From Upstream to Downstream, the importance of the Value Chain

Plant Based Summit shows optimism surrounding the commercialisation of renewable chemicals

In the midst of a $50-per-barrel crude oil price environment, companies who participated in the Plant Based Summit held in Lille, France, in April, showed optimism that there will be an increase in the development of green chemistry and in the commercialisation of renewable chemicals, especially in Europe, where the bioeconomy is now a buzzword when implementing government policies and funding.

The importance of partnership within the supply chain, from upstream to downstream, has been emphasised as a key ingredient to success. Italian bioplastic company, Novamont, noted its partnership with farmers for feedstock development and sourcing, its partnership with petrochemical company, Eni, for the development and marketing of intermediates and chemicals, and its various partnerships with consumer products/food and beverage/packaging companies for the marketing and sales of bio-based materials and products. Novamont’s New Business Development Director, Stefano Facco, demonstrated in his presentation how it is possible to develop a bioeconomy model based on local low-impact agricultural value chains, and by redeveloping uncompetitive or de-industrialised production sites through its Matrica joint venture with Eni.

PARTNERSHIP WITH THE AGRICULTURE INDUSTRY

In the upstream sector, the agriculture industry has a lot to offer and a lot to gain by partnering with renewable chemicals developers. The importance of utilising waste biomass to stimulate the bioeconomy was emphasised in several presentations during the two-day summit. Manoel Teixeira, director-general of the Brazilian Agricultural Research Corporation, pointed out that 30% of Brazil’s total energy use now comes from biomass. Renewable energy accounted for 46.4% of Brazil’s total energy sources in 2013. The country has been looking to further diversify its renewable energy feedstock aside from sugarcane and the Brazilian government recently launched a program called Plataforma BioBrasil to develop integrated biorefinery platforms in order to stimulate the agricultural and chemical sectors.

Rina Singh, senior director for policy at the US-based Biotechnology Industry Organisation (BIO) noted the availability of around 1 billion tons of biomass in the US, which could be used by the biofuel and the chemical sectors without impacting the food supply chain. According to BIO, the economic opportunity in the US for renewable chemicals could be around $60 billion annually if it uses only 30% of that 1 billion tons of biomass for feedstock use. Despite the boom in shale gas-based chemicals production in the US, which can be seen as a low-cost diversion away from biomaterials production, Singh pointed out that this situation has actually opened opportunities for alternative sources of higher carbon products (C4s and beyond), since there is less production of these higher carbon products are less with the use of shale gas compared to when naphtha is used as petrochemical feedstock.

Dr. Murray McLaughlin, executive director of BioIndustrial Innovation Canada described Canada’s leadership position when it comes to agricultural and forestry biomass. Several bio-hybrid clusters in Canada are currently in the development stage, all with a biomass or oilseed focus. An example cited was the Sarnia-Lambton BioHybrid cluster where several petrochemical, renewable chemicals, energy and other manufacturers are co-located at the same site. Existing chemical infrastructures, competitive transportation costs, low-cost utilities, and agricultural feedstock availability made it ideal for renewable chemical companies to set up shop and be competitive in such a cluster as Sarnia-Lambton, according to McLaughlin.

Europe is also on the verge of becoming feedstock-competitive with areas like Brazil and North America with the EU lifting its sugar quota by 2017, according to a presentation by Joop Groen, manager of new business development at the project, Biorizon, a shared research program of TNO and VITO focusing on biomass-based functionalised aromatic compounds at the Green Chemistry Campus. Groen pointed out a recent report from Deloitte that stated the cost-competitiveness of sugar beets from North-West Europe due to low inbound and outbound transportation costs, high sugar yields per hectare of land, large-scale facilities and the ability to supply ample volumes of thick sugar juice on a year-round basis.

However, EU sugar prices were higher than the world market prices before 2009, which led companies to invest elsewhere. Between 2009 and 2012, EU sugar prices were below London No. 5 white sugars, and by 2013, EU prices for non-food sugars converged to world market levels. In 2017, the EU will be lifting production quotas for food-grade sugar. Deregulation means the production volume of sugar beet sales will grow substantially. The process will also entail production shifts to the most efficient growing areas in Europe. Raw sugar beet production is expected to rise by up to 30 million tons/year after the end of EU quotas in 2017, leading to cheaper feedstock for establishing sugar platform biorefineries within the EU.

