Silicon Valley Bank Cleantech PracticeThe Advanced Biofuel andBiochemical OverviewJune 2012
Table of Contents I.     Introduction                                                     III. The Importance of Biofuels/...
Biofuel/Biochemicals Outlook – Macro ObservationsOBSERVATIONS• Multiple very large and growing markets   — Total markets w...
Biofuel/Biochemicals Outlook – Micro ObservationsOBSERVATIONS• Platform technologies   — Venture investors and companies f...
The Cleantech Ecosystem                                                                         Materials and Manufacturin...
Market Snapshot: Global Ethanol ProductionTop Five Countries (2010) Ethanol Production (millions of gallons/year) 1   The ...
Market Snapshot: Global Biodiesel ProductionTop Five Countries (2010) Biodiesel Production (millions of gallons) 1Source: ...
Market Snapshot: Ethanol and Biodiesel Production Landscape in the U.S.U.S. Ethanol Production1                           ...
Market Snapshot: Global Biochemical ProductionOverview of Biochemicals                                                    ...
Biofuels/Biochemicals Overview                   TABLE OF CONTENTS   The Biofuels and Biochem Industry 10
What are Biofuels/Biochemicals? – Summary• The Biofuels and Biochemicals industry refers to the set of companies focused o...
What are Biofuels/Biochemicals?• A biofuel/ biochemical is a product made from biomass – organic material with stored chem...
Biofuels/Biochemicals Growth RatesGlobal Average Annual Growth Rates of Renewable Energy Capacity and Biofuels Production,...
Main Feedstock Sources                                                                                    Crops used for B...
Types of BiofuelsBiofuels/Biochemicals aredistinguished as either first, secondor third generation.Most of the Biofuels to...
First Generation Feedstocks                                Sugar cane has been used to produce bioethanol in Brazil since ...
Second and Third Generation Feedstocks                Switchgrass is a perennial warm season grass native to North America...
Comparative YieldsEnergy density refers to the amount                         Energy Density for Biofuels per Unit of Requ...
Comparative Advantages and Disadvantages of Feedstock                 Corn                    Sweet Sorghum               ...
Comparative Advantages and Disadvantages of Feedstock (con’t)            Switchgrass                    Camelina          ...
Petroleum Replacement Overview                                                                                            ...
Conversion Technologies – Fermentation and Fluid Catalytic Cracking                                                     Fe...
Conversion Technologies – Anaerobic Digestion and Gasification                                                 Anaerobic D...
Conversion Technologies – Pyrolysis and Transesterification                                                        Pyrolys...
Conversion Technologies – Syngas Fermentation                                               Syngas Fermentation           ...
The Importance of Biofuels/Biochemicals                   TABLE OF CONTENTS   The Biofuels and Biochem Industry 26
Biofuels/Biochemicals Growth – Summary• The sector has received increasing attention from both public and private investor...
Compelling Market OpportunityOpportunities for bioproducts will                       Bio Based Market Opportunitynot only...
Drivers of Biofuels/Biochemicals GrowthThe rising cost of oil will create an             Crude Oil Monthly spot prices ($ ...
Drivers of Biofuels/Biochemicals Growth (con’t)By 2035, the EIA projects that                          Vehicles per 1000 p...
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
The Advanced Biofuel and Biochemical Overview  June 2012
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The Advanced Biofuel and Biochemical Overview June 2012

  1. 1. Silicon Valley Bank Cleantech PracticeThe Advanced Biofuel andBiochemical OverviewJune 2012
  2. 2. Table of Contents I. Introduction III. The Importance of Biofuels/Biochemicals (Cont.) I. Biofuel/Biochemicals Outlook – Macro Observations 3 V. Liquid Demand Growth from Non-OECD Countries 36 II. Biofuel/Biochemicals Outlook – Micro Observations 4 VI. Biofuels for Transportation 38 III. The Cleantech Ecosystem 5 VII. Increasing Marginal Cost of Production 39 IV. Market Snapshot: Global Ethanol Production 6 VIII. Oil Market Price and Saudi Breakeven Threshold 42 V. Market Snapshot: Global Biodiesel Production 7 IX. U.S. Renewable Fuel Standards 43 Market Snapshot: Ethanol and Biodiesel Production X. Biofuel Blending Mandates by Country 46 VI. 8 Landscape in the U.S. VII. Market Snapshot: Global Biochemical Production 9 XI. Cellulosic Ethanol Pricing Model 47 II. Biofuels/Biochemicals Overview IV. Biofuel/Biochemicals Landscape I. What are Biofuels/Biochemicals? 11 I. Advanced Biofuel and Biochemicals Value Chain 49 II. Types of Biofuels 15 V. Where Are They in Development? III. Biofuel Feedstocks 16 I. Investments in Biofuels/Biochemicals 52 IV. Comparative Yields 18 II. Global Players – Milestone Update 54 V. Petroleum Replacement Overview 21 III. Biofuel/Biochemical IPOs in Pipeline 56 VI. Conversion Technologies 22 IV. Strategic Partnerships 57 V. Projects to Watch in 2012–2013 58 III. The Importance of Biofuels/Biochemicals VI. Appendix 61 I. Compelling Market Opportunity 28 VII. Selected Due Diligence Questions 69 II. Drivers of Biofuels/Biochemicals Growth 29 VIII. Silicon Valley Bank Cleantech Team 70 III. Liquid Demand Statistics 32 IV. Energy Market Growth 34 The Biofuels and Biochem Industry 2
  3. 3. Biofuel/Biochemicals Outlook – Macro ObservationsOBSERVATIONS• Multiple very large and growing markets — Total markets will top $1+ trillion. Beyond the well-known fossil-fuel replacement markets is growing demand for non-fuel products like food supplements, personal care products, and packaging.• Positive supply/demand dynamics around crude — The fundamental underlying demand is exacerbated by oil exporting countries‘ economic reliance on oil revenue. Meanwhile, the cost of crude production continues to increase. Biofuels/biochemicals will play an increasingly important role to fill that need.• Demand drivers – mandates and markets — Mandate: Primarily for fuels, government mandated goals proliferate with varying degrees of adherence and enforcement. Subsidies of all types remain important in attracting capital and shifts in policy could alter business plan direction between fuels or chemicals. — Markets: Growing economic justifications are intersecting with other market demand factors. For example, the U..S Navy‘s goal of 50% energy consumption from alternative sources by 2020 or the Air Force‘s initiative to acquire 50% of aviation fuel from alternative blends by 2016 are policy influencers that also have purchasing power.• The role of strategic corporate investors — Always important, corporates from a variety of industries (and led by big energy, chemicals/materials, and consumer products) have become critical parties in the development and scale-up of the sector. Taking multiple forms of straight investment, joint venture, and collaboration, investors search for innovation, growth, and information.• Commodity markets — Fuels in particular are ultimately commodities. Without policy enhancements, the impact of commodity cycles will continue to challenge scaling of new technologies.• Business life cycle — While the underlying trends and fundamentals may be inexorable, development of the industry and market dynamics is a very long term process and investment cycle. TABLE OF CONTENTS The Biofuels and Biochem Industry 3
