Trojan Corn, or 20 billion reasons to Think Outside the Tank

A game-changing technology from Syngenta may drop billions to the biofuels industry’s bottom line

Earlier this year, Syngenta received the OK from the USDA to commercialize its alpha-amylase corn. The news generated a smattering of interest amongst the broader biofuels community, which has been more engaged in thinking about tax credits, the future of the Renewable Fuel Standard, and IPO heaven.

Another step-change in enzymes? Yawn. The industry has been so inundated with dramatic improvements in enzyme performance, that they generally rate as a highly reliable page-view killer for biofuels websites.

But Syngenta’s technology is worth a deeper look – for 20 billion reasons. That’s a back-of-the-envelope calculation of the addressable, equity creation impact of Syngenta’s newest and latest.

That’s more than enough equity currency, for example, to build the 20 billion gallons of advanced biofuels capacity, for example, to meet the 2022 Renewable Fuel Standard. Or simply to provide transformative amounts of cash flow to ethanol producers, and growers.

Trojan Corn

One other reason to watch this technology closely – the revolutionary step of delivering a transformative enzyme into the ethanol process – outside of the fermentation tank. The alpha-amylase is delivered inside the corn – mighty Trojans hereafter described as the “Enogen-branded trait” – that leap out of the kernel during grinding.

What does the amylase do, when released, via grinding, into the ethanol process? It decreases the viscosity – which is to say it makes it more liquidy in its performance, before adding in the water.

Sounds pretty simple – why is that a big deal?

Well, every person is a kind of biorefinery, so you know it works. Try eating a bowlful of corn flakes in a real hurry some time, without the milk. After a while, it’s impossible to swallow. If you could make corn flakes perform like, say, jello – you don’t choke while doing a morning eat-and-dash, and you need less milk.

Take that effect out into industrial fermentation using the dry-grind process – that’s liquefaction. The alpha-amylase adds viscosity to the corn, from inside the kernel. The ethanol process is, in this case, doing the swallowing. With a more slippery corn, you can take solids all the way to fuel, faster, and with less water use – just like you and your corn flakes.

Plus, since you put less water in there, you save on the cost of heating up, and cooling off, all that water in the industrial fermentation process – and the power it takes to move all that weight through the pipes. Plus, it’s speedier.

By the numbers

So, you get around a 10 percent lift in total capacity (from the speed-up), plus energy, water and carbon savings.

For example, in a 100-million gallon plant, efficiency improvements enabled by Enogen grain can save 450,000 gallons of water, 1.3 million KWh of electricity and 244 billion BTUs of natural gas, and carbon dioxide emissions by 106 million pounds.

That works out to around 8-10 cents per gallon in savings – that can be shared by the grower, the plant, or the customer. Plus, let’s think about the value of all that carbon savings, in light of the Australian federal government this week setting its 2012 carbon price at $23 per tonne.

Figure 15 billion gallons of capacity (under the RFS), and you rapidly get to $1.2B in economic value – that’s pure added profit, and add in $182 million for the value of the carbon avoided. Multiply that value by the current S&P ratio of 23.29, and you reach $32B in share value created.

Of course, knock that down a little – not every corn ethanol plant in the US uses the dry-grind process – Syngenta is targeting the Upper West Side of corn country – west of the Mississippi – western Iowa, Kansas, Minnesota, and the Dakotas, for example. But there ought to be $20 billion in there, or just shy of $1B in hard currency.

Why not just load the enzymes into the tank – why deploy it through the corn? Well, because Mother Nature does the growing – that ‘s what makes it economically transformative. It’s like a free rider, that arrives with the bushel.

All the enzymes, with one-fifth the deployment

Now, here’s a weird thing. In the past, to get value out of a trait that existed in the corn, you had to deploy the trait in every kernel. But with Enogen, you get a full load of the corn amylase you need, even if only 10-20 percent of the corn is Enogen corn. The rest, you can buy through the normal channels and blend it in.

So, an ethanol producer needs about 20,000 acres of their 105,000 or so that they buy corn from (in the 30-40 mile radius around a 100 Mgy plant) – to be Enogen corn.

There are some requirements that go with growing Enogen corn, including a grower production agreement with identity preservation protocols, and a just-in-time, buyer’s call delivery element. But not much that is foreign to the grower, conceptually – and some opportunity to get higher returns for taking on a more sophisticated corn technology.

Results in the field?

How real-world are these results? Hmm, let me just run this through the 100 million gallon ethanol plant I keep next to my desk.

Doh! That’s right, I don’t have one. So, check it out, trial and test. You know the drill. If you get real-deal performance lift, you’ll know what to do.

Having said that, Western Plains Energy has been trialing it for some time now at their 48 Mgy plant, and they are believers. Plus, the ethanol process engineers who have seen the corn in action know that, less than an hour after dialing in some Enogen corn, there’s a step change in the pump pressure through the system.

Roll-out

Timing? Well, don’t expect all this change to come about this year. By next fall, there’ll be enough seed for, say, 40-50,000 acres, enough Enogen to supply 2-3 ethanol plants, plus enough acreage to provide grain for further trials with ethanol producers.

After 2013, there should be enough for 8-10 plants, and the seed portfolio will start to have the different maturities and the hybrids that are needed for an at-scale corn system.

Does it work with, say, biobutanol? Not tested yet, but the expectation is that any dry-grind corn-focused process should work well with Enogen. That could be important – given that the existing fleet of ethanol plants with, say, 14 billion gallons in capacity could be producing 10 percent above nameplate capacity. So, you don’t need all that capacity for corn ethanol – you can produce other high-value products.

Approvals?

The trait is OKd for the US, and also Canada, the Philippines, China, Japan and Korea – so, the major markets for dried distillers grains are already in place.

OK, $20 billion in “addressable” shareholder value – how much “actual” value? Anyone’s guess, but think 10 cents per gallon in EBITDA, across even 1 billion gallons of capacity that Syngenta could be serving as soon as 2014 – and then put that into the equity value of the underlying companies at 23 times earnings – well, you get into the billions before the second half of the decade.

Which is the value of a gaggle of successful IPOs, or about 20 percent of the value of the VEETC ethanol tax credit (and that went to the blenders in any case, not the producers).

So, its a step change worth thinking about, and doing some due diligence on how the numbers work out for the grower, or the producer, in your family.

And that’s the benefit for thinking outside the tank.

Follow up

More on the process here – and for those of you who want to check out Western Plains’ reaction to the technology – accompanied by some driving rock music, there’s a video here.