KiOR commences shipments of cellulosic gasoline

July 2, 2013 |

KiOR-ColumbusIn Texas, KiOR announced that its Columbus, Mississippi facility made its first shipment of cellulosic gasoline on June 28, which represented the first fuel shipment since March, 2013. The company added that it has “commenced regular shipments of both gasoline and diesel” also as of June 28.

At the same time, the company said that its Biomass Fluid Catalytic Cracking unit in Columbus has completed its first uninterrupted 30-day run, after three months of reliability and optimization efforts in areas of the facility unrelated to KiOR’s core technology.

Let’s recap on the company’s past and future milestones.

Q4 2012. The plant was mechanically completed and commissioning began. At the time, the company tipped that it would begin shipping fuel in Q1 and complete the commissioning process by the end of the first half.

Q1 2013. The plant shipped its first cellulosic diesel — though it was a minimal 5,000 gallons of cellulosic diesel – right before the end of the quarter. At the time, the company affirmed guidance that it would produce in the range of 3-5 million gallons of cellulosic fuel for the year. Groundbreaking for the second commercial facility, in Natchez, Mississippi, was tipped for 2H13 and expectations were raised that capacity there might be increased from 40 million gallons to 50 million gallons per year.

Which brings us to Q2 — critical, because the company could reach break-even on a cash basis with the Natchez facility, and its project financing for that plant would entirely depend on its ability to demonstrate that its performance targets for the Columbus plant are attainable, and that KiOR’s operating assumptions for Natchez plant are reasonable.

So, today’s announcement of a 30-day run is important, though we did not yet see a yield figure that would allow anyone to re-calibrate expected production for the remainder of the year at Columbus, or production at Natchez. We’ll have to wait for that, and park it in the “no news is good news” department for now.

Volumes? Back in May, KiOR management set a goal of shipping 300,000 to 500,000 gallons in the second quarter, en route to its 3-5 million target for the year. With this announcement, Raymond James analyst Pavel Molchanov slightly reduced his Q2 forecast to 262,000 gallons and set a 3.1 million gallon forecast for the second half.

Our take? The gallonage for Q2 is not nearly as important as the reaching of steady-state operations — as the production volumes will be relatively minimal in either case. With a plant capacity rated at 11 million gallons, the company would have to produce at a very high rate in the second half to hit its targets — and reaching continuous operations on a regular basis will also provide confirmation of a successful design at Columbus.

For now – the news this week is positive for KiOR fans and for the cellulosic biofuels sector. It’s shipping cellulosic gasoline now – in addition o diesel. It has raised its production rates to a level that inspires confidence for the second half, and for the Natchez project. Moreover – the company is basically keeping to its schedule. That inspires confidence in the technology and team.

Even more critical? The Q3 numbers — that’s where we’ll need to see the production yields move into the 1M+ range for the quarter, if the Natchez project is going to look attractive to providers of lower-cost financing.

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