Biofuels biochem industry presentation (final) v09_a

• 1. Silicon Valley Bank Cleantech PracticeThe Advanced Biofuel andBiochemical OverviewJune 2012

2. Table of Contents I. Introduction III. The Importance of Biofuels/Biochemicals (Cont.)I. Biofuel/Biochemicals Outlook Macro Observations3V.Liquid Demand Growth from Non-OECD Countries36II.Biofuel/Biochemicals Outlook Micro Observations4VI. Biofuels for Transportation 38III. The Cleantech Ecosystem5VII. Increasing Marginal Cost of Production 39IV.Market Snapshot: Global Ethanol Production 6VIII. Oil Market Price and Saudi Breakeven Threshold42V. Market Snapshot: Global Biodiesel Production 7IX. U.S. Renewable Fuel Standards 43 Market Snapshot: Ethanol and Biodiesel Production X.Biofuel Blending Mandates by Country46VI. 8 Landscape in the U.S.VII. Market Snapshot: Global Biochemical Production 9XI. Cellulosic Ethanol Pricing Model47 II.Biofuels/Biochemicals Overview IV. Biofuel/Biochemicals LandscapeI. What are Biofuels/Biochemicals? 11I.Advanced Biofuel and Biochemicals Value Chain 49II.Types of Biofuels 15V. Where Are They in Development?III. Biofuel Feedstocks16I.Investments in Biofuels/Biochemicals52IV.Comparative Yields18II. Global Players Milestone Update 54V. Petroleum Replacement Overview21III. Biofuel/Biochemical IPOs in Pipeline 56VI.Conversion Technologies 22IV. Strategic Partnerships57 V.Projects to Watch in 2012201358 III. The Importance of Biofuels/Biochemicals VI. Appendix61I. Compelling Market Opportunity 28VII. Selected Due Diligence Questions69II.Drivers of Biofuels/Biochemicals Growth 29VIII. Silicon Valley Bank Cleantech Team 70III. Liquid Demand Statistics32IV.Energy Market Growth34 The Biofuels and Biochem Industry 2 3. Biofuel/Biochemicals Outlook Macro ObservationsOBSERVATIONS Multiple very large and growing markets Total markets will top $1+ trillion. Beyond the well-known fossil-fuel replacement markets is growing demand for non-fuel products like food supplements, personal care products, and packaging. Positive supply/demand dynamics around crude The fundamental underlying demand is exacerbated by oil exporting countries economic reliance on oil revenue. Meanwhile, the cost of crude production continues to increase. Biofuels/biochemicals will play an increasingly important role to fill that need. Demand drivers mandates and markets Mandate: Primarily for fuels, government mandated goals proliferate with varying degrees of adherence and enforcement. Subsidies of all types remain important in attracting capital and shifts in policy could alter business plan direction between fuels or chemicals. Markets: Growing economic justifications are intersecting with other market demand factors. For example, the U..S Navys goal of 50% energy consumption from alternative sources by 2020 or the Air Forces initiative to acquire 50% of aviation fuel from alternative blends by 2016 are policy influencers that also have purchasing power. The role of strategic corporate investors Always important, corporates from a variety of industries (and led by big energy, chemicals/materials, and consumer products) have become critical parties in the development and scale-up of the sector. Taking multiple forms of straight investment, joint venture, and collaboration, investors search for innovation, growth, and information. Commodity markets Fuels in particular are ultimately commodities. Without policy enhancements, the impact of commodity cycles will continue to challenge scaling of new technologies. Business life cycle While the underlying trends and fundamentals may be inexorable, development of the industry and market dynamics is a very long term process and investment cycle.TABLE OF CONTENTSThe Biofuels and Biochem Industry 3 4. Biofuel/Biochemicals Outlook Micro ObservationsOBSERVATIONS Platform technologies Venture investors and companies favor platforms where multiple markets can be addressed. Single product fuel companies like ethanolare challenged. The platform companies may ultimately seek to enter fuel markets but may opt to defer that step in order to accesshigher margin, less commoditized markets first. Feedstock flexibility Access to multiple feedstock types and sources is critical to scaling facilities, particularly in margin constrained markets where supply and logistics can have great impact. The scale-up conundrum Given the capital required to achieve economies, and the fact that most investors want both scale and capital efficiency, the choice between build/own and licensing is becoming acute. To truly reach scale requires enormous financing. The conundrum is how to get licensees without experience at scale. And what scale is necessary to attract the right investors? Does the project need to demonstrate revenue scale, cash flow positive, or just output? Understand the value chain In addition to sources and location of feedstock, proximity to off take and associated logistical costs are important for certain markets like ethanol. In concert with the scale-up conundrum above, are these links in the value chain of a size to support large facilities? Additionally, to attract investors companies must demonstrate the ability to reduce costs of collection, distillation, and extraction through operational or technological advances. Milestone sensitivity At these development stages, sensitivity around scale-up milestones is palpable. Whether due to supply or technical aspects, suchdelays in any project are not unusual but there seems to be heightened sensitivity here that often results in further delays or hurdles tofunding. Financing strategy Financing strategies, with minimal reliance on government support, must be devised at the outset. Today this likely means earlier andmore active role from strategic investors which may limit some flexibility. It also means determining the license/own decision. IPOs reallyare not exits but financing events much like that seen in the biotech sector. Some combination of strategic investor with access to publicmarkets may be necessary to complete the demo and first commercial funding challenge. TABLE OF CONTENTS The Biofuels and Biochem Industry 4 5. The Cleantech Ecosystem Materials and Manufacturing Materials & ManufacturingRecycling & Energy Energy EnergyAgriculture, Air & Energy Storage WasteGeneration EfficiencyInfrastructure WaterManagement Alternative fuels Batteries Building materials Smart Grid Waste to energy Agriculture Biomass Fuel Cells Lighting Hardware Waste Air Solar / Thermal Utility Scale grid Demand response Smart metersrepurposing Water Windstoragesystems Transmission Hydro EnergyManagement Improved and Improved power Reduced Reduction in Economic in Organic economical reliabilityoperating costs wastagenature - well- pesticides /Application Benefits source of Intermittency Lower Reduce outagerun recyclingfertilizers energy Management maintenance frequency /programs cost Water Less pressure Increasedcosts duration less to operatepurification on non-cycles/longer Extended Reduce than waste Water renewablestorageequipment lives distribution losscollection and remediation resources (oil landfilling Efficiency Purification and gas) Management Energy security Grid/ Off GridResidentialEnd UserCommercial Industrial Utilities, Government and Others TABLE OF CONTENTSThe Biofuels and Biochem Industry 5 6. Market Snapshot: Global Ethanol ProductionTop Five Countries (2010) Ethanol Production (millions of gallons/year) 1 The Global Renewable Fuels Alliance (GRFA) forecasts ethanol production to hit 88.7 billion litres in 2011Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78.TABLE OF CONTENTS The Biofuels and Biochem Industry 6 7. Market Snapshot: Global Biodiesel ProductionTop Five Countries (2010) Biodiesel Production (millions of gallons) 1Source: 1NREL (National Renewable Energy Laboratory) Data Book, 2011.Note: Gallons to Liters conversion ratio at 1:3.78.TABLE OF CONTENTS The Biofuels and Biochem Industry 7 8. Market Snapshot: Ethanol and Biodiesel Production Landscape in the U.S.U.S. Ethanol Production1U.S. Alternative Fueling Stations2 Corn ethanol production continues to expand rapidly in the U.S. Between 2000 and 2010, production increased nearly 8x Ethanol production grew nearly 19% in 2010 to reach 13,000 million gallons per year Ethanol has steadily increased its percentage of the overall gasoline pool, and was 9.4% in 2010 In 