  4. 4. Biofuel/Biochemicals Outlook – Micro ObservationsOBSERVATIONS• Platform technologies — Venture investors and companies favor platforms where multiple markets can be addressed. Single product fuel companies like ethanol are challenged. The platform companies may ultimately seek to enter fuel markets but may opt to defer that step in order to access higher margin, less commoditized markets first.• Feedstock flexibility — Access to multiple feedstock types and sources is critical to scaling facilities, particularly in margin constrained markets where supply and logistics can have great impact.• The scale-up conundrum — Given the capital required to achieve economies, and the fact that most investors want both scale and capital efficiency, the choice between build/own and licensing is becoming acute. To truly reach scale requires enormous financing. The conundrum is how to get licensees without experience at scale. And what scale is necessary to attract the right investors? Does the project need to demonstrate revenue scale, cash flow positive, or just output?• Understand the value chain — In addition to sources and location of feedstock, proximity to off take and associated logistical costs are important for certain markets like ethanol. In concert with the scale-up conundrum above, are these links in the value chain of a size to support large facilities? Additionally, to attract investors companies must demonstrate the ability to reduce costs of collection, distillation, and extraction through operational or technological advances.• Milestone sensitivity — At these development stages, sensitivity around scale-up milestones is palpable. Whether due to supply or technical aspects, such delays in any project are not unusual but there seems to be heightened sensitivity here that often results in further delays or hurdles to funding.• Financing strategy — Financing strategies, with minimal reliance on government support, must be devised at the outset. Today this likely means earlier and more active role from strategic investors which may limit some flexibility. It also means determining the license/own decision. IPOs really are not exits but financing events much like that seen in the biotech sector. Some combination of strategic investor with access to public markets may be necessary to complete the demo and first commercial funding challenge. TABLE OF CONTENTS The Biofuels and Biochem Industry 4
  5. 5. The Cleantech Ecosystem Materials and Manufacturing Materials & Manufacturing Recycling & Energy Energy Energy Agriculture, Air & Energy Storage Waste Generation Efficiency Infrastructure Water Management • Alternative fuels • Batteries • Building materials • Smart Grid • Waste to energy • Agriculture • Biomass • Fuel Cells • Lighting Hardware • Waste • Air • Solar / Thermal • Utility Scale grid • Demand response • Smart meters repurposing • Water • Wind storage systems • Transmission • Hydro • Energy Management • Improved and • Improved power • Reduced • Reduction in • Economic in • Organic economical reliability operating costs wastage nature - well- pesticides / Application Benefits source of • Intermittency • Lower • Reduce outage run recycling fertilizers energy Management maintenance frequency / programs cost • Water • Less pressure • Increased costs duration less to operate purification on non- cycles/longer • Extended • Reduce than waste • Water renewable storage equipment lives distribution loss collection and remediation resources (oil landfilling • Efficiency • Purification and gas) • Management • Energy security • Grid/ Off Grid Residential End User Commercial Industrial Utilities, Government and Others TABLE OF CONTENTS The Biofuels and Biochem Industry 5
  6. 6. Market Snapshot: Global Ethanol ProductionTop Five Countries (2010) Ethanol Production (millions of gallons/year) 1 The Global Renewable Fuels Alliance (GRFA) forecasts ethanol production to hit 88.7 billion litres in 2011Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78. TABLE OF CONTENTS The Biofuels and Biochem Industry 6
  7. 7. Market Snapshot: Global Biodiesel ProductionTop Five Countries (2010) Biodiesel Production (millions of gallons) 1Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78. TABLE OF CONTENTS The Biofuels and Biochem Industry 7
  8. 8. Market Snapshot: Ethanol and Biodiesel Production Landscape in the U.S.U.S. Ethanol Production1 U.S. Alternative Fueling Stations2 • Corn ethanol production continues to expand rapidly in the U.S. Between 2000 and 2010, production increased nearly 8x • Ethanol production grew nearly 19% in 2010 to reach 13,000 million gallons per year • Ethanol has steadily increased its percentage of the overall gasoline pool, and was 9.4% in 2010 • In 2010, there were 1,424,878 ethanol (E85) fueled vehicles on the road in the U.S and 7,149 alternative fueling stations in the U.S. • Biodiesel has expanded from a relatively small production base in 2000, to a total U.S. production of 315 million gallons in 2010. However, biodiesel is still a small percentage of the alternative fuel pool in the U.S., as over 40x more ethanol was produced in 2010 • Biodiesel production in the U.S. in 2010 is 63x what it was in 2001Source: 1,2NREL (National Renewable Energy Laboratory) Data Book, 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 8
  9. 9. Market Snapshot: Global Biochemical ProductionOverview of Biochemicals Specialty Biochemicals Name Characteristics Uses Adhesives Liquid or semi-liquid compound that bonds items together Paper products, labeling, packaging, plastic bags, Polymers via drying, heat or pressure stamps, lamination Consumer Lubricants and Products and Additives Cationic Surfactants Organic compound consisting of phospholipids and Soaps, detergents, shampoos, toothpastes Coatings proteins with positively charged heads that lower the surface tension between liquids and other surfaces Geraniol Clear to pale yellow that is insoluble in water Commonly used in perfumes or fruit flavoring Industrial Lubricants Oil-based compound that reduces friction between moving Used in operation of manufacturing, mining and 4.6 MM 4.0 MM 73.0 MM surfaces transportation equipment and more tonnes/yr tonnes/yr tonnes/yr Linalool Naturally occurring alcohol found in flowers and spice Scents for perfumes and cleaning agents, insecticides, plants used to make Vitamin E Nonionic Surfactant Organic compound consisting of phospholipids and Lower the surface tension of liquids or between liquids • Specialty • Base oils Building blocks for proteins with non-charged heads and another surface surfactants • Fuel additives • Specialty O2 Scavenger Compounds that inhibit oxidation or other molecules Used to prevent the corrosion metal by oxygen • Soy petrolatum polymideds, Plasticizer Additives that increase the workability, flexibility and Used for plastics, concrete and dry wall • Performance polyols, polyesters fluidity of a substance allowing for easier changing of waxes • Epoxies and shape • Candles polyurethanes Specialty Emollients Lipids that attract water and retain moisture Used in lotions and make-ups to prevent dry skin • Coatings and Squalane Saturated form of squalene making it less susceptible to Used in personal care products such as moisturizers cross linkers oxidation• Like the biofuels industry, the biochemical industry uses bioprocesses and biomass to replace petroleum as the important building block for a number of products including plastics, lubricants, waxes and cosmetics.