Statoil invests, partners with BAL in macroalgae: How Big will Big Algae be?

September 16, 2010 |

In California, Bio Architecture Lab and Norway’s Statoil  announced a wide-ranging strategic partnership for the production of renewable, sustainable and low cost ethanol derived from macroalgae grown off the coast of Norway.

Statoil will fund  BAL’s research and development (R&D) and demonstration projects, and if successful, will also fund the commercialization of BAL’s technology in Norway and elsewhere in Europe.

BAL will have the right to equity participation and will receive royalties on all ethanol and by-products produced by the partnership.  During the initial phase of the partnership, BAL is responsible for developing the technology and process to convert Norwegian seaweed into ethanol. Statoil is responsible for developing and managing the seaweed aquafarming operations, with consultation from BAL, which already has aquafarming operations in Chile.

Upon the successful achievement of key milestones, Statoil and BAL will develop a demonstration scale facility in Norway.

The complete Statoil-BAL announcement.

The Digest’s take

Big news. Not only because it is big algae – that is, macroalgae, or seaweed. But because it is further confirmation that BAL is making huge progress in its drive towards commercialization, and Statoil is deepening its commitments in biofuels.

Statoil is well known in the EU, less so in the States. They are the biggest company in the world in terms of producing offshore energy – bigger than BP, or ExxonMobil. They are also a key partner and investor in the Inbicon cellulosic ethanol technology, in partnership with Novozymes and DONG Energy.

Macroalgae is not nearly as widely followed as microalgae. That’s perhaps because oil companies like ExxonMobil and Shell are investing in the latter. What’s to like about macroalgae – its widely grown and understood, with more than 100 years of aquaculture already completed. No lignin, and far easier to harvest than microalgae.

The Digest Interview: BAL CEO Daniel Trunfio

To uncover the opportunities with BAL and macroalgae, the Digest spoke in-depth with BAL’s CEO, Daniel Trunfio. A 23-year veteran of Shell who had oversaw the company’s strategic partnerships and investments in biofuels, Trunfio moved to Aventine Renewable Energy in 2007 as COO before joining BAL as CEO in May of this year.

BD: Why Chile?

DT: It was a combination of a high-yield native strain, and the opportunity to work with the world’s leading authority on improving yields, Dr. Alejandro Bushman of the University of Los Lagos in Puerto Montt. His research has pioneered methods to grow seaweed at high densities. The other aspect of our Chile project is the partnership with ENAP, the Chilean oil company, and the Chilean government. They are interested in ETBE, and using our ethanol as a feedstock. So what they want us to do is demonstrate we can grow seaweed and convert into ethanol.

BD: Why macroalgae?

DT: In Asia they have grown seaweed at commercial scale for food for 100 years. In china they grow 30-35 tonnes per hectare by hand cultivation. We use a brown non-edible native to Chile and are industrializing our techniques to increase the yields. But one of the special things we like is that seaweed is the fastest growing plant in the world, and it does not have lignin.

Also, it’s already well studied, and requires no fertilizer inputs like  corn and sugar. Plus, its good for eutrophication – it grows off nutrients in the water and cleans up the oceans when you grow it.

BD: How dense can BAL grow macroalgae?

DT: Working with Dr. Bushman we have a target of 40-50 dry tonnes per hectare.

BD: Doing any GMO?

DT: No, but we have a strain selection and breeding program to improve sugar concentration. In Asia seaweed yields are improving by up to five percent per year because it is still younger as a practice than corn.

BD: Tell us about your magic bug that converts seaweed to ethanol.

DT: It’s the second piece of the value chain – once you have the seaweed, our ‘magic microbe’ is like a consolidated bioprocessor you may have read about [with companies like Mascoma or Qteros]. Our bugs access the sugars and break those up so they are fermentable, then ferment them into ethanol.

BD: That’s two major pieces of the value chain – a lot for a young company?

DT: I like the opportunity  – as a former VP with Shell in trading – I am all about optionality. More options allow us to play in the entire value chain. Think of an upstream oil exploration company, that brings in oil from offshore platforms and then puts it into its refineries. Our value proposition is not dissimilar, except our offshore wells are green instead of black. We bring the feedstock to shore, and if an oil company partners with us, they can take that process and scale it.

