Beverage Bottles Key to Virent Success

In the last post “License to Major Refiner Lifts Virent” on March 6, 2012, I highlighted Shell’s adoption of Virent’s Bioforming process to produce a “drop-in” biofuel at one of Shell’s refineries.  As impressive as that apparent endorsement of Virent’s process might be, it still does not bring Virent to commercial scale production  -  an accomplishment that is after all necessary to eventually provide investors with a return.

It turns out Virent’s Bioforming process  -  which is based on aqueous phase reforming (APR) -  turns out a variety of chemical intermediates including alcohols, ketones, acids, furans, paraffins and other oxygenated hydrocarbons.  Subsequently, the chemical intermediates from the APR step can be converted into hydrocarbon components through a condensation step.  This is followed up by conventional hydrotreating. 

Virent’s hydrocarbon molecules are the same as those found in today’s petroleum products, but from renewable feedstocks.  It is an elegant solution for refiners as we noted in the previous post, which are under pressure to blend in an increasing portion of renewable fuel, but are reluctant to invest in new infrastructure to accommodate alternative fuels.  Likewise users of plastics, such as beverage bottlers and others are keen on replacing plastic bottles made from petrochemicals, but only those plastics fit into their existing infrastructure.

The CocaCola Company (KO:  NYSE) thinks Virent’s Bioforming process fits the bill.  In December 2011, Virent announced a partnership with CocaCola for the production of plastic bottles.  Virent along with two other biofuels technology firms, Gevo and Avantium, were contracted to help CocaCola produce renewable, plant-based bottles.

Virent announced in June 2011 that it has produced a molecule that mimics a petroleum molecule that's key to making PET recyclable bottles.  The molecule paraxylene, also known as BioFormPX, is made from 100% plant sugars.

So when can we expect revenue?  Well you can take your time to get a calculator out.  Virent claims its CocaCola deal is a multi-million dollar agreement that supports Virent’s plans to open a commercial-scale plant - but not until 2015.  Apparently, Virent has more development work to do first.   

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Virent is included in Crystal Equity Research’s Beach Boys Index in the Alternative Chemicals Group.

License to Major Refiner Gives Lift to Virent

Last month Royal Dutch Shell announced the completion of a biofuels pilot plant at Shell’s Westhollow Technology Center in Houston.  Shell will produce biofuel using a thermo-catalytic process technology licensed from Virent.  In my view, the license by a significant refiner provides strong endorsement of the technology not to mention the potential market for biofuels. 

Refiners are under pressure to increase their use of qualified renewable fuels.  The Environmental Protection Act of 2005 requires an increase in the use of renewable motor fuels be increased from the 2004 level of just over 4 billion gallons to a minimum of 7.5 billion gallons in 2012.  Then the requirement grows with the market.  Refiners can use ethanol or biodiesel as long as they meet the overall standard. 

Unfortunately, ethanol is incompatible with existing pipelines because of its affinity for water.  When blended with gas it also causes substantial increases in volatility.  Thus refiners are eager to work with renewable fuels that can be “dropped” into the existing refinery and distribution infrastructure.

That is just what Virent has succeeded in developing  -  a drop-in fuel.  Virent’s process, which it calls the BioForming platform, squirts out a fuel that has the same characteristics as conventional fossil fuel.   

Virent combines aqueous phase reforming (APR) with conventional chemical processes.  Unlike the expensive multistep processes that turn out ethanol from corn or biodiesels from vegetable oil, the APR process takes place in a single reaction vessel.  APS requires water-soluble oxygenated compounds such as sugars. Other biomass such as starches must first be converted into water-soluble compounds.  Virent has been using its process at its own pilot plant in Madison, Wisconsin.

As impressive as Shell’s endorsement might seem, I would be even more enamored over commercial sales by Virent.  Of course, a license business model is reasonable too.  It has come to that point for me  -  time for revenue streams.  We are far enough into the renewable fuel industry to expect commercial production. 

Next post we look at Virent’s chance for commercial-scale production.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Virent is included in Crystal Equity Research’s Beach Boys Index in the Biofuel Group.