Tuesday, August 12, 2014

Brazil's Entry into Butanol Battle

There seems to be ample supply of advanced biofuel developers in the U.S. and Europe.  I mentioned a number of them in the most recent posts.  Brazil has a stake in the battle as well with Gran Bio, a subsidiary of one of Brazil’s family-run holding companies, Gran Investimentos S.A. 

Even though Brazil has been in the ethanol business for quite some time, Gran Bio is a relative newcomer to advanced biofuels.  It has only been around for three years.  However, it has seems to have caught up with some of the U.S. players.  Gran Bio claims it will have a commercial scale plant up and running by the end of 2014.  We were not able to confirm progress on this plant before this article was posted, but some structures were already in place at the beginning of the year.  Gran Bio says it is aiming for an 82 million liter name plate production capacity, which is pretty ambitious for an initial plant.

Gran Bio Plant in Alagoas, Northeast Brazil
About a year ago Gran Bio set up a joint development partnership with Rhodia.  The plan is to produce n-butanol using sugar cane straw and bagasse.  The ethanol producers rely on the same feedstock, but it is doubtful there will be any problem from Gran Bio as there are plentiful supplies of such waste in Brazil.  Rhodia, of course, is a subsidiary of the Solvay Group, S.A. (SOLB:  Paris), which is a big user of n-butanol for its paints and solvents.

So with an ample supply of feedstock and a good supporter in its target market, it seems like Gran Bio is well positioned.  Gran Bio must be feeling quite confident also.  Last year the company announced its intention to set up an office in the U.S.  They hired an industry veteran away from Codexis (CDXS:  Nasdaq) to lead the U.S. entry.  Gran Bio also invested in American Process, which has technologies for pre-treatment of feedstock.

Big moves like setting up commercial production and entering new geographies requires capital.  Gran Bio seems to be positioned well financially as well.  In early 2013, the company took in approximately US$265 million from Brazil’s development bank, BNDES, through a BNDES subsidiary BNDESPAR.  Brazil now owns about 15% of Gran Bio. 

It is interesting to observe how easily the Brazilian government acts on its policy priorities through direct investment in renewable energy.  In the U.S. even a loan guarantee meets with the harshest of criticism and vociferous claims of political malfeasance.  U.S. consumers need not worry.  They will have their renewable chemicals eventually as adequately capitalized companies from other countries will expand in the U.S. market to deliver those chemicals.  U.S. investors will just not have an opportunity to invest in them.

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.


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