Dr. Sadad al Husseini: former Aramco head of exploration and production: “I’ve been tracking the number of [exploration and development] projects globally for a long time, both in the Middle East and elsewhere…There is not enough new capacity coming on line … within say the next five to six years to make up for … declines [in the production of active reservoirs] . And that’s assuming a very moderate level of declines [in their production]…Even at these modest decline rates, we are basically going to see a shortage of capacity within two or three years. We’re being lulled by present excess capacity, which has more to do with lower demand than anything to do [with] supply.”

Today in Biofuels Opinion: “We are basically going to see a shortage of capacity within two or three years. We’re being lulled by present excess capacity.” is a post from: Biofuels Digest

Bioenergy PROFITS Principle - Reality

Successful companies build core areas of content.  This may be a technology platform or a basic product upon which to expand. This core is the basic element though you may later customize your offerings,

What can you do to deal most effectively with reality, especially when you have other plans?

• Create the foundation
• Face facts
• Honker down to develop new potential offerings

What is your core capability?  Can you build upon it?  Are these core capabilities unique in your industry?

Create the foundation

All Blackberrys are PDAs and differ from an iPhone’s application.  Though there are many versions of Blackberrys, they all are built on the same data driven foundation.

Codexis and other biofuels companies that we’ve recently featured start with a technology that is applicable to pharmaceutical and bioindustrial/biofuel industries.  Though this may not be the initial plan, these companies are ahead of their competitors.  They are able to build upon a foundational platform and then add additional relevant processes for varied customers.

Codexis, for example produces intermediaries to make chiral alcohols, esters, nitrates and other products which serve to improve therapies, product safety and efficacy.

And companies do not have to do this alone.  Creating strategic alliances make good sense for the purpose of companies complementing their core competencies and forming a potentially broader customer base.  Codexis does this to optimize enzymes through its molecular breeding technology and creating biocatalyst pathways for pharmaceutical partners.  A senior executive states, as far back as 2006, “One idea behind acquisitions is to see if we can accelerate adoption by seeding the marketplace with off-the-shelf or wild-type enzymes that are easier for our customers to access.  Companies can then turn to us for more sophisticated optimization and process development.

The company’s technology platform includes millions of mutated enzymes and a dozen or more different reaction platforms.  They can screen compounds against actual enzymes and their own databases.  These bioinformatics capabilities allow Codex is scientists to accelerate its directed evolution process by producing the amount of gene shuffling and specific mutations needed along with the likelihood and length of time for reaching a target.

From there, pharmaceuticals in particular want to form strategic alliances and even help Codexis further its research using its own R&D resources.  For example, Codexis worked Pfizer with chiral hydroxynitrile, an intermediate in the synthesis of atorvastatin, the active ingredient in Lipitor.

And sometimes, the best of plans must stall until market conditions are more favorable.

Face facts

Companies, as well as individuals plan.  We all need a roadmap that directs us in setting and reaching our goals.  However, sometimes plans and reality do not mix well.  Each time there is a conflict between plans and reality…..reality wins.  We can say this builds character.  However, no matter what story we tell ourselves when faced with this dilemma, we must adapt and work with the reality of the market, our customers, our employees and our finances.

Codexis did not go forward with a planned IPO in 2008, even though it already signed papers with the Securities and Exchange Commission.  As disappointing as that was, Codexis realized that market conditions did not portend well for success.  Raising up to $100 million was not realistic in an economy where investors were bearish.  The company had already raised over $75 million in private equity, and included investors from BioOne Capital, Chevron Technology Ventures, CMEA Ventures, Maxygen, Pequot Ventures and Pfizer.

Other biofuel related companies, including Iowa-based Renewable Energy Group, a biodiesel producer, intended to raise $150 million and Seattle-based Imperium Renewables, also a biodiesel producer also set aside their IPO, which intended to raise $345 million.

Codexis CEO, Alan Shaw states, “I don’t believe that venture-backed companies can compete in energy,” he says. “The VC model doesn’t work in this space.”  As for Codexis, says Shaw, “We think our process will be up and running and making money for people by 2013.” In a partnership with Royal Shell, Codexis aims to be first to market with a next-generation biofuel. In 2006 and 2007, Shell invested $33.5 million for a 13% stake in Codexis; it made an additional equity investment (the amount was undisclosed) in March this year. Shell pays Codexis’ biofuels research costs and will pay a royalty upon commercialization.

Shaw says Codexis is on firm ground, in large part because of the Shell deal. It already has revenues–$50 million in 2008–from its biocatalyst and enzyme business with pharmaceutical companies like Pfizer.

Smart companies hedge their bets and bide their time, usually improving their existing processes and products, as well as streamlining and cutting costs.

