Tuesday, March 06, 2012

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.

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