2010, there were 1,424,878 ethanol (E85) fueled vehicles on the road in the U.S and 7,149 alternative fueling stations in the U.S. Biodiesel has expanded from a relatively small production base in 2000, to a total U.S. production of 315 million gallons in 2010. However, biodiesel is still a small percentage of the alternative fuel pool in the U.S., as over 40x more ethanol was produced in 2010 Biodiesel production in the U.S. in 2010 is 63x what it was in 2001Source: 1,2NREL (National Renewable Energy Laboratory) Data Book, 2011.TABLE OF CONTENTSThe Biofuels and Biochem Industry 8 9. Market Snapshot: Global Biochemical ProductionOverview of BiochemicalsSpecialty Biochemicals NameCharacteristicsUses Adhesives Liquid or semi-liquid compound that bonds items together Paper products, labeling, packaging, plastic bags, Polymers via drying, heat or pressure stamps, laminationConsumerLubricants andProducts and Additives Cationic SurfactantsOrganic compound consisting of phospholipids and Soaps, detergents, shampoos, toothpastes Coatings proteins with positively charged heads that lower the surface tension between liquids and other surfaces GeraniolClear to pale yellow that is insoluble in waterCommonly used in perfumes or fruit flavoring Industrial Lubricants Oil-based compound that reduces friction between movingUsed in operation of manufacturing, mining and4.6 MM 4.0 MM73.0 MM surfaces transportation equipment and more tonnes/yrtonnes/yr tonnes/yr LinaloolNaturally occurring alcohol found in flowers and spice Scents for perfumes and cleaning agents, insecticides, plants used to make Vitamin E Nonionic Surfactant Organic compound consisting of phospholipids and Lower the surface tension of liquids or between liquids Specialty Base oilsBuilding blocks for proteins with non-charged headsand another surfacesurfactants Fuel additives Specialty O2 ScavengerCompounds that inhibit oxidation or other moleculesUsed to prevent the corrosion metal by oxygen Soy petrolatumpolymideds, Plasticizer Additives that increase the workability, flexibility and Used for plastics, concrete and dry wall Performance polyols, polyesters fluidity of a substance allowing for easier changing ofwaxes Epoxies and shape Candles polyurethanes Specialty EmollientsLipids that attract water and retain moistureUsed in lotions and make-ups to prevent dry skin Coatings and SqualaneSaturated form of squalene making it less susceptible to Used in personal care products such as moisturizerscross linkers oxidation Like the biofuels industry, the biochemical industry uses bioprocesses and biomass to replace petroleum as the important building block for anumber of products including plastics, lubricants, waxes and cosmetics. According to the American Chemistry Council dated July 2011, the market size of the global chemical industry (Basic Chemicals, IntermediateChemicals, Finished Chemical Products)1 was approximately $3.0 trillion as of July 2011 Specialty chemicals compete more on desired effect than cost and as a result present less pricesensitive, higher ASP markets for renewablechemical firms to target In the U.S. ~200,000 barrels of oil per day are required to fulfill demand for plastic packagingSource: Elevance Renewable Sciences Filings.Note: 1Basic Chemicals include Butadiene, Propylene, Ethylene, Benzene; Intermediate Chemicals include Butanediol, Acrylic acid, Ethlyene glycol; Finished Products includeBR, PBT, SBR, Polyacrylics, PE, PET, Nylon-6.TABLE OF CONTENTS The Biofuels and Biochem Industry 9 10. Biofuels/Biochemicals Overview TABLE OF CONTENTS The Biofuels and Biochem Industry 10 11. What are Biofuels/Biochemicals? Summary The Biofuels and Biochemicals industry refers to the set of companies focused on developing fuels and chemicals from Biomass rather thanfrom fossil fuels In 2010, approximately 700 million barrels of biofuels were produced globally. Over 45% of this was cornbased ethanol in the U.S. and>25% produced was sugarcanebased ethanol in Brazil Biofuels/ Biochemicals are distinguished as either first , second or third generation. Focus is more on second generation and beyond as firstgeneration is a mature technology Corn and sugarcane will continue to be the most abundant feedstock for biofuels and biochemicals in the near term Companies utilizing foodcompetitive feedstock (e.g., corn, soy, wheat) face higher price volatility and potential for societal pushback Cellulosic feedstock does not face the foodvs.fuel argument but requires more specialized and expensive enzymes that are yet to becompletely commercialized Waste is a unique feedstock and companies that can successfully convert the biomass to fuels and chemicals will benefit significantly Energydedicated crops are emerging and will be vital to the growth of cellulosic biofuel and biochemical production Algae offer the highest oil yields of any biofuel feedstock, but challenges around cost have created challenges for commercial use Due to the importance of feedstock to the overall value chain, several companies are developing business models and technologies focusedon the upstream segment of the value chain Numerous conversion technologies exist each with distinct advantages and disadvantages The United States and Brazil currently produce and consume the vast proportion of global biofuels due to size of ethanol industries, and isexpected to remain the most important countries for biofuel production/consumption in the nearterm Biofuel and Biochemical companies are aiming to compete in large established markets in fuels and specialty chemicalsTABLE OF CONTENTS The Biofuels and Biochem Industry 11 12. What are Biofuels/Biochemicals? A biofuel/ biochemical is a product made from biomass organic material with stored chemical energy. While traditionalBiofuels/Biochemicals can be made from plant materials such as sugarcane, corn, wheat, vegetable oils,biomass1 constitutes anagriculture residues, grass, wood and algae.important part of the Biofuels/Biochemicals currently comprise only a small part of todays global energy consumption. Liquid energy mix, so farbiofuels accounted for a modest 2.7% of global road-transport fuels in 2010 and only 0.6% of the global modern biomass2 usefinal energy consumption. However, by 2030, this is forecast to increase to 9%, equivalent to 6.5 million makes up only a smallbarrels of oil a day. share of total globalenergy consumption Renewable energy overall (bio-energy,hydro, solar, etc) represented 16.0% of total energy demand in 2010.Renewable Energy Share of Global Final Energy Consumption, 2010Wind/Solar/Biomass/Geothermal Power Generation 0.7%Nuclear 2.8% Transport Biofuels 0.6% Biomass/Solar/Geothermal/ Hot Water/Heating 1.5%Several economical,Renewable 16.2% political, technological,Fossiland environmentalFuels 81%16.2%factors will drive growthin the Biofuels/Chemicals industry Hydropower 3.4% Traditional Biomass 10%Source: Renewables 2011, Global Status Report.Note: 1Traditional biomass means unprocessed biomass, including agricultural waste, forest products waste, collected fuel wood, and animal dung, that is burned in stoves orfurnaces to provide heat energy for cooking, heating, and agricultural and industrial processing, typically in rural areas.2Modern bioenergy comprises biofuels for transport,and processed biomass for heat and electricity production.TABLE OF CONTENTS The Biofuels and Biochem Industry 12 13. Biofuels/Biochemicals Growth RatesGlobal Average Annual Growth Rates of Renewable Energy Capacity and Biofuels Production, 20052010Biodiesel production 38%7%In 2010, approximately Ethanol production 23%Year-end 2005-201017%(5-year Period)700 million barrels of 16% Solar hot water/heating16%biofuels were produced.20103%Over 45% of this wasHyderopower 3%cornbased ethanol inGeothermal power4%3%the U.S. and >25% 25%produced wasConcentrating Solar Thermal Power77%sugarcanebased Wind Power 27%25%ethanol in BrazilSolar PV(grid -connected only)60%81% 49% Solar PV 72% Global energy consumption rebounded strongly in 2010 after an overall downturn in 2009, with annual growth of 5.4%. Renewable energy, which had nodownturn in 2009, continued its strong growth in 2010 as well. During the period from the end of 2005 through 2010, total global capacity of many renewable energy technologies including solar photovoltaic (PV), windconcentrating solar power (CSP), solar water heating systems, and