• According to the American Chemistry Council dated July 2011, the market size of the global chemical industry (Basic Chemicals, Intermediate Chemicals, Finished Chemical Products)1 was approximately $3.0 trillion as of July 2011• Specialty chemicals compete more on desired effect than cost and as a result present less price‐sensitive, higher ASP markets for renewable chemical firms to target• In the U.S. ~200,000 barrels of oil per day are required to fulfill demand for plastic packagingSource: Elevance Renewable Sciences Filings.Note: 1Basic Chemicals include Butadiene, Propylene, Ethylene, Benzene; Intermediate Chemicals include Butanediol, Acrylic acid, Ethlyene glycol; Finished Products include BR, PBT, SBR, Polyacrylics, PE, PET, Nylon-6. TABLE OF CONTENTS The Biofuels and Biochem Industry 9
  10. 10. Biofuels/Biochemicals Overview TABLE OF CONTENTS The Biofuels and Biochem Industry 10
  11. 11. What are Biofuels/Biochemicals? – Summary• The Biofuels and Biochemicals industry refers to the set of companies focused on developing fuels and chemicals from Biomass rather than from fossil fuels• In 2010, approximately 700 million barrels of biofuels were produced globally. Over 45% of this was corn‐based ethanol in the U.S. and >25% produced was sugarcane‐based ethanol in Brazil• Biofuels/ Biochemicals are distinguished as either first , second or third generation. Focus is more on second generation and beyond as first generation is a mature technology — Corn and sugarcane will continue to be the most abundant feedstock for biofuels and biochemicals in the near term — Companies utilizing food‐competitive feedstock (e.g., corn, soy, wheat) face higher price volatility and potential for societal push‐back — Cellulosic feedstock does not face the ―food‐vs.‐fuel‖ argument but requires more specialized and expensive enzymes that are yet to be completely commercialized — Waste is a unique feedstock and companies that can successfully convert the biomass to fuels and chemicals will benefit significantly — ―Energy‐dedicated‖ crops are emerging and will be vital to the growth of cellulosic biofuel and biochemical production — Algae offer the highest oil yields of any biofuel feedstock, but challenges around cost have created challenges for commercial use• Due to the importance of feedstock to the overall value chain, several companies are developing business models and technologies focused on the ―upstream‖ segment of the value chain• Numerous conversion technologies exist each with distinct advantages and disadvantages• The United States and Brazil currently produce and consume the vast proportion of global biofuels due to size of ethanol industries, and is expected to remain the most important countries for biofuel production/consumption in the near‐term• Biofuel and Biochemical companies are aiming to compete in large established markets in fuels and specialty chemicals TABLE OF CONTENTS The Biofuels and Biochem Industry 11
  12. 12. What are Biofuels/Biochemicals?• A biofuel/ biochemical is a product made from biomass – organic material with stored chemical energy. While traditional Biofuels/Biochemicals can be made from plant materials such as sugarcane, corn, wheat, vegetable oils, biomass1 constitutes an agriculture residues, grass, wood and algae. important part of the• Biofuels/Biochemicals currently comprise only a small part of today‘s global energy consumption. Liquid energy mix, so far biofuels accounted for a modest 2.7% of global road-transport fuels in 2010 and only 0.6% of the global modern biomass2 use final energy consumption. However, by 2030, this is forecast to increase to 9%, equivalent to 6.5 million makes up only a small barrels of oil a day. share of total global energy consumption• Renewable energy overall (bio-energy,hydro, solar, etc) represented 16.0% of total energy demand in 2010.Renewable Energy Share of Global Final Energy Consumption, 2010 Wind/Solar/Biomass/Geothermal Power Generation 0.7% Nuclear 2.8% Transport Biofuels 0.6% Biomass/Solar/Geothermal/ Hot Water/Heating 1.5% Several economical, Renewable 16.2% political, technological, Fossil and environmental Fuels 81% 16.2% factors will drive growth in the Biofuels/ Chemicals industry Hydropower 3.4% Traditional Biomass 10%Source: Renewables 2011, Global Status Report.Note: 1Traditional biomass means unprocessed biomass, including agricultural waste, forest products waste, collected fuel wood, and animal dung, that is burned in stoves or furnaces to provide heat energy for cooking, heating, and agricultural and industrial processing, typically in rural areas.2Modern bioenergy comprises biofuels for transport, and processed biomass for heat and electricity production. TABLE OF CONTENTS The Biofuels and Biochem Industry 12
  13. 13. Biofuels/Biochemicals Growth RatesGlobal Average Annual Growth Rates of Renewable Energy Capacity and Biofuels Production, 2005–2010 Biodiesel production 38% 7% In 2010, approximately Ethanol production 23% Year-end 2005-2010 17% (5-year Period) 700 million barrels of 16% Solar hot water/heating 16% biofuels were produced. 2010 3% Over 45% of this was Hyderopower 3% corn‐based ethanol in Geothermal power 4% 3% the U.S. and >25% 25% produced was Concentrating Solar Thermal Power 77% sugarcane‐based Wind Power 27% 25% ethanol in Brazil Solar PV(grid -connected only) 60% 81% 49% Solar PV 72%• Global energy consumption rebounded strongly in 2010 after an overall downturn in 2009, with annual growth of 5.4%. Renewable energy, which had no downturn in 2009, continued its strong growth in 2010 as well.• During the period from the end of 2005 through 2010, total global capacity of many renewable energy technologies – including solar photovoltaic (PV), wind concentrating solar power (CSP), solar water heating systems, and biofuels – grew at average rates ranging from around 15% to nearly 50% annually.• Solar PV increased the fastest of all renewables technologies during this period, followed by biodiesel and wind. For solar power technologies, growth accelerated during 2010 relative to the previous four years.• At the same time, growth in total capacity of wind power held steady in 2010, and the growth rates of biofuels have declined in recent years, although ethanol was up again in 2010.• Hydropower, biomass power and heat, and geothermal heat and power are growing at more ordinary rates of 3–9% per year, making them more comparable with global growth rates for fossil fuels (1–4%, although higher in some developing countries). In several countries, however, the growth in these renewable technologies far exceeds the global average.Source: 1Renewables 2011, Global Status Report. TABLE OF CONTENTS The Biofuels and Biochem Industry 13
