[UNITED STATES] Oil giant says it will put $90 million into U.S. company
BP's announcement Wednesday that it will invest $90 million in a U.S. biofuels company could boost efforts to bring nonfood-based ethanol out of the laboratory and into the fuel tanks of American drivers. It also may be a catalyst to other oil companies to enter the so-called cellulosic ethanol business in a bigger way.
"It's a big signal to the industry that this technology is one to pay attention to," said Gary Adams, vice chairman of Deloitte's oil and gas industry consulting practice in Houston.
BP's investment will fund a partnership between the London-based oil giant and Verenium Corp., a Cambridge, Mass.-based company that has developed technology to make ethanol from sugar cane and other "energy" crops including miscanthus, a perennial grass.
Under the partnership, BP will gain access to Verenium's research and its recently opened demonstration plant in Jennings, La., the first of its kind in the nation.
The companies also plan jointly to develop an unspecified number of cellulosic ethanol plants in the U.S. and possibly abroad.
Sue Ellerbusch, president of BP Biofuels North America, said the company chose Verenium because of its advanced technology in cellulosic ethanol and for its "proven track record" in showing its process will work.
The guiding idea of the partnership is that bringing in a major oil company can help tackle one of the cellulosic ethanol's biggest challenges: Its high production costs.
"We've always felt that this is such a big opportunity that in order to address it, you needed to go with a strong partner," Verenium CEO Carlos Riva said.
Today, making cellulosic ethanol costs at least $1 per gallon more than corn ethanol — the most common kind in the U.S. — because cellulosic requires specialized enzymes to break down biomass into sugars, which can be fermented and distilled into ethanol, said Divya Reddy, an analyst with the Eurasia Group in Washington.
Yet it is viewed as a more sustainable alternative to gasoline than corn-based ethanol, which has been blamed for driving up grocery bills and creating international food shortages.
Today, the Environmental Protection Agency is expected to announce whether it will grant Texas Gov. Rick Perry's request to reduce this year's federal ethanol mandate from 9 billion to 4.5 billion gallons.
Perry contends demand for corn ethanol has led to skyrocketing corn prices that are hurting the state's vast livestock industry and burdening residents.
Though targets for corn ethanol will rise in coming years, new federal energy legislation calls for a gradual move to cellulosic ethanol. It requires 500 million gallons of cellulosic ethanol by 2012, and 16 billion gallons by 2022, more than half the 36 billion gallons of total biofuels mandated by that date.
So far biofuels companies are producing little more than test batches of cellulosic ethanol.
Cal Hodge, an independent renewable fuels consultant in The Woodlands, said BP's investment in Verenium is not surprising, given the looming federal requirements.
''This is a very normal, expected move in order to comply with the congressional mandate," he said.
BP is not the first to make investments aimed at producing advanced biofuels on a wide scale. Royal Dutch Shell holds a 50 percent stake in Canada's Iogen Energy Corp., which also aims to achieve wide-scale production of cellulosic ethanol. Houston's ConocoPhillips has a partnership with Tyson Foods to make renewable diesel fuel from chicken fat.
But few other oil majors have put money toward actual biofuel production projects in the U.S.
In the first phase of its new alliance, BP will invest $45 million for access to Verenium's research and facilities and $2.5 million a month for 18 months to fund research.
The companies expect to negotiate a second phase soon that will set up a joint venture focused on deploying the technology into commercial-scale production facilities. Those include plants jointly owned by the companies, and plants where the technology may be licensed.
Riva said the partnership expects to begin construction of its first commercial-scale plant, likely with a capacity in the 30-million-gallon-per-year range, in 2009.
The team is scouting possible sites in Texas, Florida and Louisiana for the first plant, which should be producing fuel by 2011, and could have up to six plants under development in the Southeast soon, he said.
To reach the government's 16 billion gallon per year target for cellulosic ethanol, several hundred plants will be needed in the U.S., BP's Ellerbusch said.