BD: Is your IP primarily around your magic bug or around the yield-improvement process?

DT: We have IP around the novel biomass, and also around the methodology of our microbiology.  We are looking for ways to get IP around the upstream process, but how much do you really want to tie that up? For example in our Statoil deal we make money on royalties with fuel and co-products. So we want people to embrace and grow the feedstock.

BD: What’s different about the Statoil partnership?

DT: With Statoil it is a different seaweed, and we are talking to folks in Asia about another seaweed. Our goal is to be seaweed agnostic. By working with these partnerships around the globe, I want us to be in a position one day where we can get a call like “can you convert into fuel or chemicals off the coast of Alaska, and we look into our book, and say: “Check”. In a case like Chile, we can harvest twice a year. In Norway, the water is colder and we can harvest once a year, but we have more sugars we can access in the Norwegian strain, so we have good sugar economics despite the lower harvest.

Also with Statoil, they are the world’s largest energy producer from offshore. Their core competency is extracting energy from the deep water.

BD: Where are you on scale?

DT: Right now we are at lab scale – obviously the Statoil agreement is designed to get us out of the lab. On the two different seaweeds we are at 93 percent of maximum yield using some pretreatment – 55 percent without pretreatment. Which is OK because the cost of the pretreatment is high.

BD: You mentioned royalties on co-products. To what extent are you depending on the co-product stream, and what are your products?

DT: The co products are fairly lucrative, such as iodine and lipids and proteins for fish meal – both have very high market values. But I am not going to count on subsidies or co-product returns to make the business model – those are gravy – our cost of production has to be comparable to corn or sugar – not on a cash cost but also from a capital perspective.

BD: Your primary partnerships are with oil companies although you also have a significant partnership with DuPont. Why the big companies?

DT: Ultimately  all roads leads though the energy companies, and these are first class companies. Plus, this gives us a strong platform for commercialization. When i was sitting at Shell negotiating with second generation biofuels companies you could see the gap in terms of commercialization opportunities.

BD: Tell us about your financing and your business model.

DT: We raised $33 million in our series A, a combination of private equity and government grants and collaboration with ARPA-E and Statoil.

BD: Next round?

DT: In, financing – as early-stage companies go – we are pretty strong. We don’t need a second round right now, we have enough runway. But we want to build out the business, to understand and grow the feedstock. So we are right now taking the company through a strategic session, building on the strategy that we’ve developed and making it a bit more crisp and building in the optionality that I like. Getting money is not as difficult as getting the right investors. One thing we are not, we don’t have the balance sheet, so going out and trying to raise $300-$400M to build an ethanol plant is not in the plan.

BD: Future plans. What about Asia, with all the macroalgae research in Japan, China and Korea?

DT: Asia is a very interesting market. Everyone is trying to get into it. [For us] Asia is of keen interest, mainly because they understand our biomass,  they understand our feedstock. They are growing it, and they are not energy independent. If you look at what we offer we are a fit.

The other side of it, having a strong operations background, one thing I have learned is that you can’t take you eye off the ball. I want to make sure all the trains are leaving station on time before I begin another station. I want to make sure we have several marquee customers, and coming from marquee companies, I know that with with them, you’ve got to do it right. If you do, you get all the support you need. I want to make sure we are operating and running the business like we committed and promised to them once comfortable move into another area. We are just now getting the Statoil partnership established. We are comfortable with ENAP, comfortable with Dupont.

With growth-stage companies, the biggest failures grew too fast. They didn’t have the resource, the capital, the people, and tried to bite off every opportunity.

BD: What do you value the most in partnerships with large-scale petrochemical companies?

DT: if you look at these companies. They all understand partnerships. With oil companies, a lot of offshore platforms are JVs if not 2-3 companies. With chemical companies like dupont, it is the same. Lots of experience in running JVs and partnerships. Plus, the saying is that you play to the level of your competition. Its the same model with partnerships. You play and perform to level with of your partners. Companies like ENAP, Statoil and Dupont – they make us better.

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