biofuels grew at average rates ranging from around 15% to nearly 50% annually. Solar PV increased the fastest of all renewables technologies during this period, followed by biodiesel and wind. For solar power technologies, growthaccelerated during 2010 relative to the previous four years. At the same time, growth in total capacity of wind power held steady in 2010, and the growth rates of biofuels have declined in recent years, although ethanolwas up again in 2010. Hydropower, biomass power and heat, and geothermal heat and power are growing at more ordinary rates of 39% per year, making them more comparablewith global growth rates for fossil fuels (14%, although higher in some developing countries). In several countries, however, the growth in these renewabletechnologies far exceeds the global average.Source: 1Renewables 2011, Global Status Report.TABLE OF CONTENTSThe Biofuels and Biochem Industry 13 14. Main Feedstock SourcesCrops used for Biofuels/BiochemicalsFeedstock is typically the largest component of biofuel &biochemical production cost. Feedstock cost is estimated torepresent >30%50% of the operating costs of most projects.The main sources of biofuels are:1. Oil-seed crops: Oil seed crops include soybean, rapeseed and sunflower. These go through a process called transesterification and the oils of these oilseeds are converted into methyl esters. Methyl esters are liquid fuel that can either be blended with petro-diesel or used as pure biodiesel.2. Grains, cereals and starches: These come from corn, wheat, sugar cane, sugar beet and cassava, which undergo a fermentation processBiofuel Vehicle and Pumps to produce bio-ethanol.3. Non oilseed crops: Oil from the Jatropha fruit shows most promise. The fruit is poisonous, so it is not affected by the food-or-fuel tug of war; and it grows well on arid soils which means it does not need felling of forests. It is very resilient and needs less fertilizer and it can be developed into plantations like any oilseed crop.4. Organic waste: Waste cooking oil, animal manure and household waste. Waste cooking oils can be converted into biodiesel while the rest are converted to biogas methane.5. Cellulosic materials: These are grasses, crop waste, municipal waste and wood chips that are converted to ethanol. The conversion process is more complex than the two process aforementioned. There is also the option of converting these to gases such as methane or hydrogen for vehicle use or to power generators.Source: Broker Research and websites.TABLE OF CONTENTSThe Biofuels and Biochem Industry 14 15. Types of BiofuelsBiofuels/Biochemicals aredistinguished as either first, secondor third generation.Most of the Biofuels today come fromcorn-based ethanol and sugar-basedFirst generation: Commercially produced using conventional technology. The basic feedstock are seeds, grains, or whole plantsethanol.from crops such as corn, sugar cane, rapeseed, wheat, sunflower seeds or oil palm. These plants were originally selected as food orfodder and most are still mainly used to feed people. The most common first-generation biofuels are bioethanol (currently over 80%of liquid biofuels production by energy content), followed by biodiesel, vegetable oil, and biogas.The current debate over biofuels/biochemicals produced from foodSecond generation: Produced from a variety of non-food sources. These include waste biomass,crops has pinned a lot of hope on the stalks of wheat, corn stover, wood, and special energy or biomass crops (e.g. Miscanthus).Second-generation biofuels/biochemicals use biomass to liquid (BTL) technology, by"2nd-generation processes"thermochemical conversion (mainly to produce biodiesel) or fermentation (e.g. to produceproduced from crop and forest cellulosic ethanol). Many second-generation biofuels/biochemicals are under development suchas biohydrogen, biomethanol, Fischer-Tropsch diesel, biohydrogen diesel, and mixed alcohols.residues and from non-food energycrops.The commercial-scale production costs of 2nd-generation biofuels have been estimated by theIEA to be in the range of US $0.80 - 1.00/liter of gasoline equivalent (lge) [US $3.02-$3.79 pergallon] for ethanol and at least US $1.00/liter [$3.79 per gallon] of diesel equivalent for syntheticSecond generation conversiondiesel. This range broadly relates to gasoline or diesel wholesale prices (measured in USD /lge)technologies are key to progress andwhen the crude oil price is between US $100-130 /bbl . (However, many companies within SVBsuniverse are estimating crude oil parity without subsidy of between US$60 -80/bbl or $1.50 tosustainability. $2.00/gal at scale).Third generation: Algae fuel, also called oilgae, is a biofuel/biochemical from algae andaddressed as a third-generation petroleum replacement. Algae is a feedstock from aquaticcultivation for production of triglycerides (from algal oil) to produce petroleum replacementproducts. The processing technology is basically the same as for biodiesel from second-generation feedstock. Other third-generation biofuels include alcohols like bio-propanol or bio-butanol, which due to lack of production experience are usually not considered to be relevant asfuels on the market before 2050.Source: UNEP Assessing Biofuels Report.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTSThe Biofuels and Biochem Industry 15 16. First Generation FeedstocksSugar cane has been used to produce bioethanol in Brazil since the 1970s. It is a perennial plant that needs few inputs, such as fertilizers, and has long root systemsthat can store carbon in the soil. It has a good net Greenhouse Gases (GHG) balance (up to 90% reduction in GHGs from ethanol produced from sugar cane,compared with conventional gasoline). Sugar Cane is one of the most heavily utilized feedstock for biofuels production and the highly developed infrastructure of thesugarcane industry in Brazil will continue to make the country a hotspot for Biofuel/BioChemical firms. According to the U.S. Department of Energy, BrazilianSugarcane is not only the most abundant, but the cheapest available feedstock for ethanol production. Brazilian sugarcane offers several economic advantages to corn,which in the Unites States is the principal ethanol crop. Sugarcane produces around 15 dry tons per acre per year yielding roughly 600 gallons of ethanol per acre. Corn is a cereal grain that was domesticated in Central America. Corn can be used as a feedstock to make biobutanol and bioethanol. Corn is the most abundant crop grown in the U.S. and the backbone of the current U.S. Biofuel industry. Approximately 80 million acres of land in the U.S. are dedicated to growing corn, and the U.S. accounts for ~20% of global corn exports. For 2010, the USDA estimates the national corn crop to yield 154.3 bushel/acre, which corresponds to a dry weight of ~3.7 t/acre. Currently, one bushel of corn produces around 2.75 gallons of ethanol equating to 400 to 500 gallons per acre. Corn yields have experienced a long term general uptrend from 70 bushels/acre in 1970 to the current yield as a result of enhanced seed research and development following the mapping of the corn genome. Corn ears are widely used as a feedstock for firstgeneration ethanol, but corn stover, the aboveground portion of the plant that is left in the field after harvest, is increasingly being utilized for second generation ethanol production. Wheat is a grass that is cultivated worldwide. Wheat grain is used to make flour for breads, biscuits, pasta and couscous; and for fermentation to make beer, alcohol or vodka. Wheat can be used as a feedstock to make bioethanol, and it has few sustainability issues. Wheat can also be used to make biobutanol. Sweet sorghum is one of the many varieties of sorghum which have a high sugar content. Sweet sorghum will thrive better under drier and warmer conditions than many other crops and is grown primarily for forage, silage, and syrup production. Sorghum has a very limited breeding history and as a result there has not been the same degree of testing for yield improvements through genetic optimization as in other major biofuel feedstocks such as corn and sugarcane. While sorghum isnt as wellsuited as sugarcane for the production of refined sugar, it has value for ethanol, and its high lignocellulosic biomass content opens up the potential for use in the production of additional