensuring advancement of new product technologies. Also participating in the transaction were a number of Coskata’s prior investors, including Blackstone Cleantech Venture Partners, Khosla Ventures, Advanced Technology Ventures (ATV), Globespan Capital Partners, and Arancia.

“This investment by Total, one of the world’s largest oil and gas companies and a major player in chemicals, confirms the potential of our technology platform and enhances our plans for commercial deployment,” said Bill Roe, President and CEO of Coskata.  “Having a strategic investor with a long-term view of developing and advancing Coskata’s platform technology will strongly enhance our position in the biofuels and chemicals markets.”

“Coskata has already successfully demonstrated its syngas conversion technology  at a significant scale, and we are pleased to support this promising platform technology for the further steps of its development.” said Manoelle Lepoutre, Senior Vice president Sustainable Development and Environment of TOTAL SA, and President of Total Energy Ventures International.

Total and Amyris

Last June, Total agreed to acquire approximately 17% equity interest in Amyris for $133 million, and will have the right to appoint a member of the Amyris Board of Directors. Under their collaboration agreement, Total and Amyris R&D teams will work together to develop new products and build biological pathways to produce and commercialize renewable fuels and chemicals. The partnership combines Amyris’s industrial synthetic biology platform and emerging Brazilian production capacity with Total’s technological know-how, industrial scale-up capabilities and access to markets.

What’s Amyris up to, again? Amyris is building an integrated renewable products company applying industrial synthetic biology to genetically modify microorganisms to serve as living factories. Amyris designs these microorganisms to produce defined molecules for use as renewable chemicals and transportation fuels. Amyris Brasil S.A., a subsidiary of Amyris, oversees the establishment and expansion of Amyris’s production in Brazil, including SMA Indústria Química S.A., its joint venture with Usina São Martinho, one of the largest sugar and ethanol producers in Brazil. In addition, Amyris is building fuels distribution capabilities in the United States through its subsidiary, Amyris Fuels LLC.

The Bottom Line

No one appointed us chief-visionary-of-all-things-Total, but here’s our prognosis.

We think Total is vitally interested in the junction between the Amyris technology – fermenting diesel and jet fuel from sugar — and the opportunities to produce low-cost sugars from sugarcane in Brazil, primarily in the region surrounding Sao Paulo state but also in the northeast of the country, the traditional bastion of the Brazilian cane industry. We think Total Brasil is on the verge of commencing a build up of assets in Brazil as feedstock source and, potentially in deployment points.

If Amyris proves out its technology at scale, Total has the feedstock, management, local presence and the downstream scale to make a strong run at competing with the Shell-Cosan network of assets.

Long-term, we see the Gevo investment as its option to produce biobutanol and jet fuel, from the US’s primary first-generation feedstock, corn – and retaining the option to convert biobutanol at existing refineries to jet fuel and biogasoline with options to expand that to cellulosic feedstocks as Gevo works its way down that path. Key cellulosic feedstock: sugarcane bagasse, even more importantly, the waste streams of vinasse.

We see the Coskata investment – which is deploying using wood biomass and residues in the US and Australia, among other geographies where it has announced projects – but is feedstock flexible, as providing options with sugarcane bagasse, through Coskata’s unique combination of gasification of biomass, and fermentation of the syngas into ethanol.

BP and the other oil majors

In coming days, we will be looking at BP, Conoco, Petrobras, Chevron and ExxonMobil options in the Brazilian market – those that should be expected to play there, those that may play elsewhere with fermentation technologies (based in advances in synthetic biology) that take us far beyond the fermentation of existing first-generation feedstocks into ethanol.

We’ll be looking at the companies still yet to fill up their dance card, both among the advanced biofuels sector, and amongst the oil giants themselves and the national oil companies.

It’s no accident that BP announced yesterday that they are selling off their refineries in Texas and California, while retaining their asset in Washington state, raising $4.4 billion in the process and reducing their US crude oil production capacity by half. The difference? According to BP’s new chief Ed Dudley, the Texas and California refineries are primarily producers of gasoline, and BP sees that bio-based challenge as continuing to knock down the growth opportunities there. The Washington refinery is more generally aligned with diesel and jet fuel.

The oil majors haven’t exactly warmly embraced biofuels as a whole, or advanced biofuels as a sector – but they are starting to vote with their feet.

And discovering a twinned pair of San Joses that they are, increasingly, adept at finding a way to.

More on the BP, TAM, Ecodiesel and Airbus story.

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