Honker down and develop new potential offerings

Business cycles offer us the opportunity to focus our company internally and to sometimes focus on the external market and our customers.  Both activities are important. We may not always like the timing of the market and we may prefer to be market driven than to focus on improving our process.  Learning to adapt and developing flexibility presents us with the opportunity to be more innovative, financially prudent and streamlined as we learn new ways to customer oriented.

Cutting-edge chemical processes are expensive and have long development timelines.  Codexis, like other companies, can always become a better strategic partner through better research and development and marketing efforts.  Shortening process development and reducing costs also provide more time and financial resources to improve existing manufacturing processes.

During the current downturn, Codexis is expanding its product offerings to target the emerging market for carbon capture and storage, according to CEO, Alan Shaw.  Codexis plans to market an enzyme that helps captures carbon dioxide from smokestacks of coal-fired power plants. “Coal is not going anywhere fast,” Shaw said. “There’s an urgent need to take carbon dioxide out of coal-fired power stations.”

Coal-fired power plants provide about half of the electricity in United States, but account for about 80 percent of carbon dioxide emissions from domestic power generation, making them top targets for environmentalists.  Coal companies, governments and environmental activists are hoping for breakthrough technologies that will help trap, transport and bury underground carbon dioxide, the main greenhouse gas blamed for global warming.

Shaw said the company, which also counts General Electric Co and Pfizer Inc as shareholders, has successfully completed testing its product in the last couple of months and is looking to commercialize the technology.  ”We need a partner and are actively talking” to companies, he said, citing a huge interest in the market for such a technology. “The market is meeting us more than halfway.”

Codexis is seeking a partnership with an industrial equipment maker that would help engineer a system to introduce the enzyme to the carbon dioxide on the smokestacks.

A company like GE could be a great partner, Shaw said, but he declined to say if Codexis was in talks with the industrial conglomerate. Shaw said the company plans to aggressively scale-up its plans for the carbon market in 2010.

No commercial scale projects exist to demonstrate the carbon capture and storage technology, but the European Union has pledged to have 10-12 pilot plants in operation by 2015.  The U.S. Energy Department is also providing up to $408 million in funding for two projects aimed at developing clean coal technologies. “They have to put a price on carbon for it to truly work,” he said. The air sector has the most potential if concrete goals for carbon emissions are put in place at the international talks on climate change in Copenhagen in December, Shaw added.

In Summary:

Can you develop your abilities to create the foundation, face facts and

honker down to develop new potential offerings

Today’s topic, Reality is one of the seven Bioenergy PROFITS Principles.  This series highlights proven principles to running your business more effectively (from the newly released book, run Your Business Like a Fortune 100: 7 Principles for Boosting PROFITS, by Rosalie Lober, Ph.D.) and illustrates key points of the successful company, Codexis develops biocatalysts for the pharmaceutical and biodiesel industries. Its technology produces biofuel from plant material and is also working with other markets to use its technology to manage CO₂ emissions from coal-fired power plants and treat wastewater.

Bioenergy PROFITS Principles: Reality, and Codexis is a post from: Biofuels Digest

Aerial photo of Range Fuels plant in Soperton, Georgia

Patrick Wright of Range Fuels: “I thought you might be interested in a more current aerial of our Soperton Plant to give you a better visual sense of where we stand on construction efforts on the first phase.  I also wanted to pass on that we’re on schedule to begin production of cellulosic biofuels from the first phase of the plant in the second quarter of 2010.”

S.A Alagarsamy: “How much must we lose before our leaders take action? Over 5 million people have been left homeless in Karnataka and Andhra Pradesh due to extreme rainfall. The colossal loss for both states is being estimated at an unbelievable 32,000 crore rupees! At the same time India is reporting a shortfall of 20 million tonnes in its rice production this year due to droughts in some parts of the country. These enormous damages to life, property and food security due to the erratic weather will only get worse if we do not take a stand against Climate Change NOW!!! ?I have taken a stand today and written to PM Dr. Manmohan Singh asking him to go to Copenhagen and show leadership on this issue which threatens our very existence. I would like to encourage you to do the same.”

