With demand for fuel falling, ethanol plants look for other products to sell
By ANA CAMPOY
Can green chemicals save the ethanol industry?
Ethanol producers, who focused on transforming corn into transportation fuel, got whipsawed by skyrocketing corn prices and collapsing demand as consumers cut back on driving.
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Now a group of biotechnology and chemical companies is proposing a different model: using the existing ethanol infrastructure to make higher-margin chemicals.
Worries about global warming and government efforts to make chemicals more environmentally friendly are pushing the industry to find alternatives to the building-block materials they make mostly out of oil and natural gas. Ethanol itself, and other chemicals that can be brewed at ethanol plants, are emerging as viable options.
The trend could give the nascent green-chemicals industry a big boost, and revive business for ailing ethanol producers, some of which are bankrupt and idle.
"The economics of current ethanol production are almost begging for improved processes," says David Gaskin, director of planning for Glycos Biotechnologies Inc., a Houston-based start-up company.
His firm is one among a handful that sees opportunities in retooling ethanol plants to produce chemicals. Others include San Diego-based Genomatica Inc., Englewood, Colo.-based Gevo Inc. and Myriant Technologies LLC, in Quincy, Mass.
An Algenol Biofuels test facility in Florida uses giant, cylindrical plastic bags to house ethanol-producing algae.
World-scale players are getting involved, too. Dow Chemical Co. has formed a partnership with Algenol Biofuels Inc., based in Bonita Springs, Fla., to develop algae-based ethanol.
To be sure, most of these projects are still in development. Many are still in the research stage and won't reach commercial production for years. Others have not yet secured funding.
Gradual Process
Still, analysts say, the ethanol industry will gradually move into bio-chemicals because they represent an intermediate step between corn-based ethanol and more-advanced, next-generation bio-fuels.
"We're not going to go from 1.0 to 2.0," says Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington, D.C., likening ethanol's evolution to software versions. "There's going to be 1.2, 1.5, 1.7 in between."
By tying chemicals into the transportation-fuels business, biotech and ethanol companies are recreating oil refiners' strategy, says Doug Cameron, chief science adviser for the investment firm Piper Jaffray Cos. While refiners mainly produce diesel and gasoline, they are also the beginning of a long manufacturing chain that churns out myriad other products, from auto lubricants to plastics.
The main difference is that bio-chemical producers will rely on living bugs that have been biologically engineered to transform plant materials into other specific substances.
At GlycosBio the focus is on glycerin, a by-product of ethanol fermentation. The company is developing an add-on process for ethanol plants to transform glycerin into more fuels and chemicals used to make fabric, insulation and food, says Mr. Gaskin.
He says several companies have expressed interest in the process, but he doesn't have their authorization to provide their names.
Special Prices
Although the market for any particular chemical is dwarfed by the size of the fuel market, chemicals generally fetch higher prices—two to four times higher, according to Christophe Schilling, Genomatica's chief executive.
Production costs of bio-chemicals can be lower than for their hydrocarbon-based equivalents, he adds. The ideal organism can transform sugar into a chemical in one step, while making the same product at a chemical plant usually takes several, requiring more energy and equipment. Bio-chemicals also come with marketable green credentials.
His company is developing ways to make several chemicals, including methyl ethyl ketone or MEK, which is used as a paint solvent. Because it can be made with the same equipment as ethanol, MEK could be produced at an ethanol facility, says Mr. Schilling.
At least in the beginning, plant-based chemicals will likely be an easier sell for small start-up companies because "in order to be relevant to the fuel industry you have to have several million gallons available before they even look at it," says Jack Huttner, Gevo's executive vice president of commercial and public affairs.
Gevo recently started up an ethanol demonstration plant that it retrofitted to produce butanol, a substance that can be used as a fuel or as a raw material for plastics.
Given the state of the ethanol industry, plants can be had for a bargain, converted and launched faster than it takes to build a new one.
"The conversion of an existing ethanol plant can literally be done in a matter of weeks," compared with two years to launch a new one, says Samuel McConnell, senior vice president of corporate development at Myriant.
Myriant has identified several ethanol plants suitable for producing plant-based succinic acid, a chemical used in spandex fibers and plastics. The company expects commercial production to begin next year.
In the Bag
Dow Chemical and its partner Algenol are still interested in making ethanol, but they are stepping away from the corn-based model. Their proposed ethanol-processing plants: what amount to giant, cylindrical plastic bags to house ethanol-producing algae. The system would take carbon dioxide produced at Dow's Freeport, Texas, chemical plant, and turn it into ethanol. If it works in the pilot stage, Dow could use this method to produce ethanol as a feedstock to make more chemicals.
The system would serve two purposes: curbing global-warming emissions and producing cleaner raw materials. But making it a reality is still some time off.
The companies have to figure out how the different pieces of technology work together, from the high-tech plastic bags to the bio-engineered algae, Dow executives say.
The partners, which also include the National Renewable Energy Laboratory, Georgia Institute of Technology and Menlo Park, Calif.-based Membrane Technology & Research Inc., are also waiting to hear whether the project will get funding from the Department of Energy; the project as planned is contingent on a government subsidy, which could be as much as $25 million.
"We've got a long way to go," says Rich Wells, Dow's vice president of energy.— Ms. Campoy is a staff reporter for The Wall Street Journal in Dallas. She can be reached at ana.campoy@wsj.com .
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