When it comes to biomass feedstock in Europe, availability and market economics are still uncertain, given the lack of data, according to Hugues de Cherisey, a consultant based in France. Europe’s agriculture and forestry industry can be sustainable when they create value for farmers and forest owners. While future needs of biomass for chemistry are still not documented enough, biomass availability is not limited at its current growth rate. Wood waste and forestry residues in certain parts of Europe are already being used as energy feedstock. Europe generally shows higher lignocellulosic feedstock costs compared to other regions due to higher labour and energy costs. On the other hand, Europe has the infrastructure for imports.

FINANCING CHALLENGES

The two biggest challenges in the commercialisation of bio-based chemicals and materials today are the economics compared to well-established petrochemicals market, and the difficulty in raising financing.

The industrial biotechnology sector is perceived as high investment risk as the payback period is long, and there is a lack of investor confidence, given the lack of visible tangible products and blockbusters, not to mention difficulty in proving new processing technologies on a commercial scale. Demonstration scale-up activities are expensive, and in many cases are not being carried out due to a lack of clear economics compared with the fossil chemical counterpart. Compared to biofuels, there is also limited availability of government incentives and policies for renewable chemicals from R&D to scale-up, which was a significant factor in attracting initial investors to the biofuels sector.

In the US, these difficulties are compounded by the rise in the use of cheaper shale gas as chemical feedstock, which is diverting investments away from the development and commercialisation of chemicals based on plant materials. The current low oil price environment has exacerbated the challenge, making it difficult for for already-commercialised bio-based chemicals and materials to compete.

Financing for renewable chemicals companies has been and is still US-focused, according to a presentation by Denis Lucquin, managing partner at France-based Soffinova Partners. As of 2014, the Americas accounted for 87% of the global venture capital funding for bio-based chemicals and materials, while EMEA (Europe, Middle East and Africa) accounted for 12% and Asia Pacific only at 1%. Companies in the renewable chemistry field that Soffinova invested in include BioAmber, Green Biologics, Avantium, Comet Biorefining, CellulComp, Synthace and Metgen.

Just like the development for petrochemical-based materials, it will take time before bio-based chemicals will grow in volume and application, according to a presentation from Capricorn Venture Partners. For example, it took 12 years for petrochemical-based PET to mature into a 7.6 billion pound commodity material from the time of it’s inception in 1963, while it took 40 years for nylon to be developed as an engineering material with a volume of around 1.3 billion pounds from when it was first introduced in the US around 1938.

The question on the minds of investors these days is the impact of low crude oil and petrochemical pricing on the renewable chemicals market. It is not easy to convince investors to think of long-term returns when the values of crude oil and natural gas are lower than the value of renewable feedstocks such as corn, sugarcane, wheat and forestry materials. Claude Stoufs of Capricorn Venture partners noted that financing of the emerging bio-based chemical industry will not be easy in the foreseeable future. The key is to be low cost and low volatility in the case of drop-in chemicals or to have superior performance and not too much dependence on getting green premiums in the case of a new chemical or polymer. Capricorn Venture Partners’ investments in green chemistry included Avantium, Green Biologics, Xylophane and FRX polymers.

The cognisance and consistency of government policies towards the economic competitiveness of bio-based chemicals could also overcome the industry’s high-risk investment barrier. Most of the “bio” policy frameworks worldwide are still mainly focused on biofuels. There are not many regulatory support instruments to foster the competitiveness of plant-based chemicals or materials, especially in the EU. Dedicated programs aimed at providing guarantees for innovative biotechnologies and processes can facilitate business access to financing. Currently, most bio-based chemical businesses stand or fall on their own merits and product value propositions, in the absence of policy.

Gwenole Cozigou, the director of the directorate-general for internal market, industry, entrepreneurship and SMEs for the European Commission, stated in his keynote speech that there are already roughly €80 billion potential investments in the bioeconomy arena in Europe under the program Horizon 2020. The European Commission has already identified the bioeconomy as a source of growth accounting for more than 2,000 billion euros in sales and around 9% of employment in Europe.

However, the Horizon 2020 program is focused primarily on R&D rather than on demonstration.

Cozigou noted that the EU Commission now wants to bring R&D closer to market. Some of the recent initiatives include the new Public-Private Partnership Bio-Based Industries (PPP BBI) between the EU and the Bio-based Industries Consortium (€975 million from the H2020 funds and €2.7 billion of private investment) and the European Technology Platform for Sustainable Chemistry (SUSCHEM), an industry-led joint initiative between Cefic, DECHEMA, EuropaBio, GDCh, ESAB and RSC, and part of the external advice of the H2020 program.

