Friday, July 11, 2014
Licella's Pot is Boiling
Earlier this month Australia’s Licella Pty. Ltd. received good news from a feasibility project (Advanced Biofuels Investment Readiness or ABIR) to prove the commercial viability of producing bio-chemicals and bio-crude oil. They were successful in demonstrating that their bio-crude can be blended and will qualify as a drop-in fuel at conventional refineries. These are only interim findings, but it now appears more likely than not that Licella will succeed with development of a highly marketable bio-chemicals and biofuel.
Even though there are numerous bio-chemical and biofuel producers already on the market, Licella has still needed to prove its novel technology. They call it a Catalytic Hydrothermal Reactor or CAT-HTR for short. The CAT-HTR produces ‘supercritical water’ using high heat and pressure conditions to the point the water exhibits certain acidic and basic properties and enters a gaseous state. The ‘supercritical water’ is used to breakdown the ether linkages in the polymeric structure of biomass. This differs significantly from conventional methods that use enzymes to breakdown the cellulosic materials and then fermentation to turn the mass into ethanol and methanol.
At the company’s pilot plant in Somersby, Australia waste sawdust from a saw mill was used in the process. Licella’s scientists think any lingo-cellulosic material can be used, including non-edible crops. If Licella can perfect its process, then it appears possible for the company to source low-cost feedstock. Of course, we have observed in the U.S. that feedstock cost can be a major obstacle to commercial viability for renewable fuels and chemical operations.
Expensive enzymes will not be on Licella shopping list. Nor does it appear they will need as many money-hungry process steps as the conventional approaches. The key will be Licella’s energy requirement since high heat and pressure typically involves some power costs, not to mention the cost of maintaining the equipment.
Licella is a private company and quite a distance from U.S. energy markets, so some investors might wonder whether is a waste of time to look it over. Licella had received an AUS$5.4 million grant from the Australia Renewable Energy Agency (ARENA). We do not have access to Licella’s financial statements, but we have observed enough of the progress with biofuels to know that significant capital will be needed to build out commercial facilities.
A location for the first commercial plant has already been determined. With this bit of good news from the feasibility study, it cannot be long before Licella’s CEO, Len Humphreys, is on the road looking for new friends with deep pockets to help support construction.
The company already has been working with Virgin Airlines and Air New Zealand during the development stage. It makes sense that these two companies might be prepared to invest to support commercialization. Virgin Atlantic is also working with LanzaTech, a developer of carbon capture technology, but this may not present competition for Virgin’s investment capital. We expect even both of the renewable fuels companies could not meet all the needs of a world class airline.
That leaves room for the rest of us, at least those of us who are qualified investors. It also presents the possibility of a public offering. Licella is included in the Waste-to-Energy Group of our Beach Boys Index. Its pot is boiling and we need to keep a watch on it.
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.