  14. 14. Main Feedstock Sources Crops used for Biofuels/BiochemicalsFeedstock is typically the largest component of biofuel &biochemical production cost. Feedstock cost is estimated torepresent >30%‐50% of the operating costs of most projects.The main sources of biofuels are:1. Oil-seed crops: Oil –seed crops include soybean, rapeseed and sunflower. These go through a process called ―transesterification‖ and the oils of these oilseeds are converted into methyl esters. Methyl esters are liquid fuel that can either be blended with petro-diesel or used as pure biodiesel.2. Grains, cereals and starches: These come from corn, wheat, sugar cane, sugar beet and cassava, which undergo a fermentation process Biofuel Vehicle and Pumps to produce bio-ethanol.3. Non oilseed crops: Oil from the Jatropha fruit shows most promise. The fruit is poisonous, so it is not affected by the ―food-or-fuel‖ tug of war; and it grows well on arid soils which means it does not need felling of forests. It is very resilient and needs less fertilizer and it can be developed into plantations like any oilseed crop.4. Organic waste: Waste cooking oil, animal manure and household waste. Waste cooking oils can be converted into biodiesel while the rest are converted to biogas methane.5. Cellulosic materials: These are grasses, crop waste, municipal waste and wood chips that are converted to ethanol. The conversion process is more complex than the two process aforementioned. There is also the option of converting these to gases such as methane or hydrogen for vehicle use or to power generators.Source: Broker Research and websites. TABLE OF CONTENTS The Biofuels and Biochem Industry 14
  15. 15. Types of BiofuelsBiofuels/Biochemicals aredistinguished as either first, secondor third generation.Most of the Biofuels today come fromcorn-based ethanol and sugar-based First generation: Commercially produced using conventional technology. The basic feedstock are seeds, grains, or whole plantsethanol. from crops such as corn, sugar cane, rapeseed, wheat, sunflower seeds or oil palm. These plants were originally selected as food or fodder and most are still mainly used to feed people. The most common first-generation biofuels are bioethanol (currently over 80% of liquid biofuels production by energy content), followed by biodiesel, vegetable oil, and biogas.The current debate over biofuels/biochemicals produced from food Second generation: Produced from a variety of non-food sources. These include waste biomass,crops has pinned a lot of hope on the stalks of wheat, corn stover, wood, and special energy or biomass crops (e.g. Miscanthus). Second-generation biofuels/biochemicals use biomass to liquid (BTL) technology, by"2nd-generation processes" thermochemical conversion (mainly to produce biodiesel) or fermentation (e.g. to produceproduced from crop and forest cellulosic ethanol). Many second-generation biofuels/biochemicals are under development such as biohydrogen, biomethanol, Fischer-Tropsch diesel, biohydrogen diesel, and mixed alcohols.residues and from non-food energycrops. The commercial-scale production costs of 2nd-generation biofuels have been estimated by the IEA to be in the range of US $0.80 - 1.00/liter of gasoline equivalent (lge) [US $3.02-$3.79 per gallon] for ethanol and at least US $1.00/liter [$3.79 per gallon] of diesel equivalent for syntheticSecond generation conversion diesel. This range broadly relates to gasoline or diesel wholesale prices (measured in USD /lge)technologies are key to progress and when the crude oil price is between US $100-130 /bbl . (However, many companies within SVB‘s universe are estimating crude oil parity without subsidy of between US$60 -80/bbl or $1.50 tosustainability. $2.00/gal at scale). Third generation: Algae fuel, also called oilgae, is a biofuel/biochemical from algae and addressed as a third-generation petroleum replacement. Algae is a feedstock from aquatic cultivation for production of triglycerides (from algal oil) to produce petroleum replacement products. The processing technology is basically the same as for biodiesel from second- generation feedstock. Other third-generation biofuels include alcohols like bio-propanol or bio- butanol, which due to lack of production experience are usually not considered to be relevant as fuels on the market before 2050.Source: UNEP Assessing Biofuels Report. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 15
  16. 16. First Generation Feedstocks Sugar cane has been used to produce bioethanol in Brazil since the 1970s. It is a perennial plant that needs few inputs, such as fertilizers, and has long root systems that can store carbon in the soil. It has a good net Greenhouse Gases (GHG) balance (up to 90% reduction in GHGs from ethanol produced from sugar cane, compared with conventional gasoline). Sugar Cane is one of the most heavily utilized feedstock for biofuels production and the highly developed infrastructure of the sugarcane industry in Brazil will continue to make the country a hot‐spot for Biofuel/BioChemical firms. According to the U.S. Department of Energy, Brazilian Sugarcane is not only the most abundant, but the cheapest available feedstock for ethanol production. Brazilian sugarcane offers several economic advantages to corn, which in the Unites States is the principal ethanol crop. Sugarcane produces around 15 dry tons per acre per year yielding roughly 600 gallons of ethanol per acre. Corn is a cereal grain that was domesticated in Central America. Corn can be used as a feedstock to make biobutanol and bioethanol. Corn is the most abundant crop grown in the U.S. and the backbone of the current U.S. Biofuel industry. Approximately 80 million acres of land in the U.S. are dedicated to growing corn, and the U.S. accounts for ~20% of global corn exports. For 2010, the USDA estimates the national corn crop to yield 154.3 bushel/acre, which corresponds to a dry weight of ~3.7 t/acre. Currently, one bushel of corn produces around 2.75 gallons of ethanol equating to 400 to 500 gallons per acre. Corn yields have experienced a long term general uptrend from 70 bushels/acre in 1970 to the current yield as a result of enhanced seed research and development following the mapping of the corn genome. Corn ears are widely used as a feedstock for first‐generation ethanol, but corn stover, the above‐ground portion of the plant that is left in the field after harvest, is increasingly being utilized for second generation ethanol production. Wheat is a grass that is cultivated worldwide. Wheat grain is used to make flour for breads, biscuits, pasta and couscous; and for fermentation to make beer, alcohol or vodka. Wheat can be used as a feedstock to make bioethanol, and it has few sustainability issues. Wheat can also be used to make biobutanol. Sweet sorghum is one of the many varieties of sorghum which have a high sugar content. Sweet sorghum will thrive better under drier and warmer conditions than many other crops and is grown primarily for forage, silage, and syrup production. Sorghum has a very limited breeding history and as a result there has not been the same degree of testing for yield improvements through genetic optimization as in other major biofuel feedstocks such as corn and sugarcane. While sorghum isn‘t as well‐suited as sugarcane for the production of refined sugar, it has value for ethanol, and its high lignocellulosic biomass content