Bio-crude becomes increasing focus of biomass industry; Sustainable Power pioneers commercialization with large-scale Asian expansion

February 29, 2008

Sustainable Power Corporation (SSTP.PK) has sold a 2.44 percent stake to Borneo Oil (KLSE: BORNOIL) for $2.0 million, and has signed a collaboration agreement to install a pilot bioreactor in Malaysia, using the Rivera process to produce biocrude. Under the agreement, Borneo Oil will install and commence production with up to 20 additional biofuel reactors in Indonesia and Malaysia by summer 2009.

The announcement by Sustainable Power and Borneo Oil is the most significant international expansion announced to date in biocrude production. It confirms that Sustainable Power is a step ahead of a large group of competitors in taking biocrude from the development stage to commercial viability.

Sustainable Power’s bioreactors utilize the nanobacteria-based Rivera process to produce bio-crude from algae, palm fruit, coconuts, and other industrial or food waste. Sustainable Power is the exclusive licensee of the Rivera process, originally developed by US Sustainable Energy (USSE.PK).

Borneo Oil is a diversified Malaysia trading company with interests in real estate, resorts, restaurants, food processing, catering services, machinery, phone cards, as well as providing management and technical services to the oil & gas industry as well as other energy related businesses. CEO of the Borneo Oil & Gas and Borneo Energy subsidiaries, Abd. Hamid Bin Ibrahim, has joined the board of Sustainable Power as of February 24th. Ibrahim retired from Petronas in 2003 after 27 years service, during which he served as Managing Director or CEO of numerous Petronas subsidiaries, including Petronas Gas.

Growing popularity of biocrude
The popularity of biocrude, or synthetic crude oil, has been increasing rapidly in recent months as policymakers and investors struggle to solve the increasing infrastructure and land-use issues of first-generation biofuels and feedstocks.

â€œBy using waste, [it] overcomes the food versus fuel debate which surrounds biofuels generated from grains, corn and sugar,â€ says Dr. Stephen Loffler of CSIRO, Australia’s national science laboratory. CSIRO recently announced the development of a second-generation biocrude process, in conjunction with researchers at Monash University.

Biocrude offers substantial promise not only for its use of low-impact, sustainable. carbon-neutral feedstocks, but because it can use the existing refining, marketing and distribution system of the petroleum industry. For that reason, biocrude has become an increasingly favored biofuel not only among policymakers and investors, but among the major oil companies. Shell Oil and Chevron have both commenced biocrude development, and companies such as LS9, UOP, Syntroleum and the LiveFuels consortium have firmly entrenched themselves as the second wave of biocrude development, behind Sustainable Power.

“It’s a trend,” said Will Thurmond, author of Biodiesel 2020, and a leading authority on global biomass development. “The Chinese, among others, see biocrude as a 1.5 generation biofuel that, gets us out of many of the problems associated with first generation fuels, and while we are waiting for second-generation fuels like cellulosic ethanol.”

Numerous entrants into biocrude development
The LiveFuels consortium “is a national alliance of labs and scientists dedicated to transforming algae into biocrude by 2010″, according to the consortium’s website. The scientific alliance will be led by Sandia National Laboratories, a U.S. Department of Energy National Laboratory. The alliance is expected to sponsor dozens of labs and hundreds of scientists by the year 2010.

â€œWe believe Sandia has the strengths needed to lead the alliance in its early growth phase,â€ said Lissa Morgenthaler-Jones, CEO of LiveFuels. â€œSandia is a DOE laboratory managed by the National Nuclear Security Administration (NNSA), and possesses expertise in process engineering, biocience and biotechnology. Sandia is also home to the DOE Combustion Research Facility, a unique science and engineering user facility which can test the combustion characteristics of the biocrude produced by the LiveFuels alliance.â€

LS9 was cofounded by molecular geneticists Dr. George Church of Harvard University and Dr. Chris Somerville of the University of California. LS9’s technology uses designer enzymes to convert fatty acid intermediates into petroleum replacement products via fermentation of renewable sugars. LS9 was recently honored at the World Economic Forum in Davos, Switzerland for its work in biocrude.

