Saudi Aramco invests in Siluria: will BIO rescue OCM and put the ROI back into GTL?

Can a small California start-up transform the gigantic Gas-to-Liquids business by pioneering industrial-strength throughput at nanoscale?

In California, we learned that one of the brightest lights in cleantech these days, Siluria Technologies, is receiving a strategic investment from Saudi Aramco Energy Ventures (SAEV), the venture investment subsidiary of Saudi Aramco.

The total raise for this initial close of Siluria’s Series D financing was $30 million, and included additional investments by all of the major existing investors in Siluria. To date, Siluria has raised just under $100 million since its inception, and we’re expecting that total to reach north of $120 million with a completed Series D financing by year end of $50 million, or perhaps slightly higher.

What’s Siluria about, again?

Siluria’s oxidative coupling of methane (OCM) technology, catalytically converts methane (and can co-feed ethane) into ethylene and water. Ethylene is the world’s largest petrochemical building block used in the production of a wide range of plastics, coatings, adhesives, engine coolants, detergents and other everyday products. The ethylene from the OCM reaction can be purified using conventional separations technologies, resulting in petrochemical grade ethylene ready for use in downstream chemical production or transport in an ethylene pipeline.

The OCM ethylene can be converted using a different catalyst into liquid hydrocarbon fuels or blend stocks, in a process referred to as Ethylene to Liquids. The composition of the liquids products can be tailored to a preferred composition and specification. Examples of ETL products include gasoline, condensates, aromatics, heavy oil diluents and distillates (diesel and jet fuel).

Why is OCM new, or is it?

OCM has been around for a generation, as a technology. 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.

But, inspired by the way nanomaterials are created by nature, Siluria develops metals and metal oxide crystals grown on biological templates. 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, at temperatures 200 to 300 below current steam cracking methods, greatly reducing the energy needed by current technology to produce ethylene.

Why are gas producers excited, and now?

Natural gas has become remarkably cheap and abundant in markets such as the US, and technologists have been scrambling for a couple of years now to develop ways to take advantage of that abundance.

Secondly, gas is “drying out” in key sources, such as the Middle East, and has been inherently dry in Russia for a long time. The northeast of the Marcellus field: pretty dry; Generally, oil plays and wet gas have received the most attention from project developers and financiers. Dry gas could use a lift.

(Note for readers: Natural gas, like martinis, can be “dry” or “wet” — dry meaning “mostly methane”; wet meaning “more natural gas liquids such as ethane, butane, propane, or pentane.  Wet gas is more valuable because of the higher value of the liquids.)

Where is Siluria in its path to commercial scale?

The company has been producing ethylene via OCM at the pilot scale in its San Francisco and Menlo Park facilities for over three years. Siluria also produces liquid fuels in a pilot facility in Hayward, California that combines the OCM and ETL processes. Siluria’s Hayward ETL facility and the Braskem La Porte OCM demonstration plant are the last scale-up steps prior to full commercialization of Siluria’s technology platform, which is now planned for the 2017 time frame.

Markets for the technology

Think of two paths. First, there are the 300 ethylene plants across the globe that could incorporate this technology to improve economic and environmental performance. Think also of the 600 existing gas processing plants (in the U.S.) to dramatically upgrade their products and profitability. They processed 14.5 billion barrels of oil equivalent in 2012, according to EIA.

About those gas processing plants

Raw natural gas consists of a mixture of methane, ethane, propane, butane, a small fraction of longer chain molecules; water, inert components such as nitrogen, CO2, or noble gases; and contaminants such as sulfur or mercury. A midstream gas processor removes the contaminants and inerts, separates off the higher value alkanes, and then has a stream of methane suitable for heating and power gen.

Siluria’s technology enables midstream operators to increase profitability of gas processing plants by converting methane and ethane, the two most prevalent and lowest value raw natural gas components, to high value products such as gasoline or high purity ethylene.

A conversation with Siluria CEO Ed Dineen

Siluria CEO Ed Dineen

BD: What’s the background on the financing?

ED: The D Round, we set a goal of a minimum of $50 million, and with this first close and Aramco’s support, we’ve got 30 of that. Over the next couple of months we’ll exceed that. As we looked at our financing, in our earlier rounds we had mostly financial interests, and in this round we aimed specifically to try and bring in more strategic interest. Saudi Aramco, as the largest hydrocarbon company in the world, is a great fit for us, and given their
keen interest in new technology and moving into certain diversifications, we seem to be a great fit for them. Most importantly for us, we formed a joint team for deploying the technology in Saudi Arabia.

