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The Future of Bio-Based Chemicals Depends on Feedstocks

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The future of the bio-based chemicals industry will depend on it diversifying away from first-generation feedstocks. A critical consideration for any alternative feedstock is its availability, and how this compares to potential demand. In this briefing, Frost & Sullivan analysts will provide a direct comparison of this supply/demand scenario for some of the most important potential feedstocks.

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The Future of Bio-Based Chemicals Depends on Feedstocks

  1. 1. The Future of Bio-based Chemicals Depends on Feedstocks Analyst Briefing 11th July 2013
  2. 2. 2 Today's Presenters Dr. Michael Mbogoro, Consulting analyst Frost & Sullivan Dr. Brian Balmer, Industry Principal Frost & Sullivan • Chemicals & Materials • Company expert on shale gas and alternative feedstocks • Recent experience researching lignin as an alternative feedstock • 13 years' research experience at Frost & Sullivan • Company expert on renewable feedstocks • Contributor to the company's Mega Trends vision
  3. 3. 3 Our Chemicals Market Approach Focus on end-markets and mega trends Functionality and performance Health and wellness Globalisation Low carbon economy Construction & Utilities Food Drugs & Cosmetics Transportation Source: Frost & Sullivan analysis
  4. 4. 4 A complex universe of factors influences demand for bio-based chemicals Bio-based chemicals Globalisation F & P H & W Renewable feedstock Low carbon 1st Gen Algae Lignin Four megatrends are the primary drivers of change in the chemical industry. All four are relevant to the growth in interest in bio-based chemicals. Several factors can make a product "low-carbon" or sustainable, only one of which is to use a bio-based feedstock. In order to understand the scale of the opportunity, it is critical to understand the potential demand from end- users in each vertical market. The source of feedstock is an important consideration when planning the production of a bio- based chemical. Downstream sustainability Source: Frost & Sullivan analysis
  5. 5. 5 Mega trends Influence on bio-based chemicals Whilst the move to a low carbon economy remains the most important driver, demand drivers come from all mega trends Low Carbon Economy 50.1% Functionality & Performance 31.8% Health & Wellness 13.6% Globalisation 4.5% Bio-based Chemicals Market: Impact of Mega Trends (Global), 2013 Statistics show the results of a poll question asked during a live Analyst Briefing: "Which Mega trend is most driving use of bio-based chemicals?" Source: Frost & Sullivan analysis
  6. 6. 6 What is Sustainability? USE Chemicals enabling greater sustainability in downstream end- markets Renewable Recycled Recyclable Biodegradable 46.4% 7.1% 3.6% 3.6% 39.3% Statistics show the results of a poll question asked during a live Analyst Briefing: "Which aspect of Sustainability is most important for you and your business?" Source: Frost & Sullivan analysis
  7. 7. 7 What is Renewability? Many different types of product make use of renewable feedstocks Natural product Natural extract / derivative Biomass Bio tech. Chemical transformation FDC Construction & Utilities Transportation Olive oil Wood Natural rubber Cellulose ethers & lignosulphonates Biofungicides Natural fragrance ingredients Surfactants from natural oils PA 11 Bioisoprene Bio-based polyols for PU insulation Natural paint binder resins Car care chemicals e.g. carnauba wax & limonene Source: Frost & Sullivan analysis
  8. 8. 8 End Users Connecting feedstock to end-user along the value chain Feedstocks Building blocks Speciality chemicals & materials End-markets Crops 14.3% Other routes e.g. having crops produce target chemicals directly 35.7% 28.6% 14.3% 7.1% Statistics show the results of a poll question asked during a live Analyst Briefing: "Which step in the bio-based value chain do you think needs most optimization?" Flexibility Versatility Source: Frost & Sullivan analysis
  9. 9. 9 Feedstocks How do they compare? Traditional oil & gas Shale gas Captured flare gas Recyclate use First generation bio-based Plant cellulose Plant lignin Algae Captured CO2 LevelofInnovation Sustainability Performance Chemicals & Materials: Comparison of Feedstocks, Global, 2012 Source: Frost & Sullivan analysis
