UPM signs Joint Development Agreement with Renmatix in biochemicals

| June 12, 2013

UPM-biofore

The Griffin strikes! Pulp & paper giant UPM taps Renmatix as partner for cost competitive sugars — as it heads for renewable chemicals.

The Digest goes in-depth with UPM and Renmatix, and looks at the realm of supercritical fluids.

Yesterday, news went around the industry like wildfire that UPM and Renmatix have entered into a joint development agreement in the area of biochemicals.

For those less familiar with the giants of the European pulp & paper industry, the Finland-based UPM is right at the top of the stack — the company’s symbol, the griffin, perched atop many of the signature pulp & paper mills around the world.

renmatix-logoSome time ago, UPM had set out on an ambitious BioFore strategy with a clear goal of leveraging its strength in aggregation and processing of wood resources into a series of new ventures in biofuels as well as renewable chemicals.

UPM’s BioFore strategy and progress in biorefining

Impressively, and rarely for the cash-strapped pulp & paper sector, they had utilized their balance sheet in developing the world’s first wood-based renewable diesel refinery in Lappeenranta, starting construction last summer. UPM’s Lappeenranta biorefinery, constructed without any public funding, will produce diesel out of crude tall oil, a residue of pulp production. The process is based on hydrotreatment and production will start in summer 2014 — initial capacity in the sub-10 million gallon range but with a potential capacity to expand out to 55 million gallons per year.

In April, we reported that UPM, VTT and VV-Auto Group would start fleet tests of renewable diesel in May. The fleet tests will focus on investigating UPM BioVerno renewable diesel in terms of fuel functionality in engine, emissions and fuel consumption.

The company, in fact, landed a a grant of €170M for a solid wood-based biorefinery (BTL) project in Strasbourg, France — under the EU’s NER300 programme (New Entrants Reserve), funded by the sale of emission allowances to European companies. The final assessment on the investment will be made within 12-18 months.

UPM-sustainability

Chemicals vs fuels

Renewable chemicals are part of UPM’s BioFore strategy — not wholly unexpected, though the fast-tracking of the foray into chemicals has caused surprise. One critical component was to establish a source of renewable sugars — and, in stealth mode over more than a year, UPM has been chewing through an evaluation process for a technology partner, that ultimately selected supercritical technology and tapped Renmatix as the partner.

What is supercritical again?

For those used to the three traditional phases of water — solid, liquid and gas — add a fourth, the supercritical phase, seen under unusual conditions of pressure and temperature (think 250 atmospheres and around 373C – conditions never seen outside of a closed technology on Earth but which you might find deep in Jupiter’s clouds).

Under those conditions, water can diffuse like a gas and dissolve like a liquid, and act simultaneously like an acid and a base. It can depolymerize biomass by acting as both a powerful solvent and catalyst, creating rapid reactions.

Supercritical – a video primer

Professor Martyn Poliakoff demonstrates supercritical fluids in his office at the University of Nottingham.

[youtube]http://www.youtube.com/watch?v=yBRdBrnIlTQ[/youtube]

See Supercritical at the transition point

[youtube]http://www.youtube.com/watch?v=29oy1UCHJIE[/youtube]

A first commercial project

Observers were noting that the agreement is obviously aimed at the development, by mid-decade, of a commercial facility for UPM, presumably co-located at one of their pulp & paper mills. And, along the way, provides considerable validation for Renmatix and, by extension, for the entire strategy of developing companies that specialize in the production of renewable sugars.

Sure enough, a joint release by the companies revealed that “offering cost-competitive bio-alternatives for select petrochemicals on an industrial scale is the long term goal of this initiative”.

For today’s Digest, we spoke with Michael Duetsch, Director of Biochemicals at UPM and Renmatix CEO Mike Hamilton.

UPM and Renmatix – why they chose each other

Partnership strategy. “Partnership is very important in this space and we kept our minds open in looking very broadly at the sector, and the companies. said Duetsch, who joined UPM two years ago after 16 years at BASF and Evonik, to develop UPM’s biochemical strategy.

In picking Renmatix, Duetsch noted the “very sound study” conducted on technology providers, adding, “and that effort continues.”

“In the end,” he said, “what was particularly outstanding for us in the process is that they are not using a lot of consumables. We are not a chemical company, so that is something we really like. It’s an excellent process, and a very fast process.

In going with UPM, Renmatix CEO Mike Hamilton noted that “UPM has a very progressive strategy. They havebeen very progressive. If you look at the landscape, Dupont is putting money where its mouth is, also DSM. Well, UPM is doing the same. These are relatively huge investments in this sector, 200-300 million Euros. They have put their capital into play to build assets. Their strategy, and that kind of commitment was a home run for us. Knowing UPM from our past lives, and knowing how they can leverage their existing sites, and knowing that they were looking for enabling partnerships with a licensing strategy, we were well aligned.”

