Will boaters make Gevo rock?

Despite a signature partnership with Praj, Gevo’s short-term future looks strongest at the marina, where blockbuster economics apply.

So Praj and Gevo, which began dating some time ago as prospective partners and started going steady a few months ago in signing an MOU — have decided to move in together, via a license agreement and a joint development agreement with that enables the licensing of Gevo’s isobutanol technology to processors of non-corn based sugars, including the majority of Praj’s global customer base of ethanol plant owners.

Here’s the structure: Praj would be the customer-facing entity marketing Gevo’s isobutanol technology to Praj’s existing customer base, and would provide the engineering, procurement and construction services for such projects. Globally, Praj is one of the leading suppliers of EPC services to the ethanol industry, having provided such services to approximately 350 ethanol plants across 65 countries.

So, a pretty good deal for both. Gevo potentially gets some new customers and Praj lands EPC work in deploying the isobutanol technology to its vast network of first generation ethanol plants. As previously announced, Gevo and Praj expect to license up to 250 million gallons of biobutanol capacity over the next ten years under this partnership.

Meanwhile, there’s a near-term gain: Praj will contribute engineering services to optimize Gevo’s energy and water usage at its Luverne plant, which is expected to lead to an even lower cost isobutanol process. Again, good for both partners.

Praj’s prospects

Ultimately, it might make sense for Gevo and Praj to get married, with Praj acquiring Gevo, if there are real opportunities for deploying this technology across a global ethanol fleet. Gevo probably doesn’t have the marketing heft, and Praj could use some near-term advanced technology to bring to its customer base — they’ve been developing cellulosic technology but so far no takers for a first commercial plant. And Gevo offers a path not only to isobutanol but jet fuel and some other high-value molecules — as the partners said in their announce, “It is anticipated that Praj and Gevo will also work together to commercialize Gevo’s technology for making renewable jet fuel from isobutanol in India.”

VP Corporate for Praj, Vinati Moghe, recently told The Digest:

“Our work with Gevo is an example of a second product, in this case isobutanol and it’s a bolt-on to a bolt on — because that technology can be integrated into the projects we will develop for our clients.” The other bolt-on is Praj’s 2G technology, now running at demonstration scale in a project they call Enfinity. 

“We’re awaiting some movement on the funding, particularly from the public sector, but we have also completed the environmental analysis, and it is a technology well suited to Asia as well as around the world. It’s a bolt-on to an existing 1G facility, with which it can share a lot of infrastructure such as boilers, utilities.

“Right now in India, ethanol is typically made from molasses, and there is a 4 month season for that feedstock, and an ethanol plant can extend, through storage, to a 7-8 month production cycle. A 2G bolt-on can make an Indian biorefinery perform year-round and improve the economics of the site. That end-to-end integrated plant, using bagasse or corn stover, is probably what people understand as our unique selling proposition, and we believe the economics can be compelling.”

Gevo’s prospects in the marine area

Since the settlement of its future-clouding and financially-draining Butamax suit, the company has been gearing up in the marine biofuels area, where isobutanol provides a popular alternative to ethanol.

One of the attractive uses of an isobutanol fuel in the marine sector is that marinas are not obligated parties under the Renewable Fuel Standard, but isobutanol is a qualifying fuel. Hence, a marina owner can blend a gallon of renewable fuel, up to 16 percent content in the case of isobutanol, and detach the RIN that comes with every gallon of renewable fuel, and sell it into the marketplace.

But wait, there’s more.

According to e85prices.com, E10 ethanol is selling an average of $2.26 per gallon while E0 (ethanol-free gas) as favored by boat owners, has been selling at $2.61 per month. We also reported earlier this year that “as a result of this improved performance provided by isobutanol-blended gasoline, Express Lube has been selling its fuel at over a 50 percent premium in comparison to local E10 gasoline blends (10 percent ethanol).”

Let’s put those together.

We have the direct evidence Bu16 is selling at more than $3.39 per gallon (that’s the 50% premium to E10 reported by Express Lube), and that’s a premium of 78 cents over the pure gasoline (E0) price. That suggest a value of $4.84 per gallon for the isobutanol, excluding that detachable D6 renewable biofuel RIN, which is priced at $0.64 this month on the Chicago Board of Trade. So, there’s another 83 cents there.

Total value created, $5.78 per gallon.

Gevo’s prospects elsewhere

In the road segment, Gevo can sell all it wants but if more than 30 million gallons is sold using its technology, there’s a royalty due to Butamax. There’s no such limitation in the Alcohol-to-jet sector, or in the specialty chemical & solvents, marine, off-road, or iso-octane area.

However, the financials are not quite so tempting for the partners.

For example, take the aviation fuels market, where jet fuel is pricing at 1.395 per gallon this month, according to EIA — compared to $2.89 in August 2014. It takes about 1.5 butanol molecules to make a jet molecule, so you have good news and bad news. The bad news is that the wholesale value of the isobutanol is around 93 cents. The good news is that you still have 83 cents in RIN value. Put it together, you have $1.76 per gallon in value. Not nearly as compelling as the marine market — not an easy target for Gevo’s production process.

In the specialty chemicals market, better prices but no RINs.

Bottom line, think marinas for now, that’s where the value is, though volume will come from many sources.