biofuels.Soybeans are a class of legumes native to East Asia. The crop is primarily harvested as a food source due to its exceptionally high protein content (~40% of dry weight). Inaddition to their protein, soybeans are also valued for their oil content which accounts for ~20% of the dry weight of the beans. According to the USDA, approximately 17% of soyoil is used in industrial products. These products include biodiesel, inks, paints, plasticizers and waxes, among many others. China is the worlds largest producer of soybeans oilwith more than 10M tons in 2010. Global production of soy oil exceeded 41 million metric tonnes (90 billion pounds) in the 2010/2011 season.Rapeseed is a yellow flowering plant of the mustard family that produces a seed which yields ~40% oil. It naturally contains 45+% euracic acid which is mildly toxic tohumans. Rapeseed is often grown as a highprotein animal feed and also used in lubricants, soaps, and plastics manufacturing. According to the USDA, approximately 30%of rapeseed oil is used in industrial products. In Europe, Rapeseed has become a preferred feedstock for biofuels as it has higher oil yields per unit of land than other cropsincluding soy beans, which only contain ~1820% oil. According to the Agricultural Marketing Resource Center, worldwide production was 61million tons in 2011 with Chinaand India being the largest producers at 14.7 million and 7.3 million tons respectively. The European Union accounted for 23 million tons of rapeseed output.Source: Clean Tech Energy Report by Robert Baird.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 16 17. Second and Third Generation FeedstocksSwitchgrass is a perennial warm season grass native to North America. It can grow to heights of almost nine feet and an established stand has a lifespan of up to 10 years.One of its defining characteristics is its large, underground root system which can weigh as much as 6-8 tons per acre, making the plant particularly adept at accumulatingcarbon dioxide .The energy efficiency of producing ethanol from switchgrass is estimated to be much higher than corn with an energy input to output rate of 1:4 vs. 1:1.3. Asreported by the USDA, various switchgrass crops yield 5-9.4 tons per acre. Camelina is an annual flowering plant and member of the mustard family, regarded for its oil properties. It typically stands 13 feet tall, is heavily branched, and produces small seeds high in oil content. It is able to grow effectively on land of marginal quality, needs minimal water input, and can withstand cold climates. Because of its high oilyield of 3538% (~2x that of soybeans), it is specifically being studied for use in biodiesel applications. Miscanthus is a tall perennial grass closely related to sugar cane. Though native to the tropical and subtropical climates of Africa and Southeast Asia, it is also being grown by at least 10 countries in Europe explicitly for use as an energy feedstock. It has entered into favor due to its high expected commercial yields of 12-13 BDT/acre (as reported by Mendel Biotechnology in LA and MS) with low moisture content in the range of 1520% if harvested in late winter or spring. Waste is a unique feedstock since it can often generate additional revenue from tipfees, but its heterogeneous characteristic makes it difficult to convert to biofuels and chemicals. Municipal Solid Waste (MSW) and Commercial & Industrial (C&I) waste are two waste streams that several companies in the industry are working to convert into fuels and chemicals. According to Pike Research, the market research and consulting firm that provides in-depth analysis of global clean technology markets, the global market for thermal and biological waste-to-energy technologies is set to reach at least $6.2 billion in 2012 and grow to $29.2 billion by 2022. Jatropha is a genus covering ~150 types of plants, shrubs, and trees which produce seeds with oil content of up to 40%. Making it even more attractive as a feedstock is its ability to grow on poor quality land and its resistance to drought and pests. It is native to South America and typically only grows in tropical or subtropical environments. One drawback of Jatropha is that it also contains toxic matter which necessitates it be carefully processed before use in production. It is estimated that Jatropha nuts are capable of providing up to 2,270 liters of biodiesel per hectare, and the plant is currently the subject of several trials for use in biodiesel applications including a collaborative effort between Archer Daniels Midland, Bayer CropScience AG, and Daimler AG.Southern pine presents a rich biomass source in the Southeastern portion of the U.S. These trees typically reach heights of 60120 feet (depending on species) andare characterized by their rounded tops, long needles, and rapid growth rates. According to the DOE, there are roughly 200 million tons of no-merchantable forestmaterial alone and total forestland in the US is estimated to be 750 million acres.Algae offer the highest oil yields of any biofuel feedstock, but issues around capital cost have created challenges for commercial use: Algae are simplecelledorganisms capable of creating complex organic compounds from inorganic molecules through photosynthetic pathways. Interest in using algae as a feedstock forbiofuel production has increased rapidly and more than 30 U.S. based firms are now working to commercialize such technology. Algae offer attractive yieldsestimated to be upward of 4,000 to 5,000 gallons per acre. The DOE considers open pond algal configurations to have the most promise estimating 2012 fuelcosts to be $9.28/ gal with a roadmap to $2.27/ gal.Source: Clean tech Energy Report by Robert Baird, June 2011.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4.TABLE OF CONTENTSThe Biofuels and Biochem Industry 17 18. Comparative YieldsEnergy density refers to the amount Energy Density for Biofuels per Unit of Required Land for Various Feedstock 1of energy stored in a given system orregion of space per unit volume CropRequired Fuel Fuel Energy Fuel EnergyCrop Yield (kg raw/kgProduced Density per HectareAmong all the edible oils used for Crop (tons/hectare)fuel) (tons/hectare) (MJ/kg3)(GJ/hectare4)manufacturing biodiesel, palm oil is Oil Rapeseed 3.04.7 0.6443.728.0also the most efficient in terms of Pyrolysis / wood10.02.0 5.0 25.0 125.0land use, pricing and availability Wheat2.66.2 0.4335.015.0Algae offer the highest oil yields of Corn 4.23.9 1.1 35.037.0any biofuel feedstock, but issues Sugarcane 61.8 18.9 3.3 35.0 115.0around cost have created challengesfor commercial use Sugarbeet 60.0 18.9 3.2 35.011.0 Wood Chips10.08.6 1.2 35.041.0 Wheat Straw1.97.9 0.2535.0 9.0Comparison of Yields for Typical Oil Crops2 Crop:Soybean Camelina SunflowerJatrophaOil PalmAlgae Oil Yield: 1,000- 2.66.2 0.43 35.0 15.0 (g/acre/yr)6,500Source: 1Global Change Biology, 2Robert Baird Biomass Almanac July 2011.Note: 3,4MJ & GJ: Megajoules and Gigajoules (derived unit of energy or work in the International System of Units, equal to the energy expended (or work done) in applying forcethrough a distance).TABLE OF CONTENTS The Biofuels and Biochem Industry 18 19. Comparative Advantages and Disadvantages of Feedstock CornSweet SorghumSugarcane Soybean OilRapeseed OilPine Oil Ethanol industry Annual crop short Cheapest available crop Good oil content makes it Seeds have very high oil High energy density and Pexperienced with using growth cycle (90120+ (noncellulosic) for suitable for biodieselcontent by volume atsaturated fat content Ocorn as a feedstockdays) allows for multiple ethanol production production~40% S Corn stover offers cuts (23) to be made in Does not have to be Can be used as an Ipotential for use in a given yeartransitioned from aanimal feed as well as in Tcellulosic fuel Low water requirementscomplex carbohydrate tolubricants and plasticsapplications and adaptable to wide a simple sugar prior tomanufacturing I variety of environments fermentation V Less residual waste Does not compete as a E biomass from harvesting food source S Use for corn in biofuels Lower sugar yields Due to harvest timelines, Competes as a food Shares significant Burning of peatland tostokes the food vs. fuel compared to sugarcane average mills only sourcedemand with Canola oilclear room for new Iargument Yields mixed sugars asoperate an average of Oil content