BD: What else is going on with partnerships?

ED: We haven’t announced, but will soon, a major partnership with a large EPC firm who will be the counterpart to out Linde partnership. Linde is the ethylene; this one will be in the liquids.

(Note for readers: In June, Siluria Technologies and The Linde Group announced they will combine the companies’ respective technologies and expertise into an optimized and integrated package which Linde would license to the petrochemicals industry for both revamps or expansions at existing ethylene plants and for new world scale methane-to-ethylene plants.)

ED: We are especially focused right now on a lot of opportunities in the midstream gas processing segment and
a lot going on on that partnering front. With Linde, the partnership is moving ahead with joint technical and commercial teams, and with Braskem we have joint teams looking at further commercial opportunities. Though we have not signed yet with Braskem past the demonstration phase — though we hope to have them as a commercial-scale partner.

BD: What’s the latest with the technology?

ED: With Xeton in Canada, we have completed the manufacture of modular units, now going through factory acceptance testing, that will ship to Braskem in September, and we expect to startup in November. That element is moving along nicely.

(Note to readers: This is the OCM demonstration plant designed to produce approximately 1 ton of ethylene per day, located at a La Porte, Texas facility owned and operated by Braskem. The plant is expected to begin operations in Q4 2014.)

ED: In California, at Hayward we have our GTL catalytic pilot, operating since November, and we’ll be adding 3rd OCM pilot to run on pure oxygen – broadening the technology.

BD: We’ve mostly spoken in the past about US opportunities, given the availability of low-cost gas. What about international?

ED: It’s predominantly international. For example, companies like Braskem, where they have the bulk of their operations in Brazil. Here’s there’s a lot of interest in the midstream space, but there’s a lot of ethylene interest from offshore.

BD: What about more capital raising, to unlock the value in these opportunities?

ED: When I look at the partnering we’re doing, that could be a significant source of ongoing capital —
not equity to build runway for the company, but in terms of raising money to build plants. In terms of raising more equity down the line and reaching cash positive, it depends on how the projects get structures — what partner funding is there, and what stake we have. Plus, our EPC partnerships also give us a call on resources, that frankly would be hard for a company like ours to get.

But there may be another raise between now and 2018 – and a function of how big this round is.

BD: What’s new with organizational development?

ED: Carl Kurz, the former COO Andarco, has moved into the chairman slot. He brings a lot of experience in E&P and midstream. We also added a CFO from Eagle, Jeff Wood, and will shortly be adding another key player to the midstream team, related to plants and engineering. We are going to add a Houston office, which will focus on commercial, financial and and project engineering. Technology development will remain on the West Coast.

The Digest’s Bottom Line: what makes Siluria so interesting?

It’s true, we spend a lot more time pondering the potential of Siluria than we probably should. But it’s so interesting and compelling, we can hardly take our eyes off it.

Here’s the basic premise: unleashing the power of (we’re supposed to look down on it) biology to make a OCM work (the technology that never worked before), in order to put the ROI back into gas-to-liquids (which has been so down in the dumps that ExxonMobil at one stage canceled a Qatar gas-to-diesel project that was penciled out based on free natural gas). It’s like the Seabiscuit story — the damaged owner, the damaged trainer, the damaged jockey, the damaged horse, and all that methane-rich manure.

In this case, Angela Belcher’s work is being employed, the MIT biological engineer who figured out how to employ viruses as contract labor in constructing precision-designed nanomaterials. In this case, Siluria is making nanowires, that alter the precise behavior of catalysts — and they are also using the industrial throughput of the Advanced Bioeconomy to generate tens of thousands of candidate catalysts.

The theory? Industrialize the generation and testing of catalysts, to find the “needle in a haystack” catalysts that can stimulate the production of ethylene from methane and oxygen,. without being so reactive that the conversion continues through ethylene and doesn’t stop until you have CO2. Which we have enough of.

Instead of making catalysts like artisans, they are making them like Henry Ford. Only, a bio-based, nano-sized version of one. It’s BioHenry NanoFord.

Will they make it? They are well on the way. If they get there — rescuing a technology (OCM) that everyone else gave up on, just about — they will have changed not only the way liquid hydrocarbons are made, but the way that science thinks about the industrial process.

More on Siluria here.