UOP, a division of Honeywell, announced last June that it expected to develop military aviation jet fuel, using a synthetic biocrude made from algae. The UOP project is backed by $6.7 million in funding from the Defense Advanced Research Projects Agency (DARPA). UOP is working with Honeywell Aerospace, Cargill, Arizona State University, Sandia National Laboratories and Southwest Research Institute on the project.

The National Renewable Energy Labortatory (NREL), in Golden, Colorado, re-started its algae research project last October in partnership with Chevron, although it is not clear whether NREL will explore biocrude as an alternative to algae-based biodiesel. NREL ran an project exploring the development of biodiesel from algae between 1978 and 1996.

ConocoPhillips and Archer Daniels Midland Company announced last September that they would collaborate on the development of renewable transportation fuels from biomass. The ConocoPhillips processâ€” similar to one under investigation by Neste Oil, converts oils and fats to a synthetic, hydrocarbon diesel fuel that burns cleaner and has a reduced aromatic content than conventional diesel, but meets existing specifications for the fuel. ConocoPhillips also funded an eight-year, $22.5 million research project at Iowa State University, with a focus on conversion of biomass to fuel through fast pyrolysis.

Despite the significant levels of development activity, Sustainable Power has been the first to produce fuel in a commercial setting. The company’s fuel production is certified by Amspec, which maintains a facility at the company’s Baytown Green Energy Consortium facility.

Algae as a biocrude feedstock: up to 15,800 gallon per acre yields in tests
The company recently tested algae as a feedstock, producing fuel at a rate of 166 gallons per ton of algae biomass, which equates to a yield of 15,800 gallons of fuel per acre of algae cultivation (per year) under optimum growing conditions, according to Oilgae.com. Unconfirmed reports suggest that the algae test produced jet aviation-quality fuel. There have been increasing reports of airline interest in biocrude as a jet fuel, although no formal tests have yet been announced.

The first reactor at the Baytown plant is producing at a capacity of 3 Mgy, but unconfirmed reports suggest that the Borneo Oil bioreactors will have substantially expanded production capacity.

The location of the initial mini bioreactor site in Malaysia was not disclosed. Borneo Oil has principal operations in the Malaysian states of Sabah and Sarawak, on the island of Borneo, where significant biofuel development activity has been underway.

Malaysian development of Borneo as biofuels hub
The Malaysian national government recently proposed a $103 billion “Sarawak Corridor of Renewable Energy” (SCORE) development plan, which includes heavy investment in jatropha and palm-based biodiesel production. The government made the announcement after plans were revealed for a $308 million development in Sarawak by a Malaysian-Japanese consortium that would develop 220,000 acres of oil palm and jatropha plantations to produce 240,000 tonnes of biodiesel per year.

Sabah announced last month that it would seek $304 million over 18 years from the Federal Government to assist in the development of its Palm Oil Industrial Cluster (POIC) in Lahad Datu. The Sabah Land Development Board (SLDB) also demonstrated jatropha biodiesel in a Toyota Land Cruiser trial conducted at the Sabah Development Corridor Expo. The SLDB has proposed expansion of jatropha capacity in Malaysia as a poverty-reduction program, saying that farmers could earn RM 1500 per month from farming 6-acre plots of jatropha curcus, from seedlings provided by Borneo Alam Ria Biomatrix.

Borneo Oil also owns Indonesian and Thai oil and gas subsidiaries, but it is not yet clear whether Borneo Oil’s agreements with Sustainable Power will extend beyond Indonesia and Malaysia.

Under the agreement with Sustainable Power, Borneo Oil will absorb development and operational costs, while Sustainable Power will provide installation and training services. The minireactor is expected to be operational by summer 2008, and the installation of additional bioreactors is expected to be completed by summer 2009.

Scott Hoerr, Director of Sustainable Power, said, â€œWe are ecstatic to have identified the availability of non-food feedstock in large enough quantities to have a significant impact on the alternative fuel markets. We believe the introduction of SSTP in Malaysia is a major step towards replacing the world demand for petroleum-based products and helping the world ecosystem.â€