Today in Biofuels Opinion: “I thought you might be interested in a more current aerial of our Soperton Plant.” is a post from: Biofuels Digest

Philip New, CEO, BP Biofuels: “Our benchmark for success is $1 a gallon – or $40-50 a barrel on a straight volume basis. In our view if you can’t reach that level then it’s won’t be worth competing.  Using a number of sources, we’ve created one possible cost curve for the fuels market for 2020.  In this projection, OPEC countries still provide the most economical feedstock, followed by crudes from the FSU and elsewhere, but Brazilian sugarcane ethanol competes very well as part of the mix… A little further up the scale comes ligno-cellulosic ethanol….In this projection we see around 6 million barrels per day of biofuels in the pool – which is a five fold increase on today.” (Complete text is here)

Today in Biofuels Opinion: “Our benchmark for success is $1 a gallon – or $40-50 a barrel on a straight volume basis.” is a post from: Biofuels Digest

Q: Is California ready to turn to renewable energy—wind, solar, geothermal—to provide base load electrical power?
Chu: No, it’s not there yet. We need to solve the problem of energy distribution and energy storage before renewables becomes, for example, 50 percent of the base load electricity. There’s no way it can become 50 percent until we have a mass-energy storage system or a huge international or national distribution system.”

Brent Dewar, Global VP for Chevrolet: “Biofuels have a large role to play in part because they displace the demand of petroleum-based products and can be very cost-effective. It’s not electric versus biofuels versus gasoline versus diesel versus hydrogen. It’s all of the above. We have to find the energy, environmental and economic solution on a global basis. And there are lots of ways to make biofuel – it can be made out of the waste products, out of agricultural products, even garbage into cellulosic. The food-for-fuel debate was just totally misstated. We have farmers in America who were getting paid not to grow anything. The whole thing was just a misstatement of the fact.” (The quote is in the October 29, 2009 issue of Rolling Stone, p 70, not yet online)

Today in Biofuels Opinion: “[Wind, solar, geothermal] – it’s not there yet.” is a post from: Biofuels Digest

Bob Stallman, president of the American Farm Bureau Federation: “It has been estimated that we could have avoided the use of 7 billion gallons of foreign-sourced oil if the ethanol blend level had been raised from E10 to E15. It makes no sense for Americans to subsidize foreign regimes when we have the ability to produce home-grown, renewable fuel…gasoline would have cost five to 10 cents more per gallon if it had not been blended with ethanol….U.S. ethanol production already accounts for 250,000 domestic jobs.”

Today in Biofuels Opinion: “CO2 is only half the climate problem.” is a post from: Biofuels Digest

From the Wall Street Journal: “Donning FDR’s cape, Eisenhower’s stripes and JFK’s boat shoes, President Obama observed in Florida on Tuesday that his “clean energy economy” will require “mobilization” on the order of fighting World War II, building the interstate highway system and going to the moon. Of course, the only “mobilization” going on at the moment is on behalf of ethanol, whose many political dispensations the biofuels lobby is finding new ways to preserve even as the evidence of its destructiveness piles up. The latest embarrassment arrives via the peer-reviewed journal Science, not known for its right-wing inclinations. A new paper calls attention to what the authors (led by Princeton’s Tim Searchinger) call “a critical accounting error” in the way carbon emissions from biofuels are measured in climate-change programs world-wide. Bernie Madoff had a few critical accounting errors too.”

Today in Biofuels Opinion: “There is no reason why this surplus corn can’t be turned into ethanol.” is a post from: Biofuels Digest

Joshua Kagan in Good: “We have two main “solutions” for curbing the unintended consequences of our use of fossil fuels: first generation biofuels (ethanol and biodiesel) and electric vehicles. I am unapologetic in my belief that both are very flawed solutions. At best, they make only a marginally positive contribution; at worst, they represent a situation where the patient’s medicine can actually make him sicker. It may seem like heresy for a self-righteous Prius-driving vegetarian environmentalist to claim that electric vehicles and first generation biofuels are almost as evil as oil, but they are. According to the USDA, the United States will produce 12.8 billion bushels of corn in 2009, 4.2 billion of which will be used to produce corn ethanol production. That’s one-third of our corn supply to produce a fuel that will displace only 5 percent of our gasoline?  All the while, according to the United Nations, 1 billion people will go to bed hungry tonight.  As long as there are people starving on this planet, fuel sources that directly compete with food supplies are morally flawed.”

Today in Biofuels Opinion: “As long as there are people starving on this planet, fuel sources that directly compete with food supplies are morally flawed.” is a post from: Biofuels Digest

The Energy Opportunity promises sunny days ahead

If July and August were the “Summer of Algae”, then September and October are surely “the Indian Summer of Ethanol” for there has been unexpectedly warm results from the sector, and focus on the long-term “energy opportunity” inherent in the climate bill should give even more seasonal cheer to an industry battered by a plentitude of critics and a shortage of working capital.

In Washington, Secretary of Energy Steven Chu focused his remarks yesterday to the Senate on the climate bill – not on the usual doom-and-gloom of the CO2 data – but on “the energy opportunity.”

