Challenging times for bio-based
chemicals and materials
In the beginning of August, bio-based succinic acid producer,
Bioamber, announced that its efforts at finding a buyer to bail out the
financially distressed company had failed and that it had no option but to face
liquidation. The company’s assets are now to be sold off, most likely for a
fraction of its real value, to meet financial obligations to lenders. The news
came as no surprise, as the company’s distress was well known for some time,
but it serves as a warning that fighting a well-entrenched petroleum-based
chemical industry is a formidable challenge.
Bioamber’s production facility for bio-based succinic acid, with
a capacity of 30-ktpa, is based in Sarnia (Ontario, Canada) and at its opening
in 2015 it was touted as a successful example of the region’s efforts to
nurture not just a petrochemical industry based on cheap natural gas, but also
a bio-based one. Its failure is seen by some as an example of the many
challenges that the business of industrial biotechnology faces, especially in a
moderately priced oil scenario.
Good going – for some time
In December 2009, Bioamber commissioned its first unit for
bio-based succinic acid in Pomacle (France), with a capacity of 2,000-tpa, at
an investment of €21-mn, based on the fermentation of sugars using E.
coli. For some time it seemed all was well.
The technology came from agri-business giant, Cargill, and a
network of external partners seemed interested in converting the bio-based succinic
acid available at reasonable scale into several value-added products. The list
included Covestro (bio-based, water-borne polyurethane dispersions); Stahl
(urethane alkyd wood coatings with up to 42% renewable content); Oleon (new
range of dibasic esters, which offer a number of advantages over conventional
lube basestocks); Inolex (natural emollients, which can be used in place of
silicone fluids); and Xuchuan (polyester polyols, used to produce paints &
coatings, polyester resins and synthetic leather). In addition, Bioamber had an
offtake agreement with global chemicals distributor, Vinmar International.
There was talk of building a third plant, possibly of 200-ktpa capacity, in the
2018-2020 timeframe, and a confidence that the product could be competitive at
a crude oil price above $35/barrel and corn prices as high as $6.50/bushel.
Mounting losses
But the business failed to deliver where it matters most – on
the financial bottomline – and despite rising sales losses mounted and access
to capital began to dwindle, even though between 2013 and 2015 the company had
raised about $150-mn in financing. While it posted sales of $14.9-mn in 2017,
up almost 80% over the previous year, it lost almost $102-mn in 2017, following
a 2016 loss of about $28-mn. Something had to give way, and it eventually has.
Preferred product
Succinic acid has been touted as one of a small number of
products that can be made efficiently by fermentation. It figured on nearly
every list of products that could be made competitively from bio-based raw
materials put out by consultants and government-funded research labs in Europe
and the US. It was also said to be unique in the sense that the petrochemical
route to it is convoluted, giving more than a fighting charge for a more direct
bio-based route. Currently, three other producers – Reverdia, Succinity (in
which BASF holds a 50% stake), and Myriant – operate bio-based succinic acid
plants, all of which are still based on first generation sugars. The market
still remains small – and unable to penetrate large volume applications.
Technological challenges
The failure of Bioamber is in many ways a reflection of the many
challenges – technological, financial, and feedstock related – that the
business of industrial biotechnology faces.
Unlike the modern petrochemical industry that has evolved over
several decades and today runs mature, well-developed plants & processes,
most biotechnological transformations are only now out of laboratories and even
fewer have made the cut to pilot or semi-commercial scale of operations.
Scaling up bio-processes is both a time- and capital-consuming exercise. Of
particular concern are the downstream seperation challenges, as most biological
conversions have low yields and the desired product needs to be separated from
the rest of the nutrient broth in a cost-efficient manner without affecting the
purity of the desired product.
The technological challenges get amplified when transitioning
from first generation raw materials – sugars and starches, in particular – to
second generation ones, viz. lignocellulosic biomass and/or agricultural
wastes. The complexities – in particular at the engineering level – to handle
these recalcitrant materials and coax it to yield its reactive constituents
(the cellulose and hemicellulose), is still expensive. Getting value for
by-product lignin is even more challenging. Not for nothing the adage: “One can
make everything from lignin, except money.”
Capital injections
Companies in the business of industrial biotechnology need massive
capital injections, especially in the early stage of development when
transitioning from a bright idea that works well in a laboratory to a
semi-commercial, demonstration or pilot scale unit. The traditional sources of
finance at this stage have been venture capital, angel investors and strategic
partners. Nearly every company that has dared to venture into the space –
Bioamber included – have done so in the strength of partnerships, be it for
access to raw materials (starches and sugars), or more importantly, with
potential customers. Partners have played a role that goes far beyond mere
financing – getting involved in prototype development & testing, gauging
market potential and competitive position, and, if all goes well, chip in with
capital for large scale manufacturing as well.
Venture capital and angel funding for industrial biotechnology
has become very challenging in recent times, partly due the lure of higher
returns from other sectors (including pharma biotech). Direct access to capital
markets through IPOs is also more or less ruled out for most early stage
investors.
Feedstock availability and pricing
Feedstock is a complex issue, especially when it comes to
lignocellulosics. While their availability is abundant, as revealed by most
estimates, it is geographically dispersed; aggregation adds even more
complexities and raises costs very significantly. Industrial biotechnology
players are hence known to gravitate to regions, such as Malaysia, where the
ability to assimilate biomass is reasonably well developed.
The volatility in the price of feedstock – particularly sugars
and starches – is another matter of concern. Most experts reckon that new
technologies can be competitive in the current market for chemicals only if the
sugars can be produced in a price range of 25-30 cents per kg. Prices of corn
(from which sugars are largely derived) have been known to fluctuate from $2-3
per bushel to three times that level.
Just as important is the price of oil. Upwards of $100 a barrel
– a price scenario that lasted briefly – bio-derived chemicals were
competitive, but at lower prices, as now, the scenario is indeed very
different.
Taking on a well-entrenched industry
The bio-refining industry is up against a very efficient and
well-entrenched petrochemical industry with long value chains that span from
commodities to specialities. Nearly 90% of global chemical production is still
reliant on fossil fuels – mainly oil & gas, and to a small, but not
insignificant extent, coal. Much of the production is done in large plants that
benefit greatly from economies of scale. Contrast this with the small scale of
operation of even the largest bio-refinery, even granting the early stage of
its development – and the challenge becomes abundantly clear.
- Ravi Raghavan
Chemical Weekly Issue date: 14th August 2018
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