Both companies spoke of a strong cultural fit. “It’s always important to have a cultural fit,” said Duetsch. We trust each other, and in Renmatix we saw a very professional team, from Mike Hamilton right down through the organization to the technical team. They’re very well managed.

Hamilton saw “a very similar value system. In our case, our own senior leadership comes from the big global companies, and we have people who have the experience of that, as well as the entrepreneurial drive. With UPM, we saw that we value the same things: the advancement of the technology, the integrity of the approach. We both know that there is a reality to these technologies, and also we share a sense of urgency. ”

“When you work with the large pulp companies,” Hamilton added, “they know the sourcing zones better than anyone. They have been buying for 80-100 years, and they know how to optimize, and they know all those growers. To be frank, we can go even a little bigger than we though in terms of plant capacity based on what UPM has shown us in the logistics, but there’s still the limitation of distance. Biomass is full of water and the last thing you want to do, from the point of view of the economics, is ship water too far.”

More on the Plantrose Process

[youtube]http://www.youtube.com/watch?v=-Db6m_wa2hI[/youtube]

Goals of the JDA

In assessing the goals of the JDA, Hamilton noted that “we’ve already demonstrated the process, and continue to do so. But even though wood is much closer to a chemist’s dream of everything being completely the same every time, the truth is that Mother Nature is not so simple. Hardwood in one part of the country vs another is going to be different. So the JDA has a set of milestones around proving out the technology given the specific locations and feedstocks that UPM has, or may have, in mind.”

“we have not only a very strong commitment to each other,” Hamilton added, “we have an equally strong commitment to urgency, and we want to get through the milestones as quickly as possible, to move into the next stage. But it’s not about hitting a set of developmental yield targets. In this case, we got to optimize the process for the locally chosen feedstocks.”

Duetsch was reluctant to discuss specific timelines, but did note that due to time for the JDA milestones, plant construction, and for the downstream markets for biobased chemicals to more fully develop, a commercial project would not be completed “for at least a couple of years.”

Other downstream partners

Clearly, the combination of UPM’s wood-souring and Renmatix’s Plantrose technology will produce sugars — but what about the conversion of sugars to chemicals or chemical intermediates? Will that be done via partners, or is UPM developing its own technology?

“That’s ultimately their decision to make,” said Hamilton, noting that “currently they are in the biochemicals business with a very powerful set of relationships. All the chemical companies sell into this market, and it’s very easy to see how they might bring in a BASF or Dupont if they thought that was the best option for them.”

Duetsch demurred on discussing UPM’s long-term downstream partnership options at this time, but did note that ” we are very pleased to discuss different options, and we are in the process of evaluating the options.”

A Renmatix Overview – Animated

Click below for an animated introduction to the Plantrose process:

rematix-animation-plantrose

Geographies and capacity

Another topic we will have to wait for some time on is the project location and capacity.

Having said that, Duetsch indicated that “we will co-locate this process, and you can look at the UPM map and landscape, with two paper mills in the US, one in China, and others,” to find the set of geographic options. “At first glance, we see the EU being more open to promote biobased materials, but in the end our goal is to identify the location that will support a profitable business.”

Hamilton added, “again, that’s UPM’s decision, though we expect to be influential in that process of selection. They are a EU company, we are a US company, somewhere between the two we are bound to find a great first site. I would love it to be in the US, quite honestly – the US is US is very attractive in terms of wood resources. But we’ll work hard for them wherever it takes us.”

On capacity, Duetsch said that UPM is looking, as always with biobased resources, at the [optimal] distance from the plant, given the “biomass costs including logistics”.

The Green premium vs the Green Tie-Breaker

Both partners were skeptical that any green premium exists. “I’m not a believer in a premium for green,” Duetsch said. “In any all market, the niche that allows for a higher price is not going to be very large.”

Hamilton agrees. “With diapers, paints, coatings – to name things you can make from acrylic, companies like P&G, everything being equal, want the renewable. But it is about parity on cost; you’ve got to hit the price points. Everyone wants the renewable diapers, that’s a no-brainer. The demand is there.”

The Green Strategic

Unilever P&G Coke BASF WM

With all that demand for renewable product at parity cost, we asked Hamilton his thoughts on why the big consumer companies like P&G have been very forthcoming on testing, and application development, but have been reluctant to become strategic investors and help buy down the cost of making renewables.

“I don’t know if it will change,” Hamilton reflected. “If my supplier is BASF, and they are not convinced about a technology, why should I jump over them and invest myself? It’s been important for the chemical guys to get interested. We all see many of them re-engaging, as the new technologies have developed. BASF, Dow, P&G Unilever, Coke and Pepsi.

“At some stage, you know that if the technologies really [become financially viable], the customers are going to say to their suppliers, get me my renewable supply chains and if not you may perish. In this way they are helping to drive interest amongst those who invest and deliver. They can drive demand through the supplier base and the supplier set so that the creation of supply chains. But their participation in every way is helping to make the new technologies and the sector more credible.”



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