lower thanwhich could add to priceplantations leading to S Subject to commodity opposed to pure sucrose,~185 days per year many competing cropsvolatilitysignificant deforestationpricing volatility making it less conducive Requires high qualityused as targets for and GHG emissions S High quality land required for production of refined land and significant water biofuels Uas well as significant sugarsand fertilizer inputs Production of biodiesel Ewater and fertilizer needs Vegetative propagation from soybean oil results S can lead to overcrowding in a net energy loss of~30%Source: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 19 20. Comparative Advantages and Disadvantages of Feedstock (cont)SwitchgrassCamelina MiscanthusMunicipal Solid Waste Jatropha Southern Pine Reliable biomass yields Can be grown on Reliable biomass yields Can generate a Can be grown on low Shuttering of paper & Pdue its propensity for marginal lands, in cold Capable of relatively high significant revenuequality land processing mills in U.S.accumulating CO2 climates, and with stream from tipfees Naturally resistant to have led to a growth O yields today Higher energy contentminimal water Continuously generated drought and pests surplus S Can be grown effectivelythan corn for ethanol Short crop that can bewithout fertilizers less no need for agriculturethough yields shown to Wood waste offers an Iproduction rotated with wheat and spending be significantly higherinexpensive source of leaching T when irrigated biomass Wide adaptability and High oil yields of 3538% Collection and hauling Icapable of growth in drylogistics and Does not compete as a Trees have longer Vclimatesinfrastructure is in place food source as it is growth cycles than other E ESelfseeding, requiring nonedible energy crops Sno replanting afterharvesting Additional research Additional time/research Limited adoption thus far Heterogeneous Contains toxic matter Collection processes forrequired beforeneeded before in North America characteristic makes which must be separatedresidual wood waste still Icommercially viablecommercially viableconversion difficult before used in productionneed development Studies have found it S dries up soil more than Often requires Still requires significant Rising demand for pulp S other crops which cangasification which can yield improvements globally could provide U reduce surface water carry high CAPEX before economicallyupward pricing pressures supplies requirements viable at commercial Cannot be utilized as E scalefeedstock by Snoncellulosic conversiontechnologiesSource: Robert Baird Biomass Almanac July 2011. TABLE OF CONTENTSThe Biofuels and Biochem Industry 20 21. Petroleum Replacement Overview Market SizeCustomersAlkylate/Drop-in Refiners $485 billionPolygasGasoline/Alkylate Propionic Poly- Automative/Propanol Propylene Packaging Consumer C3propylene Products $110 billionChemical CompaniesAcrylics Super-Absorbents AceticCellulosicRayon/Filters Anhydride Acetate Consumer ProductsVAM EVAPaint/Adhesives Paint Companies $180 billionConversion ChemicalTechnology Poly-ethylenePackagingCompaniesAcetic Ethylene glycol PET Ethanol Ethylene C2 Linear a- olefinsJet/Diesel $245 billionAirlines/DodAcetic RefinersSales Gasoline Blending $60 billion RefinersAlkylate Drop-in GasolineButyricButanolButene C4 $1 billionConsumer ProductsRubber/Plastics Source: ZeaChem,, Inc.. TABLE OF CONTENTSThe Biofuels and Biochem Industry 21 22. Conversion Technologies Fermentation and Fluid Catalytic Cracking Fermentation Fluid Catalytic CrackingDefinition: Fermentation is the process by which bacteria suchDefinition: Fluid Catalytic Cracking (FCC) is a proven processas yeast, convert simple sugars to alcohol and carbon dioxide in the petroleum industry used to convert crude oil into higherthrough their metabolic pathways. The most common input for value products such as gasoline and naptha. FCC reactionsfermentation in the United States is corn, but in warmer climates occur at extremely high temperatures (up to 1,000+ F) andsugarcane or sugar beet are the principal types of feedstock. use fine, powdery catalysts capable of flowing likely a liquidResulting alcohols such as ethanol and butanol can be utilizedwhich break the bonds of longchain hydrocarbons into smalleras blendstock with gasoline or in the case of butanol, can act as carbonbased molecules. FCC technology is applied to organica gallon for gallon replacement sources of carbon such as woody biomass to convert theTECHNOLOGYcellulosic content into usable hydrocarbons with equivalence toFeedstock: Simple sugars corn and sugarcane are mostcrude oils this process is referred to as Biomass Fluidcommonly used today in the production of ethanolCatalytic Cracking (BFCC). FCC was first commercialized inOutput : Alcohols including ethanol and butanol, and distillers1942, and is presently used to refine ~1/3 of the U.S.s totalgrainsannual crude volumeFeedstock: Feedstock agnostic can utilize cellulosic biomassOutput: Biocrude, gases Ability to genetically modify metabolic pathways of Commercially proven technology in the petroleum industryorganisms to yield different carbon molecule outputs Can process lowcost cellulosic biomass(ethanol, butanol) POSITIVES Process already demonstrated at commercial scale viafirstgeneration ethanol production Common outputs such as ethanol / butanol have existingmarkets in both fuels and chemicals Costly to develop/purchase enzymes to break down High capital costs for facilitiescellulosic materials to make simple sugars available for Proven for petroleum but limited to demonstration testing for ISSUES fermentationbiomass Firstgeneration feedstock susceptible to commodity pricevolatilitySource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTS The Biofuels and Biochem Industry 22 23. Conversion Technologies Anaerobic Digestion and Gasification Anaerobic Digestion GasificationDefinition: Anaerobic digestion is the process by which Definition: Gasification is a process by which carbonbasedbacteria decompose wet organic matter in the absence of materials such as coal, petroleum coke, and biomass areoxygen. The result is a byproduct known as biogas which separated into their molecular components by a combination ofconsists of ~60% methane and ~40% carbon dioxide. Biogasheat and steam, forming a gaseous compound known ascan then be combusted in the presence of oxygen to generatesynthesis gas or syngas as it is commonly calledenergy. Effectively any feedstock can be converted to biogasvia digestion including human and animal wastes, crop Feedstock flexibility: Feedstock flexible including use ofTECHNOLOGYresidues, industrial byproducts, and municipal solid waste. municipal solid wasteAnaerobic digestion is the same process that created naturalgas reserves found throughout the world today Output: Syngas which has the capacity to be used in a varietyof applications including the production of transportation fuels,Feedstock: Starches, celluloses, municipal solid waste, foodelectricity, and heat. Other byproducts include sulphur and slaggreases, animal waste, and sewageOutput: Biogas Commercially proven technology Input flexibility allows costs to be reduced through lower cost Can be used to process wet organic matter feedstock Resulting materials can be processed into valuable fertilizer Energy conversion ratio potentially higher than competing POSITIVES Utilization of methane to produce biogas reduces impact oftechnologies because biomasstoliquid (BTL) gasificationcan convert all of the cellulosic material into transportationGHG emissions from landfill gasfuels Low capital and costs and potential for low operating cost Lower emission levels than traditional power production Slower process than many alternatives Gas quality suffers from irregularity due to challenges in Cannot be used to convert ligninremoving tar content energy density ~50% of natural gas ISSUES Accumulates heavy metals and contaminants in the High capital and operating costs this could be reduced inresulting sludgefuture by colocation next to feedstock sources Gas cleanup has disrupted projects in the pastSource: Robert Baird, Clean Tech report July 2011.TABLE OF CONTENTS The Biofuels and Biochem Industry 23 24. Conversion Technologies Pyrolysis and TransesterificationPyrolysisTransesterificationDefinition: Pyrolysis is the process by which organic materials