Algae repositions as biofuels’ “humble but lovable” feedstock: industry gathers in positive, but low-key annual Summit
The biotech elevator pitch usually adheres to a ‘rule of 5′.
The offer is invariably a product platform that “is going to transform everything we do in our civilization.” Scientists ask for 5 more years of research; CEOs ask for $5 million in Series A funding; salesmen ask for ‘just 5 minutes of your time’.
Because salesmen generally attract attention faster than scientists, media reports tend to initially focus on the salesman’s hype, later report the CEO’s cautious optimism, and conclude with the scientist’s view that any hope of success will require (yet) another five years of R&D.
“First there’s the honeymoon, then the emasculation,” an observer described the cycle. He was speaking at the Algal Biomass Summit, which is underway this week in San Diego — yet, at ABO, the developers of algal fuels seem determined to try another tack.
After seeing corn ethanol, biodiesel and lately jatropha and cellulosic ethanol go through the horrifying image transition from “wonder fuel” to “blunder fuel” – attendees at ABO have adopted such a conservative public stance that the Summit might be mistaken for a gathering of Swiss bankers.
Reports from ABO – appearing in local media, Reuters and elsewhere, have been playing up the new “algae attitude” – “humble projections” leavened by “lovable potential”, reminiscent of the “humble but lovable” persona of TV’s Underdog.
“We need real commercial learning to be able to develop the production system and all the systems around that,” said Bill Barclay, chief intellectual property officer at Martek Biosciences, in a report in Sign On San Diego. “We’ve got to be careful not to over-promise success.”
“Filling your vehicle’s tank with fuel made from algae is still as much as a decade away,” led the Reuters report on ABO, “as the emerging industry faces a series of hurdles to find an economical way to make the biofuel commercially.”
The leaders of the industry are concerned about the flip side of the hype cycle – and why not? The daily beatings given to corn ethanol by a witch-burning coalition right out of Monty Python and the Holy Grail should give any renewable energy developer a big case of the willies.
They’re concerned about money, too, or the lack thereof. Biofuels project lenders are generally underwater after loaning up to $1.25 per gallon of capacity to corn ethanol plants and seeing the Valero deal revalue that capacity at $0.65 per gallon, putting every loan underwater. VC funds are tight, angels can’t afford the later equity rounds, and private equity is sitting out on biofuels until carbon policy is stabilized. To make matters worse, Curt Rich of Van Ness Feldman added bluntly, “there is virtually no chance that a biofuels project can qualify for federal loan guarantees based on the DOE’s current framework.” ”
Strategic investors are coming in — but generally only from the petrochemical industry. ExxonMobil, BP, and Shell are now investing in an increasingly major way.
What attracts Big Oil to algae, as opposed to corn ethanol or soy biodiesel? “Oil companies only have two questions,” says Aquatic Energy’s David Johnston. “Can you scale it? Is it drop-in?”
Ah. Drop-in fuels. It isn’t required to have a drop-in fuel to achieve scale – ethanol has more than 50 percent market share in Brazil. But drop-in fuels are required unless there is massive downstream infrastructure transformation.
Oil companies don’t make money in downstream. They make their real money on the upstream side – exploration and production. Downstream margins are incredibly tight. For oil companies, building a viable downstream is a means of adding value to the upstream, and should be built out as frugally as possible.
“When I look at the algae industry,” remarked ConocoPhillips’ Marty Taber at ABO this week, “I see an integrated refining operation ultimately developing out of all of this. It’s like oil.” Taber is not surprised by the emerging interest among algal fuel developers in higher-value co-products such as exotic chemicals, feeds, polymers and nutraceuticals. Though the products are somewhat different than the suite of products and intermediates made from petroleum oil — the new-found emphasis on maximizing the value of the feedstock is nothing new.
After all, it was John D. Rockefeller’s determination to find uses for gasoline — typically dumped into the river as a waste product by his competitors — that gave Standard Oil its initial competitive advantage.
In Rockefeller’s vision, there was no need for waste in the petroleum refining – there was simply a lack of innovative thinking on new markets for oil.
Finding new, high-value uses for algal biomass — even given the tiny volumes of demand for products like nutraceuticals — high-value markets create revenue-generation opportunities earlier in the development process. That means capital efficiency: a winning formula in the near-term for algal biofuels.
Worth remembering that the transportation fuel markets didn’t open up for Standard Oil until the early 1900s, well after it had gained a 90 percent market share and laid the foundation of the Rockefeller and Flagler fortunes.
Transportation fuels came late for oil – there were infrastructure issues and cost issues. Saudi Aramco’s founding chairman, Henry Deward Collier – organizer of the biggest upstream home run in the history of petroleum — made his reputation as a Standard Oil salesman on the docks of Seattle, converting steamers to oil-burning, starting in 1906. The British Navy converted to oil in 1913 under the direction of Winston Churchill, leading the British government to establish the Anglo-Persian Oil Company to secure its oil supply. Haven’t heard of APOC? It’s known today as BP.
Hard to believe that BP was founded as an exercise in energy security, but it’s true.
Fuel takes time, and that’s a message of ABO this year — but don’t take the caution for much more than message marketing to avoid the downside of hype.
Fuel remains the algal prize, and the goal, and the end game. It’s the cornerstone of an upstream strategy, and upstream is likely to remain the mother of all cash flow in the economics of renewables for some time to come.
Co-products, energy security, fuel takes time and survivors speak softly and carry a big stick. It’s a new attitude for algae, but its the oil industry’s story from 1890 to 1915. Suggesting once again that algae is a continuation of the oil industry by other means.
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Joelle Brink | Oct 9, 2009 | Reply
Great analysis. I always wait for Praj Industries to adopt a new feedstock before getting my hopes up. They’re risking their own and their stockholders’ money and they don’t take government grants.
Back in the day, US corporations used to operate the same way. But now they’re broke, the schools can’t pay their teachers, and the biofuels industry is operating on too much hype and venture capital–with the emphasis on “venture”.
I’m heartened that Praj is now offering farm-to-fuel Jatropha services and is having good results with algae, showing that both feedstocks are practical as long as you don’t have to operate an industrial Ponzi scheme at the same time.
I admit, though, that Praj and other Indian biofuel companies enjoy a great advantage in that oil companies in India are all nationalized and must cooperate in the national biofuels mission. Several have even been sanctioned recently on suspicion of collaborating with their former multinational owners to acquire land for biofuel crops, and in one case, of theft of a new jatropha hybrid from a government university.