  10. 10. 10 Shale Gas Supply Demand Competition from other uses Competition from other feedstocks Currently, global supply is largely limited to the US where production technology is more mature. Shale gas accounts for 32% of total natural gas resources globally. As technologies improve at the production and processing (gas-to-liquids) stages, shale gas is bound to penetrate the chemical feedstocks market further at the expense of crude oil. As an abundant resource with a well established value chain, shale gas has the advantage when compared to many bio-based alternatives. Mainly from energy and transportation fuel. 90% of natural gas is currently used for heat and power generation. In regions where gas is cheap, such as North America, there is little incentive to switch to alternative supplies. Source: Frost & Sullivan analysis
  11. 11. 11 Cellulose Market Dynamics Supply Demand Competition from other uses Competition from other feedstocks Global availability of cellulose exceeds any potential demand from the chemical industry. However, most is contained in lignocellulosic materials. Economics will be the primary determiners of demand for cellulose as a feedstock for chemical companies The majority of uses being considered for cellulose are as a second generation feedstock in place of first generation starches. Cellulose derivatives are already commonly used by chemical companies. Supply of cellulose is sufficient for competition between uses to be of minimal concern. Source: Frost & Sullivan analysis
  12. 12. 12 Lignin Market Dynamics Supply Demand Competition from other uses Competition from other feedstocks Potential supply exceeds current demand. Actual supply could also increase thanks to new separation technologies. Current demand for lignin is mainly limited to low value applications for lignosulphonates. Lignin as an alternative to aromatic chemicals could become more important if petrochemicals come more and more from natural gas instead of crude oil, since natural gas contains no BTX component. Since lignin forms a very useful fuel for paper mills, there is comparatively little pressure to find alternative uses for it. Source: Frost & Sullivan analysis
  13. 13. 13 Algae Market Dynamics Supply Demand Competition from other uses Competition from other feedstocks Total global production of algae derivatives is, at present, very limited. This creates a large mis- match with potential demand. Algae represents the feedstock that potential users within the chemical industry are most interested in. However, commercialisation is very dependent on process scale-ups, for which large uncertainties remain. Algae represents a potential route to the same building blocks available from other sources, including natural oils and sugars Chemicals risk being caught in the middle between two very different scales of development in algae: • Very high volume biofuel development based on "green crude" from algae • Very low volume development of essential oils, especially fish oils, for food applications, and extracts for cosmetics applications Source: Frost & Sullivan analysis
  14. 14. 14 Carbon Dioxide Market Dynamics Supply Demand Competition from other uses Competition from other feedstocks The volumes of CO2 that will potentially be available from carbon sequestration investments will far outweigh any potential demand for use as a chemical feedstock. CO2 is the least versatile of the feedstocks considered here, but still has the potential for some interesting niche applications. The most likely markets for CO2 as a chemical feedstock make use of its unique chemistry, and therefore competition will be mainly from existing end-products in target markets. CO2 supply is an essential component of the algae industry and, for that reason, algae facilities will tend to be sited near a source of CO2. Source: Frost & Sullivan analysis
  15. 15. 15 Conclusions Some feedstocks are in need of better supply; others would benefit more from application development Algae Lignin Cellulose CO2 Potential Demand Potential Supply Sustainable Feedstocks Market: Summary of Supply versus Demand Scenarios, World, 2013 Supply may not be able to meet demand. Strategy should be to find more sources of supply. Supply exceeds demand. Strategy should be to find more uses to stimulate demand. Source: Frost & Sullivan analysis
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  19. 19. 19 For Additional Information Brian Balmer Industry Principal Performance Materials (44) 1865 398634 brian.balmer@frost.com Leonidas Dokos European Research Director Chemicals & Materials (44) 1865 398685 leonidas.dokos@frost.com Mark Hicks Sales Manager, North America Chemicals & Materials (1) 210 247 2490 email@frost.com Chiara Carella Head of Corporate Communications Europe, Israel, Africa +44 (0) 207 343 8314 chiara.carella@frost.com

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