The rising Tigers of the China bioenergy trade

The China trade in feed, food, fiber and biofuels will grow substantially and swiftly. Who’s in position to capitalize?

Forty years ago, a freighter out of mainland China, making the northward turn up the Haro Strait towards the Port of Vancouver, was sight more rare than a nesting pair of bald eagles, and evoked the same rush for the binoculars.

Today, an hour doesn’t pass without the go-by of a container ship along that route, and at night up to four sets of running lights can be seen at a time, strung along the Strait of Juan de Fuca, marking the explosion in the China trade.

That the freighters out of China contain low-cost manufactured goods would surprise no one. The trick of the trade, from the ship owners’ point of view, has always been to develop a profitable cargo for the return voyage – something, that is, more additive in value than boatloads of promissory notes from the US Treasury.

The British, in the 19th century, facing similar challenges, thought up the opium trade — but in the 21st century, with all of China’s growth, there is every reason to expect that Chinese appetite for value-added products from the world’s farms will prove just as strong, but less destructive.

Rising China energy demand

In short, it doesn’t take an African land-grabber to understand that the export trade to China in feed, food, fiber and biofuels is going to grow, substantially and swiftly. Should China reach a per capita level of output equivalent to, say, the US, Australia, or the EU, we can expect that China’s appetite for raw materiel will, at the least, double.

Given the current state of Chinese domestic demand and supply,  exports in the bio-based sector have generally been in the realm of technology, and a growing but non-transformative trade in food/energy feedstock out of Southeast Asia – such as the rising demand for palm oil and cassava.

But, when China’s demand doubles, no one expects that Chinese, or even Southeast Asian, supply could keep up. It’s that “second China” of demand that is likely to drive a robust global bioenergy trade – a “Two China policy” that may finally answer the prayer of many a trade-debtor nation, “Lord, give me something I can sell back to China.”

Will the trade take the form of exported finished fuels and materials to China, or raw materials for China-based biorefining? It’s more cost effective to ship finished product than raw material, but China’s advantages in manufacturing costs may well offset that. Likely, expect that a lot of refining capacity will be built in China.

Rising Markets

As a trend-sign, Ernst & Young last September named China “the most attractive country for renewable investment,” after dropping the US back over its continuing policy muddle.

Another trend-sign? According to a report from Commodore Research, China is aggressively developing a strategy for using cassava as a non-grain feedstock for ethanol production,  While Chinese cassava production has risen to roughly 12 million tons per year, China continues to import large quantities of cassava from Thailand. Thailand is the world’s largest exporter of cassava and is estimated to have shipped approximately 4.5 million tons of cassava chips in 2010.

What are the opportunities in the China bioenergy market? They are all over the map: Ethanol, renewable gasoline, diesel and jet fuel; renewable chemicals, and syngas and biomethane for power generation, just to name a few.

How big? In December, the Institute of Food Science at COFCO, China’s largest food manufacturer and ethanol producer, projected that ethanol production could reach up to 10 million metric tons in 2020.  Second generation ethanol produced from corn straw could replace up to 31 million tons of gasoline, COFCO believes, representing a 10 percent decrease of crude oil imports for China.

The Rising Tigers

So, who are the 10 rising Tigers of the China bioenergy trade to keep an eye on? Let’s take a look.

1. COFCO

The aforementioned COFCO is currently developing a second-generation ethanol project, in partnership with Novozymes, which should be ready for commercial production in the next 3-5 years. COFCO is planning to merge its ethanol operations with those of its two subsidiaries China Agri-Industries Holdings Ltd. and AnHui BBCA Biochemical Co. Ltd.

Hong Kong-listed China Agri-Industries is part of a 400,000 ton ethanol plant in Heilongjiang as well as a 500,000 ton facility in Jilin. AnHui BBCA Biochemical Co. Ltd. produces 320,000 tons per year.

COFCO already has a first generation cassava ethanol plant with annual capacity of 200,000 tons at Beihai, Guangxi province and will provide residue suitable for 30,000 tons of 2g ethanol, which will be supplemented with cassava stalk.

The Bio-energy and Bio-chemical Division of COFCO, China’s largest diversified products and services supplier in the agribusiness and food industry, recently signed an agreement with TMO Renewables for a joint testing program to manufacture ethanol from cassava residue and cassava stalk.

The company has also established an R&D partnership with TMO Renewables.

2.  China National Petroleum Corporation

The state oil giant said last month that it will invest a whopping 10 billion Yuan (1.5 billion USD) in new energy development by 2020. The investment will go towards programs in ethanol fuel, biodiesel, geothermal resources, hydraulic oil, oil gas, and coal bed gas.

CNPC is the largest integrated oil and gas company in China, but hopes to widen its portfolio with diversified sources.