“EIA found that, globally,” Ch said, “the cumulative investment in wind turbines and solar photovoltaic panels from now through 2030 could be $2.1 trillion and $1.5 trillion, respectively.  The policy decisions we make today will determine the U.S. share of this market.  And many additional dollars, jobs and opportunities are at stake in other clean technologies.

“The United States, meanwhile, has fallen behind.  The world’s largest turbine manufacturing company is headquartered in Denmark.  99 percent of the batteries that power America’s hybrid cars are made in Japan.  We manufactured more than 40 percent of the world’s solar cells as recently as the mid 1990s; today, we produce just 7 percent.

“When the starting gun sounded on the clean energy race, the United States stumbled.  But I remain confident that we can make up the ground.  When we gear up our research and production of clean energy technologies, we can still surpass any other country.

“The most important element of this bill is that it puts a cap on carbon emissions that ratchets down over time.  That critical step will drive investment decisions toward clean energy.

“Imagine, for example, that you own a power company and are considering building more generating capacity.  Building a new coal-fired power plant or a new nuclear plant is a serious, multi-billion dollar investment.  And these investments could last at least 60 years.  If you knew that carbon emissions had to decrease, would you build a coal plant without carbon capture and storage technology?  Would the nuclear plant look more attractive?  Would you consider investing in wind and solar?

“On-again, off-again incentives will not drive the level of clean energy investment we need.  A cap on carbon will give the energy industry the long-term direction and the certainty it needs to make appropriate technology and capital investment decisions.”

Rising numbers on “we’re not dead yet” ethanol industry suggest that the Secretary has a strong point. Yesterday, Valero astonished the financial markets with the unlikely announcement that it had swung into a third-quarter loss on a refinery impairment loss, but that its star investment was a $49 million profit from its seven ethanol plants. According to MarketWatch, “Valero said its retail and ethanol segments posted “outstanding” results. Its ethanol business earned $49 million of operating income in the third quarter, more than double the second-quarter results.”

In other news of note, US gasoline prices are rising again. According to AAA, U.S. retail gasoline prices were $2.67 a gallon in the past week, up from $2.50 in September. Last October, the average price was $2.66 per gallon.

According to WCFCourier.com, “Processors say several factors are working in their favor now. Crude oil prices are on the rise — a barrel that cost little more than $30 at the end of 2008 was worth more than $82 Oct. 22 — and ethanol usually follows. Corn prices are lower than last year and fairly stable. Compared to the price of oil, ethanol is cheap enough that refiners are blending ethanol, even if they aren’t required to do so. Most importantly, processors say they have learned from past mistakes. Gone are the days of extended corn contracts without a guarantee of income to cover expenses.”

According to the Jamestown (ND) Sun: “The top officials of a southwestern North Dakota ethanol plant [Red Trail Energy] say it has overcome a year of financial struggles and is heading toward a profit.”

According to the Chicago Board of Trade: “November CBOT Ethanol futures prices last week rallied sharply for the fifth consecutive week, closing up 13.7 cents (+7.4%) at $1.985 per gallon and posting a new 13-month high.  The EIA this Friday will release the monthly ethanol figures for August.  Last month’s report showed that U.S. ethanol production in July rose sharply by 8.4% m/m to a new record high of 948 million gallons.

Also, BP announced that it would enter the cellulosic ethanol industry in Brazil by 2013.

But not every sector is reporting news of great cheer. According to the JournalStar, “Nebraska has lost the last commercial operation of its infant biodiesel industry, at least temporarily. Northeast Nebraska Biodiesel LLC has stopped making biodiesel fuel from soybeans at its plant in Scribner.”

And Biodiesel Magazine reports that “A foreclosure motion begun by plant creditors was temporarily put on hold in late 2008 when Tri-City Energy announced a possible cash infusion from a new investor. That effort failed however, and last week, Maas Companies listed the court-ordered auction.”

Biofuels recovering as “moment of energy opportunity” arrives is a post from: Biofuels Digest

From Novozymes: “The Science article was co-authored by Tim Searchinger, a lawyer who introduced the theory of indirect land use change (ILUC) in another article in 2008. His theory relies on a worst-case scenario under which all electricity and fuel in Europe and the U.S. depends on clearing forests in the developing world for biomass production.  Such a methodology ignores technological advances and national land management practices and policies, according to experts at Novozymes, and it does not take into account soil types, fertilizer practices, tillage, the value of feed products and advancements in increasing crop yields that can further reduce the need for new cropland…Adding to the debate about the effects of increased use of biomass is the lack of current regulation, or evaluation of carbon emissions, for biomass when it is used to produce electricity.

Today in Biofuels Opinion: “What’s being called Son of Black Liquor dwarfs the original black-liquor loophole.” is a post from: Biofuels Digest