Definition: Transesterification is the process by which aare decomposed by the application of intense heat in thetriglyceride is chemically reacted with an alcohol to createabsence of oxygen to form gaseous vapors which when cooledbiodiesel and glycerin. While there are a few variants, theform charcoal and/or biooil can potentially be used as a directpredominance of biodiesel is created through base catalyzedfuel substitute or an input for the manufacture of transportation transterification because of its high conversion yields andfuels comparatively low pressure and temperature requirement.TECHNOLOGYTransesterification is necessary because vegetable oils/animalFeedstock: Capable of using a wide variety of feedstockfats cannot be used directly to run in combustion enginesincluding agriculture crops, solid waste, and woody biomassbecause of their high levels of viscosity(currently most common)Feedstock: Soybean oil, palm oil, jatropha oil, rapeseed oil,Output: Biooil (energy density of ~16.6 megajoules/liter) whichanimal fats, food grease, etc.must be processed further before it can be utilized as atransportation fuel. It also yields syngas and biocharOutputs: Biodiesel and glycerol Flexibility of feedstock diversifies risk related to feedstock Results in lowerviscosity biodiesel allowing it to replacesupply/demand pressures petroleum in diesel engines Marketable biochar output provides secondary revenue Glycerin byproduct can be sold to generate secondarystream from productionrevenue stream POSITIVES Low cost and high availability of methanol and sodiumhydroxide reduces input costs Relatively low reaction temperature of 60 degrees C keepsutility costs down Potentially corrosive characteristics requiring specialized Requires separation/recovery of base catalyst / glycerin fromcomponents in fuel systems to adequately house it solution ISSUES Viscosity increases during storage meaning it must be used Free fatty acid and water contamination can result inmore frequently than traditional fossil fuels negative reactionsSource: Robert Baird, Clean Tech report July 2011. TABLE OF CONTENTSThe Biofuels and Biochem Industry 24 25. Conversion Technologies Syngas Fermentation Syngas Fermentation Definition: Syngas Fermentation is the process by which gasification breaks the carbon bonds in the feedstock and converts the organic matter into synthesis gas. The syngas is sent to bioreactor where microorganisms directly convert the syngas to a fuels and/or chemicalsTECHNOLOGY Feedstock: Capable of using a wide variety carbon containing feedstocks including agricultural crops, solid waste, woody biomass and fossil fuels such as coal and natural gas Output: Ethanol, 2.3-BDO, Acetic Acid, Acetone, Propanol, Butanol, MEK, Isoprene, Acrylic Acid, Butadiene, Succinic Acid Process does not rely on expensive enzymes or pretreatment chemicals thus operating costs should be lower than non-gasification based technology POSITIVES Ability to convert nearly all feedstock into energy with minimal by-products. Microorganisms are able to produce only one fuel/chemical under low temperature and pressure Imperative to keep the right nutrient and chemical balance in order to keep the microorganisms alive and productive. Any contaminants could spread quickly through the bioreactor ISSUES Reliability and Continuous Operations: Since the organisms live off the energy contained in the synthesis gas, it is critical that they continue to be through a well operating system designSource: Coskata Inc, LanzaTech Inc, Advanced Biofuels USA Syngas Fermentation, The Third Pathway for Cellulosic Ethanol. TABLE OF CONTENTSThe Biofuels and Biochem Industry 25 26. The Importance of Biofuels/Biochemicals TABLE OF CONTENTS The Biofuels and Biochem Industry 26 27. Biofuels/Biochemicals Growth Summary The sector has received increasing attention from both public and private investors due to several growth drivers including the desire forenergy independence, the increasing demand for liquid fuels for transportation especially in emerging markets, technological advancesacross the industrys value chain and environmental concerns (Green house gas (GHG) emissions). The most important driver, however,spurring investment in the industry is the continued volatility and high price of crude oil. Biofuels/Biochemicals constitute a 3% share in the total global chemicals & fuels market in 2010 and is expected to touch 17% in 2025. As easy conventional oil resources continue to decline and more expensive nonconventional liquid sources make up the difference,biofuels/ biochemicals will play an increasing role in diversifying the liquid energy landscape. Liquids demand is growing mainly driven by rapidly-growing non- Organization for Economic Co-operation and Development (OECD)economies and will be met by supply growth from Organization of the Petroleum Exporting Countries (OPEC) and the Americas. China (+8million barrels per day), India (+3.5 million barrels per day), and the Middle East (+4 million barrels per day) account for nearly all of the netglobal increases. Liquid biofuels accounted for a modest 2.7% of global road-transport fuels in 2010 , but will play an expanded role of meeting liquid demand. OPECs critical position in the oil market grows given its oil reserve position while the Americas also play an expanding role by utilization ofnew recovery technologies in tight oil formations and Canadian oil sands. Exporting oil producing nations, petro-states, rely heavily on oil revenues to support their economies (50-90% of GDP). Oil price decreasescan cause major deficits, budget cuts, considerable social turmoil, and political change creating an incentive for petro states to keepproduction in line with demand. Government legislation is driving the adoption of renewable fuels In February 2010, the US Environmental Protection Agency (EPA) submitted its final rule for Renewable Fuels Standard 2 (RFS-2), setting forth volume targets of 36 billion gallons of renewable fuels produced in the U.S. by 2022 with 21 billion being advanced biofuels. The EU is targeting 10% of transport energy from renewables by 2020, counting both sustainable biofuels and electric vehicles. TABLE OF CONTENTSThe Biofuels and Biochem Industry 27 28. Compelling Market OpportunityOpportunities for bioproducts will Bio Based Market Opportunitynot only be fuels based but focusedon the whole barrel. The gasolinemarket accounts for about 45% of Bio Based Market 1.5 approx.$1.4 trillionthe barrel of crude while there aremany different chemicals inside aFuels (Bio)Chemicals (Bio) Trillions of Dollars (U.S.)barrel of oil.A 42-U.S. gallon barrel of crude 1.0equates to about 45 gallons ofpetroleum products which includes CAGR(as a % of the total barrel) motor 16%gasoline (45%), distillate fuel oil0.5(29%), jet fuel (9.4%) petroleumcoke (5.5%), still gas (4.4%).Bio Based Market$148 billion 0.020102025 Total Chemicals & Fuels Market$5.0 trillion$8.0 trillion Bio-based Share3.0%17%Source: Renmatix, International Energy Outlook 2009, Industrial biotechnology analysis 2010, Arthur D. Little ICIS; World Energy Outlook 2009, International Energy Agency2010; USDA Biobased Product Projections 2008; US Energy Information Administration. TABLE OF CONTENTSThe Biofuels and Biochem Industry 28 29. Drivers of Biofuels/Biochemicals GrowthThe rising cost of oil will create an Crude Oil Monthly spot prices ($ per barrel)1incentive for producers ofpetroleumderived products to seek$160.0 The volatility and price increases of oil are$140.0 the most significant drivers in the growth ofrenewable alternatives that providethe Biofuel/Biochemical Industry: The$120.0greater stability in pricing. $100.0 increasing demand for petroleum products, supply shocks, and other factors have led to $80.0 volatile and high oil prices over the pastStrong public sentiment for the U.S. $60.0 decade. In January 2000, European Brent $40.0 Crude spot prices were below $24/barrelto reduce its dependence on foreignbefore peaking at over $140/barrel in 2008. $20.0petroleum reserves is thus one of the $0.0 After some price relief in the midst of the global economic downturn, Brent Crude ismajor drivers of the renewable fuel~$97/barrel currently, representing a CAGR ofindustry.