opens up the potential for use in the production of additional biofuels. Soybeans are a class of legumes native to East Asia. The crop is primarily harvested as a food source due to its exceptionally high protein content (~40% of dry weight). In addition to their protein, soybeans are also valued for their oil content which accounts for ~20% of the dry weight of the beans. According to the USDA, approximately 17% of soy oil is used in industrial products. These products include biodiesel, inks, paints, plasticizers and waxes, among many others. China is the world‘s largest producer of soybeans oil with more than 10M tons in 2010. Global production of soy oil exceeded 41 million metric tonnes (90 billion pounds) in the 2010/2011 season. Rapeseed is a yellow flowering plant of the mustard family that produces a seed which yields ~40% oil. It naturally contains 45+% euracic acid which is mildly toxic to humans. Rapeseed is often grown as a high‐protein animal feed and also used in lubricants, soaps, and plastics manufacturing. According to the USDA, approximately 30% of rapeseed oil is used in industrial products. In Europe, Rapeseed has become a preferred feedstock for biofuels as it has higher oil yields per unit of land than other crops including soy beans, which only contain ~18‐20% oil. According to the Agricultural Marketing Resource Center, worldwide production was 61million tons in 2011 with China and India being the largest producers at 14.7 million and 7.3 million tons respectively. The European Union accounted for 23 million tons of rapeseed output.Source: Clean Tech Energy Report by Robert Baird. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 16
  17. 17. Second and Third Generation Feedstocks Switchgrass is a perennial warm season grass native to North America. It can grow to heights of almost nine feet and an established stand has a lifespan of up to 10 years. One of its defining characteristics is its large, underground root system which can weigh as much as 6-8 tons per acre, making the plant particularly adept at accumulating carbon dioxide .The energy efficiency of producing ethanol from switchgrass is estimated to be much higher than corn with an energy input to output rate of 1:4 vs. 1:1.3. As reported by the USDA, various switchgrass crops yield 5-9.4 tons per acre. Camelina is an annual flowering plant and member of the mustard family, regarded for its oil properties. It typically stands 1‐3 feet tall, is heavily branched, and produces small seeds high in oil content. It is able to grow effectively on land of marginal quality, needs minimal water input, and can withstand cold climates. Because of its high oil‐yield of 35‐38% (~2x that of soybeans), it is specifically being studied for use in biodiesel applications. Miscanthus is a tall perennial grass closely related to sugar cane. Though native to the tropical and subtropical climates of Africa and Southeast Asia, it is also being grown by at least 10 countries in Europe explicitly for use as an energy feedstock. It has entered into favor due to its high expected commercial yields of 12-13 BDT/acre (as reported by Mendel Biotechnology in LA and MS) with low moisture content in the range of 15‐20% if harvested in late winter or spring. Waste is a unique feedstock since it can often generate additional revenue from tip‐fees, but its heterogeneous characteristic makes it difficult to convert to biofuels and chemicals. Municipal Solid Waste (MSW) and Commercial & Industrial (C&I) waste are two waste streams that several companies in the industry are working to convert into fuels and chemicals. According to Pike Research, the market research and consulting firm that provides in-depth analysis of global clean technology markets, the global market for thermal and biological waste-to-energy technologies is set to reach at least $6.2 billion in 2012 and grow to $29.2 billion by 2022. Jatropha is a genus covering ~150 types of plants, shrubs, and trees which produce seeds with oil content of up to 40%. Making it even more attractive as a feedstock is its ability to grow on poor quality land and its resistance to drought and pests. It is native to South America and typically only grows in tropical or subtropical environments. One drawback of Jatropha is that it also contains toxic matter which necessitates it be carefully processed before use in production. It is estimated that Jatropha nuts are capable of providing up to 2,270 liters of biodiesel per hectare, and the plant is currently the subject of several trials for use in biodiesel applications including a collaborative effort between Archer Daniels Midland, Bayer CropScience AG, and Daimler AG. Southern pine presents a rich biomass source in the Southeastern portion of the U.S. These trees typically reach heights of 60‐120 feet (depending on species) and are characterized by their rounded tops, long needles, and rapid growth rates. According to the DOE, there are roughly 200 million tons of no-merchantable forest material alone and total forestland in the US is estimated to be 750 million acres. Algae offer the highest oil yields of any biofuel feedstock, but issues around capital cost have created challenges for commercial use: Algae are simple‐celled organisms capable of creating complex organic compounds from inorganic molecules through photosynthetic pathways. Interest in using algae as a feedstock for biofuel production has increased rapidly and more than 30 U.S. based firms are now working to commercialize such technology. Algae offer attractive yields estimated to be upward of 4,000 to 5,000 gallons per acre. The DOE considers open pond algal configurations to have the most promise estimating 2012 fuel costs to be $9.28/ gal with a roadmap to $2.27/ gal.Source: Clean tech Energy Report by Robert Baird, June 2011. Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 17
  18. 18. Comparative YieldsEnergy density refers to the amount Energy Density for Biofuels per Unit of Required Land for Various Feedstock 1of energy stored in a given system orregion of space per unit volume Crop Required Fuel Fuel Energy Fuel Energy Crop Yield (kg raw/kg Produced Density per HectareAmong all the edible oils used for Crop (tons/hectare) fuel) (tons/hectare) (MJ/kg3) (GJ/hectare4)manufacturing biodiesel, palm oil is Oil Rapeseed 3.0 4.7 0.64 43.7 28.0also the most efficient in terms of Pyrolysis / wood 10.0 2.0 5.0 25.0 125.0land use, pricing and availability Wheat 2.6 6.2 0.43 35.0 15.0Algae offer the highest oil yields of Corn 4.2 3.9 1.1 35.0 37.0any biofuel feedstock, but issues Sugarcane 61.8 18.9 3.3 35.0 115.0around cost have created challengesfor commercial use Sugarbeet 60.0 18.9 3.2 35.0 11.0 Wood Chips 10.0 8.6 1.2 35.0 41.0 Wheat Straw 1.9 7.9 0.25 35.0 9.0 Comparison of Yields for Typical Oil Crops2 Crop: Soybean Camelina Sunflower Jatropha Oil Palm Algae Oil Yield: 1,000- 2.6 6.2 0.43 35.0 15.0 (g/acre/yr) 6,500Source: 1Global Change Biology, 2Robert Baird Biomass Almanac July 2011.Note: 3,4MJ & GJ: Megajoules and Gigajoules (derived unit of energy or work in the International System of Units, equal to the energy expended (or work done) in applying forcethrough a distance). TABLE OF CONTENTS The Biofuels and Biochem Industry 18
