The Gas Boom, Siluria, and A Whiter Shade of Pale

January 15, 2014 |

SiluriaWhat’s a biobased technology doing in the middle of the shale boom?

Siluria’s biobased technology lands a signature partnership with Braskem as it heads for demo scale in the race to turn natural gas into ethylene, affordably.

Over the years, I have never found a more reliable method for promoting Depend adult diapers than to walk into a roomful of bioeconomy project developers and shout “Shale gas!”

In such cases, well, the looks on the faces brings the 60s anthem “A Whiter Shade of Pale” to mind. Even more aptly, the haunting melody of that song is adapted from a J.S. Bach cantata whose title translates from the German as “I am standing with one foot in the grave.”

But, a threat to one is an opportunity for another. And one biotech company, Siluria Technologies, is poised to reap substantial rewards as the natural gas sector grows, based on its biobased approach to a reaction called oxidative coupling of methane.

What’s OCM, again?

gas-flare

OCM is a process that converts methane into ethylene – transforming a $200 per tonne molecule into the most widely-produced chemical compound in the world (109 million tonnes last year – and rising fast), currently selling for around $1200 per tonne. Glad Wrap, for example, is the polymerized version of ethylene. Plus, plastic bags, bottles, boxes, containers, pens, and on and on.

So valuable, in fact, that the price of ethylene makes it unusable as a transportation fuel, despite the little known fact that you get about 50 percent better mileage on ethylene than gasoline, and the CO2 emissions are lower (NOX is higher, though).

The problem is that no one has been able to make OCM work on an economic basis – the catalysts just didn’t have the right selectivity or activity rates. After a great deal of excitement and research in the 80s and 90s, attention petered out.

What’s the biobased angle, again?

Along comes Siluria, with a biotechnology approach, spun out of Angela Belcher’s lab at MIT. Inspired by the way nanomaterials are created by nature, Siluria develops metals and metal oxide crystals grown on biological templates.

Researchers Erik Scher and Alex Tkachenko of Siluria told The Digest that the metals coating the virus form a nanotube structure they refer to as a “hairball”, giving the catalyst a greater surface area, which enhances the reactions.

“This conversion happens at temperatures 200 to 300 below current steam cracking methods, greatly reducing the energy needed by current technology to produce ethylene.  This attempt to commercialize a bio-technique of forming nanostructures is based on Dr. Angela Belcher’s work at M.I.T, where she leads the Biomolecular Materials Group.  Her lab is currently researching a number of uses including biofuels and hydrogen production for fuel cells.”

What’s the potential advantage?

Dineen notes, “Our analysis determined that the technology can beat the basic economics of a 1000 KT world class naphtha cracker by $1 billion. Now, that’s huge scale, and everything is magnified. But you can see the magnitude of the advantage.”

Why? “When you look at producing liquids from natural gas, the basic approach is the Fischer-Tropsch process,” Dineen told the Digest.

“It’s inefficient, because it is taking the methane and breaking into H2 and syngas, en route to an end product such as or building it up to diesel. This process eliminates some front end energy requirements, and goes directly to ethylene.

Compared to technologies such as Methanol-to-gasoline? “There’s a 30% capital advantage,” says Dineen. In their case, they consume heat. We generate heat. As an example of what drives the advantage.”

The oil price to natgas price balance – opportunites by region

“In comparing this technology to naphtha cracking, you have to look at the price of natural gas vs oil,” Dineen noted. “As long as oil is 8X higher than gas, Siluria works. If you take an example like Japan where gas is $15, that would be a location that wouldn’t work and we won’t pursue now.”

Who’s excited enough to invest?

Quite a slew of name-brand investors. Siluria’s Series B financing was led by the U.K. based  Wellcome Trust, joining Siluria’s founding investors Alloy Ventures, ARCH Venture Partners, Kleiner Perkins Caufield & Byers, Altitude Life Science Ventures, Lux Capital, and Presidio Ventures. A Series D round is expected to be wrapped up this spring with all existing invstors re-upping. A $30-$35 million raise is expected.