~13.5% from 20002011.U.S. oil imports drop due to risingdomestic output & improvedNet Imports of Oil2transport efficiency; EU imports toovertake those of U.S. around 2015Million barrels/day Biofuels and Biochemicals help reduce U.S.and China expected to be the largest14.0 dependence on foreign oil: U.S. reliance on 2000 2010 2035foreign imports has increased significantlyimporter by 2020. 12.0 since the mid1980s. It can be argued that as10.0 the worlds current economic superpower and the largest consumer of petroleum, the U.S. 8.0 will continue to command a reliable oil supply 6.0 from producing nations. However, with the emergence of rapidly growing and 4.0 industrializing economies in China and India, 2.0 the global supply of oil may be spread increasingly thin putting additional upward 0.0 pressure on energy prices ChinaIndiaEU U.S. JapanSource: 1Bloomberg, 2World Energy Outlook 2011. TABLE OF CONTENTSThe Biofuels and Biochem Industry 29 30. Drivers of Biofuels/Biochemicals Growth (cont)By 2035, the EIA projects thatVehicles per 1000 people in Selected Markets1transportation sector will account for 80073% of all liquid fuels consumption. 700 Increase in transportation applications driving 20102035growth in liquid fuels consumption: The Energy 600Key drivers of transportation growth Information Administration (EIA) projects that U.S. 500 consumption of liquid fuels will increase from 19.1 millioninclude population expansion and 400 barrels per day in 2009 to more than 21.9 million gallonsrising real disposable income which300 per day by 2035. The increase is expected to be driven 200 almost entirely by an increase in the use of liquid fuels forleads to more frequent travel .transportation applications which is forecasted to grow 100 0 from 13.6 million barrels per day in 2009 to 16.1 million barrels per day by 2035 .The global passenger vehicle fleet United European China IndiaMiddle East StatesUniondoubles to 1.7 billion in 2035; mostcars are sold outside the OECD by Commodity Food Price Index vs. CPI22020, making non-OECD policies keyCellulosic biofuel technologies unlock nonfoodfeedstock and reduce input cost volatility: Cellulose (corn 400.0to global oil demand. stover, switchgrass, miscanthus, woodchips etc) is not used 350.0for food and can be grown in all parts of the world. The entireMillion300.0 barrels/day250.0plant can be used when producing cellulosic products. While 200.0The development and subsequentthe U.S. is the worlds largest producer of the crop, corn150.0100.0scaleup of cellulosic technologies competes as a food source and is subject to significantly50.0more price volatility than residual waste biomass. Over the 0.0offers a clear advantage to reducingpast decade the value of the IMFs Commodity Food Priceprice volatility of biofuel feedstock Index increased at a CAGR of 8.7% annually. This is ~3.6xfaster than the rate of inflation as measured by the Commodity Food Price IndexCPIand will play major role in driving Consumer Price Index which had a CAGR of 2.4% annuallydown the costs of renewable over the same period. From 2000 to 2011, the maximum 12- Relative Prices of Wood, Sugar, Soy Oil,month price increase was 18% for pine woodchips versusfuels/chemicals.50% for corn, 46% for sugar and 51% for West Texas Corn, Nat Gas and Crude Oil Since 20003Intermediate crude according to average quarterly data from500 450Timber Mart-South, the USDA and the EIA. 400 Index (Q1 2000=100)Million barrels/day 350 300 250 200 150 10050 0 2001 20022003 20042005 2006 2007 20082009 2010 2011 World raw sugar (No.11, spot)Corn (No.2 yellow, Chicago spot)Source: 1World Energy Outlook 2011, 2Bloomberg, 3EIA, DOE, Timber Mart-South.US Nat Gas Industrial PriceWTI Crude (Spot, FOB Cushing, OK)Note: OECD- Organization for Economic Co-operation and Development.Pine Pulpwood (Delivered AL) TABLE OF CONTENTS The Biofuels and Biochem Industry 30 31. Drivers of Biofuels/Biochemicals Growth (cont)While in the near term provenBiofuels in Transportation1reserves are expected to increase 2010 2035with new exploration efforts andtechnological developments thatBiofuels: 2.7%Biofuels: 9.0%Petroleum is a finite resource and substitutes must be found: Petroleum isincrease certainty of quantity, in the naturally formed by the anaerobic decay oflong term, new sources of energy organic matter in the presence of intense heat and pressure which is thought to occur overmust be discovered to satisfy global hundreds of thousands or even millions ofenergy demands.years. With such a long formation cycle, the earth is not capable of regenerating its reserves of oil at the same rate to whichLifecycle GHG emissions are thehumanity draws upon them for energy use.aggregate quantity of GHGs related Other fuels: Other fuels: 97.3%91.0%to the full fuel cycle, including allstages of fuel and feedstockproduction and distribution, fromBiofuel Lifecycle GHG Impact Relative to Gasoline2feedstock generation and extractionthrough distribution and delivery and 160.0% Environmental concerns, particularly with134% regard to global warming driving adoptionuse of the finished fuel. The lifecycle 120.0%105% 100%104%of cleaner and greener alternatives: The 82% 82% 74%74%GHG emissions of the renewable fuel 80.0%EIA projects that CO2 emissions from the combustion of liquid fuels will grow by ~28%are compared to the lifecycle GHG 40.0%20% -24% -16% from 2007 to 2035. China is the largest 0.0%emissions for gasoline or diesel.contributor to the rising pollution levels with-40.0% CO2 emissions growth estimated to be 2.9% Corn Stover EthanolSoy-based BiodieselGasoline Waste Grease Biodiesel Corn Ethanol (Biomass Dry Corn Ethanol (Biomass Dry Corn Ethanol(Nat. gas drySwitchgrass Ethanol Sugarcane Ethanol Corn Ethanol(Best CaseCorn Ethanol (Coal dry annually driven by its rapidly expandingNat.gas dry mill) demand for liquid fuels in its industrial andMill with CHP) transportation sectors. The U.S., however, ismill)mill) expected to remain the worlds largest polluter Mill) with ~2.6 billion metric tons of emission in 2035. A wider push to renewable fuel sources is viewed as a major step towards reversing the pattern of global warming.Source: 1BP Website, 2EPA.Note: GHG - Greenhouse Gas. TABLE OF CONTENTSThe Biofuels and Biochem Industry 31 32. Liquid Demand StatisticsLiquids demand growth from non-Total Liquids Consumption by Region1OECD countries will be met byMillion tones of oil equivalentsupply growth from OPEC and the (MTOE)Americas5000.0188.0 of which 153.2 116.8 biofuels4500.090.0Liquids demand growth is driven by59.319.9non-OECD transport while OECD 4000.0 9.2demand falls across all sectors 8.53500.0 7.1Overall consumption growth will be3000.0constrained by stronger crude oil2500.0prices seen in recent years,technological advances, a range of2000.0new policies, and the continued,1500.0gradual reduction of non-OECDsubsidies 1000.0500.0 0.0 1990 199520002005201020152020 2025 2030Total LiquidsConsumption 3,148 3,271 3,5713,908 4,0284,166 4,378 4,5624,719(MTOE) North America South & Central America Europe & EurasiaMiddle EastAfricaAsia PacificSource: 1BP Energy Outlook 2030: January 2012.Note: OECD- Organization for Economic Co-operation and Development.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTS The Biofuels and Biochem Industry 32 33. Liquid Supply StatisticsRising supply to meet expected Total Liquids Production by Region1demand growth should comeprimarily from OPEC, where output is Million tones of oil equivalent (MTOE)projected to rise by nearly 12 Mb/d. 5000.0 188.0of which 153.2The largest increments of new OPEC116.8biofuels 4500.0 90.0supply will come from NGLs2, as well19.959.3as conventional crude in Iraq and4000.0 9.2Saudi Arabia 8.5 3500.0 7.1OPECs critical position in the oil3000.0market grows while the Americas 2500.0also play an expanding role 2000.0Non-OPEC supply will continue torise, growing by 5 Mb/d, due to1500.0strong growth in the Americas from 1000.0U.S. and Brazilian biofuels, Canadian 500.0oil sands, Brazilian deepwater, andU.S. shale oil, offsetting continued 0.0declines in a number of mature1990 19952000 2005 2010 2015 20202025 2030provinces Total Oil Production 3,172 3,2843,612 3,907 3,9144,0894,2634,3984,512 (MTOE) North AmericaSouth & Central AmericaEurope & Eurasia Middle EastAfrica Asia PacificSource: 1BP Energy Outlook 2030: January 2012, 2Natural Gas Liquids.Note: OPEC- Organization of the Petroleum Exporting Countries. Mb/d Million Barrels per Day.