Merlin Goldman, lead technologist for high value manufacturing at UK’s Innovation Agency, Innovate UK, admitted in his keynote speech that the UK is still behind in coordinating the creation of a bioeconomy, but it has recognised industrial biotechnology, agriculture and synthetic biology as key opportunities. The UK government is also looking to utilise waste as a key resource to stimulate a bioeconomy given that the UK produces 300 million tons/year of waste with 57% of this being sent to landfill or incinerated. The use of waste could create a market of £100 billion/year and create 4-9x more jobs than energy alone, according to Goldman. This could be a starting point towards the creation of a bioeconomy.

THE ROAD TOWARDS COMMERCIALISATION

While the path towards commercialisation of high-volume plant-based chemicals and materials remains challenging, significant progress has been made in terms of technology, feedstock and applications in certain cases.

The bioplastics industry has been in the forefront of bio-based materials commercialisation; albeit it took more than 10 years to be accepted in mainstream end-markets applications. A presentation from NatureWorks, the largest bioplastics producer in the world, noted the use of polylactic acid plastics in varied packaging applications such as in rigids, food serviceware, films, non-wovens/fibres and durables. NatureWorks is now looking at the coffee capsules market, which has been under pressure from environmentalists because of the growing waste generated from used coffee capsules. Sales volume of coffee capsules in Western Europe is estimated at around 10 million units as of 2013, and this is expected to further increase as more and more consumers prefer the convenience of pod coffee machines compared to drip coffee machines. The coffee capsules market is reportedly interested in finding a biodegradable solution, which retains the performance of a traditional plastic/aluminium capsule.

NatureWorks currently has a capacity to produce 150,000 metric tons/year of PLA-based plastic resins located in the USA, and the company is currently planning for its second facility in Southeast Asia with around 75,000 metric tons/year capacity. Corbion, one of the biggest lactic acid and derivatives producer worldwide, recently announced that it is building its first PLA facility in Thailand with a capacity of 75 ktpa. Aside from plastics application, Corbion is also developing lactic acid as an intermediate in the production of chemicals such as acrylic acid, 1,2 propanediol and lactides.

Corbion bio-based platform also includes bio-succinic acid with its Succinity joint venture with BASF, and the company is also looking to develop 1,5 furan dicarboxylic acid (FDCA) for the production of polyethylene furanoate (PEF), an alternative to PET. Avantium has been in the forefront in the development of PEF, which is yet to be commercialised.

Bio-succinic acid, on the other hand, is considered one of the recent successes and the fastest-growth area in the bio-based chemicals market, with three out of four companies – Reverdia (10 ktpa, Italy), Succinity (10 ktpa, Spain) and Myriant (14 ktpa, USA) – already in commercial production. BioAmber is expected to start its 30 ktpa facility in Sarnia, Canada in the second half of 2015. Reverdia’s president, Marcel Lubben, noted in his presentation that the market for succinic acid is expected to grow from 40,000 metric tons today to 400,000 metric tons by 2020 and 700,000 metric tons by 2025. Key growth drivers include an improved cost position compared to existing petrochemical routes and green feedstock that is especially appreciated at the end-consumer level. Reverdia is a joint venture between DSM and Roquette.

The support of large chemical corporations and agribusinesses is a key component in the development of a successful value-chain for bio-based chemicals. Cases in point are the partnerships between Corbion and BASF through its Succinity JV; DSM and Roquette’s partnership through its Reverdia JV; and Novamont’s partnership with Versalis Eni through its Matrica JV. What helps Reverdia, noted Lubben, is the support of two strong companies via DSM and Roquette. Francois Monnet, executive vice president of renewable chemistry at Solvay Group, emphasised the need for partnership along the value chain and that chemical companies “are not bio-based crusaders,” he said. In order to survive especially in a lower crude oil pricing environment, renewable chemicals must either increase competitiveness, have new functions/properties, and/or valorise bio-attributes.

Carsten Sieden, vice president of BASF’s white biotechnology business, noted that certain bio-based commodity chemicals will have tough time to be competitive, especially in the midst of a low crude oil pricing environment. Certain bio-based commodities could be an exception if fossil-based materials become scarce, as in the case of aromatics and C4s. Chemicals that have value-added properties will have a better chance of being competitive and even justifying price premiums.

While a low crude oil price environment definitely has an impact on the investments and developments of bio-based chemicals, it will certainly not halt the need for a more sustainable alternative to petrochemical-based materials. The consumer markets are recognising the value of plant-based chemistries, and this is the pull that needs to be further exploited through communication and education along the value chain.

This article was published in June 2015 as part of my post-coverage of the Plant-Based Summit held in Lille, France. The PBS is organised by the Association Chimie du Vegetal (ACDV) that represents the French plant-based chemistry sector.  ACDV will hold its third Plant Based Summ next year, 25-26 April at the Lille Grand Palais, France.