3. CNOOC New Energy Investment

A wholly owned subsidiary of the China National Offshore Oil Corporation (CNOOC), one of the largest state-owned oil companies, and the largest offshore oil and gas producer in China, the firm recently partnered with TMO Renewables to embark on testing programs aimed at developing the country’s first fully commercial advanced ethanol plants using cassava residue and cassava stalk.

The goal? To develop an integrated 1g and 2g 180,000 ton plant that CNOOC has applied to build in Nanning, Guangxi province.  Set within 60,000 hectares, the site would produce 1.6 million tons of cassava and a similar amount of cassava stalk.

4. LanzaTech, LCY, Baosteel

In March, LanzaTech, Baosteel Group Corporation, and the Chinese Academy of Sciences (CAS) launched the construction of a plant that will use LanzaTech’s gas fermentation technology for the production of fuel ethanol from steel mill off-gases.  Construction of the plant is expected to take six months and production will begin late in the third quarter of this year. The company’s commercial plants will have a 50 million gallon capacity.

In February, LanzaTech and Baosteel signed a joint venture agreement that will see the construction of a 100,000 gallon a year demo plant, with the intention of quickly scaling the model again for the first commercial plant in China.

5. Celanese

This month, Celenese said that it expects to begin industrial ethanol production six to 12 months earlier than expected. In addition to its one or two greenfield plants it is planning, it now will modify and enhance its existing integrated acetyl facility at the Nanjing Chemical Industrial Park with its TCX advanced technology. The modifications would add approximately 200,000 tons of ethanol production capacity by mid-2013, pending approvals, at a fraction of the cost to build a greenfield facility.

In January, Celanese signed an MOU with Wison (China) Holding Co., Ltd., a Chinese synthesis gas supplier, for production of certain feedstocks used in Celanese’s advanced ethanol production process.

6. Gushan Environmental Energy

A major, in-place biodiesel producer for the China domestic market, Gushan announced in January that it intends to resume biodiesel production at Fujian Gushan, and to commence production at Chongqing Gushan, and to commence production at Chongqing Gushan, in the second quarter of 2011.

The announcement followed a clarification by the Ministry of Finance of the People’s Republic of China, or the Ministry of Finance, and the State Administration of Taxation of the People’s Republic of China, or the SAT, that pure biodiesel made from waste animal fat or vegetable oil is exempt from consumption tax in China.

7. Chempolis, Henan Yinge Industrial Investment

The two partners announced in January that they were forming a joint venture in Luohe, Henan province, to construct a biorefinery producing 160 000 tons of non-wood papermaking fibres and biochemicals.

The biorefinery will utilize the Chempolis formicofib technology using wheat straw as raw material. Total project investment will be $40 million, of which Chemopolis will invest 25 percent. Chempolis’ formicofib converts non-wood raw materials into papermaking fibre for paper and board, packaging, and hygiene products; while formicobio processes non-food raw materials into cellulosic ethanol.

8. Green Biologics

Last December, Green Biologics announced that it had signed $15 million in deals with Guangxi Jinyuan Biochemical and Lianyungang Union of Chemicals to use its fermentation technology in the production of biobutanol.

Last June, Green Biologics completed a $7.2 million investment round to fund its biobutanol commercialization plan. Key to the plan: the retrofit of ethanol plants as well as providing fermentation and process technology solutions for existing and new build biobutanol plants. The round was led by Capricorn Venture Partners, a new investor in GBL through its Capricorn Cleantech Fund, and included participation by all GBL’s existing institutional investors – Morningside Ventures, Carbon Trust Investment Limited and Oxford Capital Partners – as well as by management and founder investors.

9. CBEL, Phyco

In January, China Biological Engineering of Hong Kong completed the final installment of an 18% equity investment in Phyco BioSciences.  CBEL is developing projects in the Peoples Republic of China beginning with a joint venture project that is utilizing Phyco’s super trough production and harvest platform and plans rapid expansion of algae biomass projects in the PRC. CBEL is initially investing $5 million in project development and plans aggressive growth in the coming years with two projects in 2011, and a third project under negotitation.

As part of the agreement with CBEL, Phyco will hold a 15% equity interest in the the initial joint venture project and in subsequent joint venture projects, and will supply system components, provide operation supervision, biological and aquacultural support and marketing services. Phyco components for the project will be delivered to Dafeng, JaingShu Province this spring and operations are scheduled to begin by mid-2011.

10. American Jianye Greentech

In February, American Jianye Greentech Holdings said it would self-finance the construction of a new biofuel plant located in the ShiLong Industrial Park in Xiangzhou, Guangxi Province.

The plant will blend ethanol produced from municipal solid waste with diesel fuel imported from Malaysia and/or Indonesia along with AJGH’s proprietary catalyst. The final biodiesel product will contain 40 percent alcohol, much higher than the industry standard 10-20%.