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4.TABLE OF CONTENTS The Biofuels and Biochem Industry 33 34. Energy Market GrowthBoom, bust, or both, global demand Total Energy Production by Fuel Type 2010 vs. 20301for energy looks set to increase by at Million tones of oil equivalent (MTOE)least 50% over the next 20 years5,000.0(CY2030), driven by population 2030growth and rapid industrialization in 4,000.0 2010developing economies. Global supply 3,000.0of fossil fuels is already2,000.0consolidating, with 70% of the1,000.0worlds oil now sourced from just sixcountries and 50% of natural gas0.0 Oil Natural Gas Coal Nuclear Energy HydroelectricityBiofuelsRenewablesproduced in just threeBy 2040, oil and natural gas will bethe worlds top two energy sources,Total Energy Consumption by Fuel Type 2010 vs. 20302accounting for about 60% of global Million tones of oil equivalent (MTOE)demand, compared to about 55%today. Gas is the fastest growing 5,000.02030major fuel source over this period, 20104,000.0growing at 1.6% per year from 20103,000.0to 2040. Investments and new2,000.0technologies, applied over manyyears and across multiple regions,1,000.0will enable energy supplies to grow 0.0and diversifyOil Natural Gas Coal Nuclear Energy Hydroelectricity BiofuelsRenewablesSource: 1,2BP Energy Outlook 2030: January 2012. TABLE OF CONTENTSThe Biofuels and Biochem Industry 34 35. Energy Market Growth (cont)Total Energy Consumption by Region1 Shares of Energy Sources in World Primary Energy Demand2Million tones of oil equivalent (MTOE) 30,000.0 50% 25,000.040% 20,000.030% 15,000.0 10,000.0 20%5,000.0 10%0.0 0% OECD Non-OECDEuropean UnionEuropeFormer Soviet Union US China Total energy consumption will increase from 12,002.4 mtoe in 2010 to 16,631.6 MTOEOilCoal Gas in 2030. Global energy demand is expected to increase by one-third from 2010 to 2035, Biomass & wasteNuclearOther Renewables HydroTotalChina & India accounting for 50% of the growth 20303 with Growth of Energy Consumption toTotal Growth of Energy Consumption to 20303Billion tones of oil By Sector & Region Billion tones of oilBy Sector & Fuelequivalent (BTOE)Final Energy Use equivalent (BTOE) Final Energy Use 2.0 2.5 1.5 2.0 1.0 1.5 0.5 1.0 0.0-0.5 0.5TransportIndustry Other0.0Transport IndustryOtherChina & India OECD Middle EastROWCoal OilBiofuelsGasElectricitySource: 1,3BP Energy Outlook 2030: January 2012, 2World Energy Outlook 2011.Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4. TABLE OF CONTENTSThe Biofuels and Biochem Industry 35 36. Liquid Demand Growth from Non-OECD CountriesCrude Oil is expected to be theDemand and Supply by Regionslowest-growing fuel over the next 20years. Global liquids demand (oil,biofuels, and other liquids)nonetheless is likely to rise by16Mb/d, exceeding 103Mb/d by 2030according to BPs 2012 EnergyOutlook.Growth in demand comes exclusivelyfrom rapidly-growing non-OECDeconomies. China (+8Mb/d), India(+3.5Mb/d), and the Middle East(+4Mb/d) account for nearly all of thenet global increases.Source: BP 2012 Energy Outlook 2030.Non-OECD: Countries that are not included in the Organization for Economic Cooperation and Development (OECD). OECD is an international organization helping governmentstackle the economic, social and governance challenges of a globalized economy. Its membership comprises about 34 member countries. With active relationships with some 70other countries, non-governmental organizations (NGOs) and civil society, it has a global reach. Members include many of the worlds most advanced countries but also emergingcountries like Mexico, Chile and Turkey. Mb/d Million Barrels per day. TABLE OF CONTENTSThe Biofuels and Biochem Industry 36 37. Biofuels Expanded Role in Meeting Liquid DemandGlobal liquids supply growth will match Liquids Supply and Growth Estimatesexpected growth of demand with OPECaccounting for 70% of incrementalsupply; the groups market share willapproach 45% in 2030, a level notreached since the 1970sFour-fifths of oil consumed in non-OECDAsia comes from imports in 2035,compared with just over half in 2010.Globally, reliance grows on a relativelysmall number of producers, mainly in theMENA region, with oil shipped alongvulnerable supply routes. In aggregate,the increase in production from thisregion is over 90% of the required growthin world oil outputSupply from the Americas will alsoexpand, by 8Mb/d, as advances in drillingtechnologies unlock additional resourcesin the Canadian oil sands (2.2+Mb/d),Brazilian deepwater (+2Mb/d, and UStight oil basins (+2.2Mb/d). In addition,the US and Brazil contribute over half oftotal biofuels production growth (of+3.5Mb/d) expected by 2030Source: BP 2012 Energy Outlook 2030.Note: MENA Middle East Northern Africa; Mb/d million barrels per day; OPEC Organization of the Petroleum Exporting Countries.TABLE OF CONTENTS The Biofuels and Biochem Industry 37 38. Biofuels for Transportation Demand for liquid transport fuels is expected to increase by 2 millionEthanol and Biodiesel Production, 200020101barrels per day over the next two decades and nearly 40% of the growth Billion literswill be supplied by biofuels, the first time that non-fossil fuels will be themajor source of supply growth.100.0 90.0 86.0 Liquid biofuels make a small but growing contribution to fuel usage80.0EthanolBiodiesel66.073.0worldwide. 70.0 Provided about 2.7% of global road transport fuels in 201060.0 Accounted for higher shares in some countries (e.g., 4% in the U.S.) 50.052.0and regions (3% in the EU) and provided a very large contribution in 40.039.0Brazil, where ethanol from sugar cane accounted for 41.5% of light 30.0 24.017.019.029.0 31.0 16.0 19.0duty transport fuel during 201020.0 21.03.76.6 10.0 17.00.8 1.0 1.4 1.92.4 11.0 The U.S. was the worlds largest producer of biofuels, followed by Brazil 0.0and the EU. Despite continued increases in production, growth rates for 2000 20012002 2003 20042005 2006 2007 2008 20092010biodiesel slowed again in 2010, whereas ethanol production growthWorld ethanol production for transport fuel tripled between 2000 and 2007 from 17picked up new momentum.billion liters to more than 52 billion liters, while biodiesel expanded eleven-foldfrom less than 1 billion liters to almost 11 billion liters In 2010, global production of fuel ethanol reached an estimated 86 billion liters, an increase of 17% over 2009 The U.S. and Brazil accounted for 88% of ethanol production in 2010, with the U.S. alone producing 57% of the worlds total Long the worlds leading ethanol exporter, Brazil continued to lose international market share to the U.S, particularly in its traditional markets in Europe Adverse weather conditions hampered global harvesting of sugar cane, pushing up prices. As a result, U.S. corn-based ethanol became relativelycheaper in international markets (although it was subsidized, unlike Brazilian ethanol) Global biodiesel production increased 7.5% in 2010, to nearly 19 billion liters, a five-year average (end-2005 through 2010) growth of 38% Biodiesel production is far less concentrated than ethanol, with the top 10 countries accounting for just under 75% of total production in 2010 Germany remains the worlds top biodiesel producer at 2.9 billion liters in 2010, followed by Brazil, Argentina, France, and the U.S. The EU remained the center of biodiesel production, but due to increased competition with relatively cheap imports, growth in the region continued toslow. The diversity of players in the advanced biofuels industry continued to increase with the participation of young, rapidly growing firms, majoraviation companies, and traditional oil companiesSource: 1F.O. Licht (world-renowned renewable fuels research agency).Note: Litre: Gallon = 1:0.26; Gallon: Barrel = 1: 0.0322; Tonne of Oil Equivalent (toe): Barrel of Oil Equivalent (boe) = 1: 7.4.TABLE OF CONTENTS The Biofuels and Biochem Industry 38 39. Increasing Marginal Cost of ProductionAdvanced biofuel and chemical Total Production Costs ($/Bbl)companies are projecting crude oil parityun-subsidized at $60-$80/ barrel at scale1.The cost of bringing oil to market rises asoil companies are forced to turn to moredifficult and costly sources to replacelost capacity and meet rising demand.Oil Shale, better known as tight oil, isexpected to continue to increasedomestic oil production. Well costsalone have doubled in the last 5 years to$8-10MM per well with steep reservoirdecline curves (