By Michele Rubino, Special to The Digest
Displacing the use of petroleum and other fossil fuels embedded in everyday products with bio-based, renewable resources is – and has been for a long time – a necessity for human societies. It is also the goal of an entire industry. A recent toxic combination of low oil prices, unreliable energy policy across many jurisdictions and increasingly challenging access to capital is taking its toll. Uptake of new, more sustainable bio-based resources and development / deployment of advanced biorefinery platforms – aimed at displacing the use of petroleum – has significantly slowed down.
This is the “glass half empty” side of the story. We need to stay focused on the more positive side of the story. These cycles are not new and there is still a strong long-term need for a more sustainable use of our resources and to displace fossil fuels. It is only getting stronger. When it comes, the next wave of change will be more powerful than the previous one – and the one after that even more so. For all the attempts to seal off our societies from reality, the dam is already leaking and it won’t be able to withstand the pressure for too long. We are past the tipping point and going back to the old, dirty ways is not a long-term option
Now What …
As an industry, this is a good time to take stock of where we are and rethink our approaches going forward. If we fail to do so, the business equivalent of selective pressure in evolutionary terms will do it for us – probably with catastrophic results. The good news is that the forces and challenges at work will screen out the bad ideas. Only sound technical and business approaches will see the light at the end of the tunnel. There are a lot of layers to what makes good technical and business sense nowadays in our industry. It is a multi-faceted analysis that has to take into account such disparate considerations as capital requirements, production costs, price points for the petro-based alternatives, technology status as well as real – and perceived – development and deployment risk.
The nature of the incumbents and competitive dynamics in the target market will influence business approaches for new entrants. I will focus on two of the most important – and related – considerations: choice of product and market entry strategy
Choice of Product
Now more than ever our industry needs to focus on “sweet spot” products from bio-based resources. Products that are easier to make from biomass and other bio-based resources (including direct photosynthesis) than from petroleum. This may be because of process yields, chemical composition of feedstock and end-product, number of processing steps, etc. Avoiding excessive technology or scale-up risk would be ideal – easier said than done!
These are generally – but not always – relatively small market opportunities but can act as a wedge to open up bigger opportunities down the road; furthermore, for now these are the only commercially viable targets. The appeal of taking on petroleum right at its core – with a bio-based drop-in version of gasoline, diesel and jet fuel – is alluring but unrealistic. The only exception is renewables diesel (hydrotreated vegetable oil) made from waste vegetable oils and animal fats. The high volumes make drop-in fuels a big prize – but they are not a good place to start.
Take jet fuel as an example: it is difficult and complex to make from bio-based resources, easy to make from petroleum. Based on simple analyses, the price point that would make production of bio-jet fuel a viable value proposition is over $1,500/ton ($4.5/gallon). For all the talk of de-carbonizing aviation, it is just not realistic to build business plans on such assumptions. While some early stage investors might be talked into it, the large amount of capital – be it strategic or financial – required for deployment will just not be there. My conclusion is that, other than for niche and high-value military jet fuel markets (JP-10?), bio-jet fuel is not a good target – at least not for now.
Alcohols, organic acids, diols are some of the obvious choices as entry points to displace petroleum/fossil fuels. Dicarboxylic acid such as succinic acid or malonic acid are highly oxidized chemicals for which theoretical yields from sugars in excess of 100% are achievable (the biochemical pathway includes a carbon dioxide sinking step). These are great examples of where bio-based resources and biotechnology are inherently advantaged over petroleum. Ethanol and butanol derivatives present other opportunities. Certain oleochemicals and derivatives thereof (such as surfactants) are promising, although the feedstock displaced will probably not be petroleum but rather palm oil.
Finally – and when possible – the focus for now should be on products and markets where petroleum does not even compete. Industrial biotechnology has a long track record of success in this area (from citric acid all the way to lactic acid) and there are other such opportunities to be pursued. This will provide entry opportunities with higher price points as well as some much needed market diversification. The ideal situation is to work on a multi-product pathway that can be exploited for bio-advantaged products first; down the road, once experience at scale delivers learnings and cost reductions and the overall market environment improves, for petroleum-displacing products.
Gone are the days in which the go-to-market approach involved hundreds of millions of dollars of capital investment to develop, scale-up and deploy technologies before becoming cash neutral or even generating revenues. Strategic and financial investors alike are conspicuous mostly for their absence and lack of commitment. Cellulosic ethanol is a case in point: despite the progress in the development and early deployment of the technology, cellulosic ethanol is not attracting the capital required for a meaningful roll-out. This is mainly due to the lack of any long-term, reliable policy. This is causing a lot of pain for companies that have invested heavily in this technology. While a high rate of start-up failure in emerging industries is not unusual, our industry cannot thrive when failure occurs after large amounts of capital have been spent. In essence, the industry needs to deliver business models where a $30-50M max investment will get products in the marketplace. To do this we need to revisit not only product choices but also scale-up strategies and come up with more creative partnership and go-to-market approaches.
There is much more to talk about: for starters, business models, dealing with incumbents and the need for better policy. I am still convinced that industrial biotechnology will succeed at displacing growing quantities of petroleum and fossil fuels with increasingly sustainable bio-based resources. While the pace of this monumental change has slowed down, it will eventually resume. Despite the current challenges we should not forget the successes industrial biotechnology has delivered over the decades (ethanol, lactic acid, 1,3 propanediol, in addition to all the microbial/biotech products we obtain for food, feed, flavors, etc). However, the current challenges cannot be dismissed – as an industry we need to adapt, get smarter and more nimble. Those players who succeed will reap the benefits of the rebound
Michele Rubino is an independent consultant with experience across renewable fuels, bio-based chemicals and, more broadly, biotech and cleantech. His email address is firstname.lastname@example.org