  19. 19. Comparative Advantages and Disadvantages of Feedstock Corn Sweet Sorghum Sugarcane Soybean Oil Rapeseed Oil Pine Oil  Ethanol industry  Annual crop – short  Cheapest available crop  Good oil content makes it  Seeds have very high oil  High energy density and P experienced with using growth cycle (90‐120+ (non‐cellulosic) for suitable for biodiesel content by volume at saturated fat content O corn as a feedstock days) allows for multiple ethanol production production ~40% S  Corn stover offers cuts (2‐3) to be made in  Does not have to be  Can be used as an I potential for use in a given year transitioned from a animal feed as well as in T cellulosic fuel  Low water requirements complex carbohydrate to lubricants and plastics applications and adaptable to wide a simple sugar prior to manufacturing I variety of environments fermentation V  Less residual waste  Does not compete as a E biomass from harvesting food source S  Use for corn in biofuels  Lower sugar yields  Due to harvest timelines,  Competes as a food  Shares significant  Burning of peatland to stokes the ―food vs. fuel‖ compared to sugarcane average mills only source demand with Canola oil clear room for new I argument  Yields mixed sugars as operate an average of  Oil content lower than which could add to price plantations leading to S  Subject to commodity opposed to pure sucrose, ~185 days per year many competing crops volatility significant deforestation pricing volatility making it less conducive  Requires high quality used as targets for and GHG emissions S  High quality land required for production of refined land and significant water biofuels U as well as significant sugars and fertilizer inputs  Production of biodiesel E water and fertilizer needs  Vegetative propagation from soybean oil results S can lead to overcrowding in a net energy loss of ~30%Source: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 19
  20. 20. Comparative Advantages and Disadvantages of Feedstock (con’t) Switchgrass Camelina Miscanthus Municipal Solid Waste Jatropha Southern Pine  Reliable biomass yields  Can be grown on  Reliable biomass yields  Can generate a  Can be grown on low  Shuttering of paper & P due its propensity for marginal lands, in cold  Capable of relatively high significant revenue quality land processing mills in U.S. accumulating CO2 climates, and with stream from tip‐fees  Naturally resistant to have led to a growth O yields today  Higher energy content minimal water  Continuously generated drought and pests – surplus S  Can be grown effectively than corn for ethanol  Short crop that can be without fertilizers – less – no need for agriculture though yields shown to  Wood waste offers an I production rotated with wheat and spending be significantly higher inexpensive source of leaching T when irrigated biomass  Wide adaptability and  High oil yields of 35‐38%  Collection and hauling I capable of growth in dry logistics and  Does not compete as a  Trees have longer V climates infrastructure is in place food source as it is growth cycles than other E  ESelf‐seeding, requiring non‐edible energy crops S no replanting after harvesting  Additional research  Additional time/research  Limited adoption thus far  Heterogeneous  Contains toxic matter  Collection processes for required before needed before in North America characteristic makes which must be separated residual wood waste still I commercially viable commercially viable conversion difficult before used in production need development  Studies have found it S dries up soil more than  Often requires  Still requires significant  Rising demand for pulp S other crops which can gasification which can yield improvements globally could provide U reduce surface water carry high CAPEX before economically upward pricing pressures supplies requirements viable at commercial  Cannot be utilized as E scale feedstock by S non‐cellulosic conversion technologiesSource: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 20
  21. 21. Petroleum Replacement Overview Market Size Customers Alkylate/ Drop-in Refiners $485 billion Polygas Gasoline/Alkylate Propionic Poly- Automative/ Propanol Propylene Packaging Consumer C3 propylene Products $110 billion Chemical Companies Acrylics Super-Absorbents Acetic Cellulosic Rayon/Filters Anhydride Acetate Consumer Products VAM EVA Paint/Adhesives Paint Companies $180 billionConversion ChemicalTechnology Poly-ethylene Packaging Companies Acetic Ethylene glycol PET Ethanol Ethylene C2 Linear a- olefins Jet/Diesel $245 billion Airlines/Dod Acetic Refiners Sales Gasoline Blending $60 billion Refiners Alkylate Drop-in Gasoline Butyric Butanol Butene C4 $1 billion Consumer Products Rubber/Plastics Source: ZeaChem,, Inc.. TABLE OF CONTENTS The Biofuels and Biochem Industry 21
  22. 22. Conversion Technologies – Fermentation and Fluid Catalytic Cracking Fermentation Fluid Catalytic Cracking Definition: Fermentation is the process by which bacteria such Definition: Fluid Catalytic Cracking (FCC) is a proven process as yeast, convert simple sugars to alcohol and carbon dioxide in the petroleum industry used to convert crude oil into higher through their metabolic pathways. The most common input for value products such as gasoline and naptha. FCC reactions fermentation in the United States is corn, but in warmer climates occur at extremely high temperatures (up to 1,000+ F°) and sugarcane or sugar beet are the principal types of feedstock. use fine, powdery catalysts capable of flowing likely a liquid Resulting alcohols such as ethanol and butanol can be utilized which break the bonds of long‐chain hydrocarbons into smaller as blendstock with gasoline or in the case of butanol, can act as carbon‐based molecules. FCC technology is applied to organic a gallon for gallon replacement sources of carbon such as woody biomass to convert the TECHNOLOGY cellulosic content into usable hydrocarbons with equivalence to Feedstock: Simple sugars – corn and sugarcane are most crude oils – this process is referred to as Biomass Fluid commonly used today in the production of ethanol Catalytic Cracking (BFCC). FCC was first commercialized in Output : Alcohols including ethanol and butanol, and distiller‘s 1942, and is presently used to refine ~1/3 of the U.S.s‘ total grains annual crude volume Feedstock: Feedstock agnostic – can utilize cellulosic biomass Output: Biocrude, gases  Ability to genetically modify metabolic pathways of  Commercially proven technology in the petroleum industry organisms to yield different carbon molecule outputs  Can process low‐cost cellulosic biomass (ethanol, butanol) POSITIVES  Process already demonstrated at commercial scale via first‐generation ethanol production  Common outputs such as ethanol / butanol have existing markets in both fuels and chemicals  Costly to develop/purchase enzymes to break down  High capital costs for facilities cellulosic materials to make simple sugars available for  Proven for petroleum but limited to demonstration testing for ISSUES fermentation biomass  First‐generation feedstock susceptible to commodity price volatilitySource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 22
