Bioenergy Companies Look to Partner With Big Oil, BRIC to Succeed in Tough Environment

Includes: CDXS, CZZ, RDS.A
by: The Burrill Report

By Marie Daghlian

In the emerging world of bioenergy, scale is everything and partnering with Big Oil is the key to success, according to Alan Shaw, CEO of the biocatalyst developer Codexis (NASDAQ:CDXS). Shaw's comments came at the first Advanced Biofuels Markets conference November 9 and 10.

The event took place in San Francisco, the birthplace of the world’s largest oil company Saudi Aramco, noted Jim Lane, editor of Biofuels Digest. “There’s a good chance that the world’s largest post-oil company will be founded here too,” said Lane. “We in this room are moving a $4 trillion industry to a new technology platform.”

Company after company made the pitch that they had the most cost-effective, ready to scale technology out there. Whoever was right, it became clear that there would be a role for many technologies in the energy sector. Progress is being made with products based on a range of technologies ready or in the process of being commercialized. Many companies are leveraging their technologies to produce renewable chemicals, a higher-value product, for an immediate revenue stream.

What the attendees seemed to agree upon, though, was that the internal combustion engine is not going away anytime soon. Right now, biofuels are the most likely renewable liquid fuel alternative to petroleum. Demand for low-carbon diesel rather than gasoline alternatives is driving much of advanced biofuels development. The need is especially acute in the military and aviation industries as regulations limiting or taxing carbon are slowly being put into place around the world.

And while many companies have moved aggressively into renewable chemicals and other products of biorefining, the future of the industry lies with Big Oil, and in the BRIC countries—especially Brazil where sugar is king and the ethanol industry is well developed.

LS9 CEO Bill Haywood, an oil industry veteran, said his company is working on a big partnership in Brazil to be able to use sugarcane, right now the lowest cost feedstock and a big part of the variable cost of fuel production, in the production of diesel.

The recently formalized $12 billion joint venture between Shell (NYSE:RDS.A), one of the biggest oil companies in the world, and Brazilian ethanol and sugarcane producer Cosan (NYSE:CZZ) will transform the industry. It will certainly help newly public enzyme maker Codexis gain a strong foothold in Brazil. Alan Shaw said he was ridiculed when Codexis did its first deal with Shell four years ago. Now he thinks Codexis has the potential to become the Microsoft of biofuels.

Raising money is the lifeblood of biotech companies and the environment for doing so remains difficult today. Here again, attendees were told the money is in emerging economies such as Brazil, Russia, India, and China. The advice to bioenergy companies from many of the presenting executives and panel members on how to survive and thrive was simply to get your product to compete on price and performance, and partner, partner, partner.

Disclosure: Burrill & Company, publisher of The Burrill Report, is an investor in Codexis.