Braskem joins the collaborative ring

This week, Siluria and Brazilian chemicals giant Braskem announced a broad-ranging collaboration, and the partners said they will jointly explore commercial deployment of Siluria’s technology for supplying ethylene to Braskem. In particular, the two companies will conduct a joint feasibility study to identify commercial deployment opportunities of Siluria’s technology at Braskem’s ethylene consuming plants.

The collaboration also provides for certain non-exclusive technology license options for the world-scale deployment of Siluria’s technology by Braskem, as well as opportunities for Braskem to be a purchaser of ethylene produced from future Siluria plants, and rights for Siluria ownership participation in Braskem commercial projects using OCM technology.

Note “non-exclusive.” Siluria is pursuing non-exclusive agreements in the ethylene space. In certain areas, such as gas processing, where companies like Kinder Morgan operate and, as Dineen notes, “the equipment they have is what we need to recover our product,” there might be multiple structures in place for sector replete in Master Limited Partnerships and the like.

“As we start to segment and go after other parts of the market,” Dineen said, “if for example we did a deal one of the top 3 EPC firms in the world for a license that was very defined and focused on the existing ethylene space, there might be some limited form of exclusivity available. But that’s speculative at this point. We’ll have to see.”

Feedstock sources and project locales

In addition to being an attractive technology in the ehylene space, where existing plants are located — you might see this technology applied in areas where natural gas pipeline infrastructure in lacking or costly, such as the Bakken shale play in North Dakota, or along Alaska’s North Slope.

Moving towards demonstration at scale in 2014, at a Braskem Texas site

Siluria Technologies also tipped this week that it has begun construction of its first demonstration plant, which has a modular design and will be installed at a La Porte, Texas facility owned and operated by Braskem America.

The plant is expected to begin operations in the fourth quarter of 2014.

Braskem’s support of the demonstration unit includes the provision of the site, operational services and capital infrastructure, which are expected to provide Siluria with cost savings over the life of the agreement in excess of $50 million.

“This collaboration with Siluria demonstrates Braskem’s commitment to being a leader in polyolefins in the Americas,” remarked Fernando Musa, CEO, Braskem America. “This technology is on the leading edge of developments in our industry and is well-designed to meet our needs for plentiful, affordable feedstock well into the future.”

The company said that the demonstration plant is designed to show the operability of the company’s OCM technology using commercially produced, proprietary catalysts, and at a plant size that is readily scaled to commercial facilities. The demonstration unit will convert the methane in pipeline natural gas directly into ethylene.

Proceeding towards commercial scale

Given that the company has two pilots running — and given that it is backed by venture and private equity where speed-to-market is at a premium, the company expects to begin design of its first commercial scale plant before the construction of the demonstration is complete. “We’ll do a feasibility or multiple feasibility studies through middle of this year – then kick off front end engineering before the demo starts up. Then, we’ll adjust that design as needed, and by Q1 2015 we should have good data out of the demo.”

Additional technology packages

The company is developing two add-on technologies that complement its core OCM technology that produces ethylene. One purifies the ethylene, the second offers technology to react ethylene to build it up to C8, C10 molecules in the gasoline range, and further into the diesel range.

One thing Siluria needs: Tax help

As the company noted in a letter to the House Ways and Means committee last summer, “Siluria’s technology does not qualify for any existing energy tax incentives. This situation is not the result of a conscious decision by Congress to exclude OCM; rather, it is simply because OCM technology has never before been commercialized in this manner. Regardless of the origin of the problem, the result is that the current Tax Code puts OCM at a competitive disadvantage to technologies that have existed for years and have reached maturity.

The bottom line

It isn’t a technology that simply has the potential to solve gas flaring by providing an economic way to convert gas to liquids.

But, that’s a big opportunity. From an economic point of view, natural gas producers flare around $100 billion in unused gas every year. Looking at climate impact, the resulting CO2 emissions are greater than the annual CO2 output of France, according to a Reuters report from last year.

For now, think ethylene. Braskem’s been working on alternatives to ethane cracking for some time — take for example their ethanol-to-ethylene venture, which generally fizzled. But here’s a technology that might allow them to get where they so clearly want to go.

And with natgas prices low in the US and expected to stay there for some time, it’s a real era of opportunity for companies like Siluria.

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