  23. 23. Conversion Technologies – Anaerobic Digestion and Gasification Anaerobic Digestion Gasification Definition: Anaerobic digestion is the process by which Definition: Gasification is a process by which carbon‐based bacteria decompose wet organic matter in the absence of materials such as coal, petroleum coke, and biomass are oxygen. The result is a byproduct known as biogas which separated into their molecular components by a combination of consists of ~60% methane and ~40% carbon dioxide. Biogas heat and steam, forming a gaseous compound known as can then be combusted in the presence of oxygen to generate synthesis gas or syngas as it is commonly called energy. Effectively any feedstock can be converted to biogas via digestion including human and animal wastes, crop Feedstock flexibility: Feedstock flexible including use of TECHNOLOGY residues, industrial byproducts, and municipal solid waste. municipal solid waste Anaerobic digestion is the same process that created natural gas reserves found throughout the world today Output: Syngas which has the capacity to be used in a variety of applications including the production of transportation fuels, Feedstock: Starches, celluloses, municipal solid waste, food electricity, and heat. Other byproducts include sulphur and slag greases, animal waste, and sewage Output: Biogas  Commercially proven technology  Input flexibility allows costs to be reduced through lower cost  Can be used to process wet organic matter feedstock  Resulting materials can be processed into valuable fertilizer  Energy conversion ratio potentially higher than competing POSITIVES  Utilization of methane to produce biogas reduces impact of technologies because biomass‐to‐liquid (BTL) gasification can convert all of the cellulosic material into transportation GHG emissions from landfill gas fuels  Low capital and costs and potential for low operating cost  Lower emission levels than traditional power production  Slower process than many alternatives  Gas quality suffers from irregularity due to challenges in  Cannot be used to convert lignin removing tar content– energy density ~50% of natural gas ISSUES  Accumulates heavy metals and contaminants in the  High capital and operating costs – this could be reduced in resulting sludge future by co‐location next to feedstock sources  Gas clean‐up has disrupted projects in the pastSource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 23
  24. 24. Conversion Technologies – Pyrolysis and Transesterification Pyrolysis Transesterification Definition: Pyrolysis is the process by which organic materials Definition: Transesterification is the process by which a are decomposed by the application of intense heat in the triglyceride is chemically reacted with an alcohol to create absence of oxygen to form gaseous vapors which when cooled biodiesel and glycerin. While there are a few variants, the form charcoal and/or bio‐oil can potentially be used as a direct predominance of biodiesel is created through base catalyzed fuel substitute or an input for the manufacture of transportation transterification because of its high conversion yields and fuels comparatively low pressure and temperature requirement. TECHNOLOGY Transesterification is necessary because vegetable oils/animal Feedstock: Capable of using a wide variety of feedstock fats cannot be used directly to run in combustion engines including agriculture crops, solid waste, and woody biomass because of their high levels of viscosity (currently most common) Feedstock: Soybean oil, palm oil, jatropha oil, rapeseed oil, Output: Bio‐oil (energy density of ~16.6 megajoules/liter) which animal fats, food grease, etc. must be processed further before it can be utilized as a transportation fuel. It also yields syngas and biochar Outputs: Biodiesel and glycerol  Flexibility of feedstock diversifies risk related to feedstock  Results in lower‐viscosity biodiesel allowing it to replace supply/demand pressures petroleum in diesel engines  Marketable biochar output provides secondary revenue  Glycerin byproduct can be sold to generate secondary stream from production revenue stream POSITIVES  Low cost and high availability of methanol and sodium hydroxide reduces input costs  Relatively low reaction temperature of 60 degrees C keeps utility costs down  Potentially corrosive characteristics requiring specialized  Requires separation/recovery of base catalyst / glycerin from components in fuel systems to adequately house it solution ISSUES  Viscosity increases during storage meaning it must be used  Free fatty acid and water contamination can result in more frequently than traditional fossil fuels negative reactionsSource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 24
  25. 25. Conversion Technologies – Syngas Fermentation Syngas Fermentation Definition: Syngas Fermentation is the process by which gasification breaks the carbon bonds in the feedstock and converts the organic matter into synthesis gas. The syngas is sent to bioreactor where microorganisms directly convert the syngas to a fuels and/or chemicals TECHNOLOGY Feedstock: Capable of using a wide variety carbon containing feedstocks including agricultural crops, solid waste, woody biomass and fossil fuels such as coal and natural gas Output: Ethanol, 2.3-BDO, Acetic Acid, Acetone, Propanol, Butanol, MEK, Isoprene, Acrylic Acid, Butadiene, Succinic Acid  Process does not rely on expensive enzymes or pretreatment chemicals thus operating costs should be lower than non-gasification based technology POSITIVES  Ability to convert nearly all feedstock into energy with minimal by-products. Microorganisms are able to produce only one fuel/chemical under low temperature and pressure  Imperative to keep the right nutrient and chemical balance in order to keep the microorganisms alive and productive. Any contaminants could spread quickly through the bioreactor ISSUES  Reliability and Continuous Operations: Since the organisms live off the energy contained in the synthesis gas, it is critical that they continue to be through a well operating system designSource: Coskata Inc, LanzaTech Inc, Advanced Biofuels USA “Syngas Fermentation, The Third Pathway for Cellulosic Ethanol. TABLE OF CONTENTS The Biofuels and Biochem Industry 25
  26. 26. The Importance of Biofuels/Biochemicals TABLE OF CONTENTS The Biofuels and Biochem Industry 26
  27. 27. Biofuels/Biochemicals Growth – Summary• The sector has received increasing attention from both public and private investors due to several growth drivers including the desire for energy independence, the increasing demand for liquid fuels for transportation especially in emerging markets, technological advances across the industry‘s value chain and environmental concerns (Green house gas (GHG) emissions). The most important driver, however, spurring investment in the industry is the continued volatility and high price of crude oil.• Biofuels/Biochemicals constitute a 3% share in the total global chemicals & fuels market in 2010 and is expected to touch 17% in 2025.• As ―easy― conventional oil resources continue to decline and more expensive nonconventional liquid sources make up the difference, biofuels/ biochemicals will play an increasing role in diversifying the liquid energy landscape.• Liquids demand is growing mainly driven by rapidly-growing non- Organization for Economic Co-operation and Development (OECD) economies and will be met by supply growth from Organization of the Petroleum Exporting Countries (OPEC) and the Americas. China (+8 million barrels per day), India (+3.5 million barrels per day), and the Middle East (+4 million barrels per day) account for nearly all of the net global increases.• Liquid biofuels accounted for a modest 2.7% of global road-transport fuels in 2010 , but will play an expanded role of meeting liquid demand.• OPEC‘s critical position in the oil market grows given its oil reserve position while the Americas also play an expanding role by utilization of new recovery technologies in tight oil formations and Canadian oil sands.• Exporting oil producing nations, ―petro-states‖, rely heavily on oil revenues to support their economies (50-90% of GDP). Oil price decreases can cause major deficits, budget cuts, considerable social turmoil, and political change creating an incentive for petro states to keep production in line with demand.• Government legislation is driving the adoption of renewable fuels — In February 2010, the US Environmental Protection Agency (EPA) submitted its final rule for Renewable Fuels Standard 2 (RFS-2), setting forth volume targets of 36 billion gallons of renewable fuels produced in the U.S. by 2022 with 21 billion being advanced biofuels. — The EU is targeting 10% of transport energy from renewables by 2020, counting both sustainable biofuels and electric vehicles. TABLE OF CONTENTS The Biofuels and Biochem Industry 27
  28. 28. Compelling Market OpportunityOpportunities for bioproducts will Bio Based Market Opportunitynot only be fuels based but focusedon the whole barrel. The gasolinemarket accounts for about 45% of Bio Based Market 1.5 approx.$1.4 trillionthe barrel of crude while there aremany different chemicals inside a Fuels (Bio) Chemicals (Bio) Trillions of Dollars (U.S.)barrel of oil.A 42-U.S. gallon barrel of crude 1.0equates to about 45 gallons ofpetroleum products which includes CAGR(as a % of the total barrel) motor 16%gasoline (45%), distillate fuel oil 0.5(29%), jet fuel (9.4%) petroleumcoke (5.5%), still gas (4.4%). Bio Based Market $148 billion 0.0 2010 2025 Total Chemicals & Fuels Market $5.0 trillion $8.0 trillion Bio-based Share 3.0% 17%Source: Renmatix, International Energy Outlook 2009, Industrial biotechnology analysis 2010, Arthur D. Little – ICIS; World Energy Outlook 2009, International Energy Agency2010; USDA Biobased Product Projections 2008; US Energy Information Administration. TABLE OF CONTENTS The Biofuels and Biochem Industry 28
  29. 29. Drivers of Biofuels/Biochemicals GrowthThe rising cost of oil will create an Crude Oil Monthly spot prices ($ per barrel)1incentive for producers ofpetroleum‐derived products to seek $160.0 The volatility and price increases of oil are $140.0 the most significant drivers in the growth ofrenewable alternatives that provide the Biofuel/Biochemical Industry: The $120.0greater stability in pricing. $100.0 increasing demand for petroleum products, supply shocks, and other factors have led to $80.0 volatile and high oil prices over the pastStrong public sentiment for the U.S. $60.0 decade. In January 2000, European Brent $40.0 Crude spot prices were below $24/barrelto reduce its dependence on foreign before peaking at over $140/barrel in 2008. $20.0petroleum reserves is thus one of the $0.0 After some price relief in the midst of the global economic downturn, Brent Crude ismajor drivers of the renewable fuel ~$97/barrel currently, representing a CAGR ofindustry. ~13.5% from 2000‐2011.U.S. oil imports drop due to risingdomestic output & improved Net Imports of Oil2transport efficiency; EU imports toovertake those of U.S. around 2015 Million barrels/day Biofuels and Biochemicals help reduce U.S.and China expected to be the largest 14.0 dependence on foreign oil: U.S. reliance on 2000 2010 2035 foreign imports has increased significantlyimporter by 2020. 12.0 since the mid‐1980‘s. It can be argued that as 10.0 the world‘s current economic superpower and the largest consumer of petroleum, the U.S. 8.0 will continue to command a reliable oil supply 6.0 from producing nations. However, with the emergence of rapidly growing and 4.0 industrializing economies in China and India, 2.0 the global supply of oil may be spread increasingly thin putting additional upward 0.0 pressure on energy prices China India EU U.S. JapanSource: 1Bloomberg, 2World Energy Outlook 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 29
  30. 30. Drivers of Biofuels/Biochemicals Growth (con’t)By 2035, the EIA projects that Vehicles per 1000 people in Selected Markets1transportation sector will account for 80073% of all liquid fuels consumption. 700 Increase in transportation applications driving 2010 2035 growth in liquid fuels consumption: The Energy 600Key drivers of transportation growth Information Administration (EIA) projects that U.S. 500 consumption of liquid fuels will increase from 19.1 millioninclude population expansion and 400 barrels per day in 2009 to more than 21.9 million gallonsrising real disposable income which 300 per day by 2035. The increase is expected to be driven 200 almost entirely by an increase in the use of liquid fuels forleads to more frequent travel . transportation applications which is forecasted to grow 100 0 from 13.6 million barrels per day in 2009 to 16.1 million barrels per day by 2035 .The global passenger vehicle fleet United European China India Middle East States Uniondoubles to 1.7 billion in 2035; mostcars are sold outside the OECD by Commodity Food Price Index vs. CPI22020, making non-OECD policies key Cellulosic biofuel technologies unlock non‐food feedstock and reduce input cost volatility: Cellulose (corn 400.0to global oil demand. stover, switchgrass, miscanthus, woodchips etc) is not used 350.0 for food and can be grown in all parts of the world. The entire Million 300.0 barrels/day 250.0 plant can be used when producing cellulosic products. While 200.0The development and subsequent the U.S. is the world‘s largest producer of the crop, corn 150.0 100.0scale‐up of cellulosic technologies competes as a food source and is subject to significantly 50.0 more price volatility than residual waste biomass. Over the 0.0offers a clear advantage to reducing past decade the value of the IMF‘s Commodity Food Priceprice volatility of biofuel feedstock Index increased at a CAGR of 8.7% annually. This is ~3.6x faster than the rate of inflation as measured by the Commodity Food Price Index CPIand will play major role in driving Consumer Price Index which had a CAGR of 2.4% annuallydown the costs of renewable over the same period. From 2000 to 2011, the maximum 12- Relative Prices of Wood, Sugar, Soy Oil, month price increase was 18% for pine woodchips versusfuels/chemicals. 50% for corn, 46% for sugar and 51% for West Texas Corn, Nat Gas and Crude Oil Since 20003 Intermediate crude according to average quarterly data from 500 450 Timber Mart-South, the USDA and the EIA. 400 Index (Q1 2000=100) Million barrels/day 350 300 250 200 150 100 50 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World raw sugar (No.11, spot) Corn (No.2 yellow, Chicago spot)Source: 1World Energy Outlook 2011, 2Bloomberg, 3EIA, DOE, Timber Mart-South. US Nat Gas Industrial Price WTI Crude (Spot, FOB Cushing, OK)Note: OECD- Organization for Economic Co-operation and Development. Pine Pulpwood (Delivered AL) TABLE OF CONTENTS The Biofuels and Biochem Industry 30
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