Big Oil Goes CleanTech
Earlier this month, French Oil Major TOTAL announced an agreement to tender for 60% of SunPower (SPWRA), one of the leading solar module manufacturers and distributor/project developers, at a 43% premium to the previous market close. TOT is not new to the non-hydrocarbon energy market, having acquired some thin film solar technology several years ago, and proposed nuclear power in the Canadian Oil Sands and as part of a Kuwaiti project bid. Apparently the current driving force is TOT’s view that access to leading edge technology could help provide more complete energy solutions for projects in the Middle East, where internal consumption of subsidized oil and gas (growing at high single digit rates/year over the past decade) is diluting the global opportunity set. Theoretically, the payback for substituting unsubsidized solar for subsidized oil/gas-fired electricity can be as short as six years on current solar PV economics, and improving from here. TOTAL has also invested in Amyris (AMRS), a leading practitioner of synthetic biology for specialty chemicals and, potentially, biodiesel. It might be worthwhile to highlight the leading clean/alt tech activities of other large oil companies:
ExxonMobil – $600 million, ten year commitment to algae-transport fuels research, in collaborating with Craig Venter’s Synthetic Genomics. While viewed as a much longer term concept than cellulosic fuels, an algae-based oil product could be a drop-in substitute for cured oil in existing refinery and transportation infrastructure.
Royal Dutch/shell – $12 billion downstream fuels joint venture with Cosan (CZZ), one of Brazil’s leading sugar processors/ethanol refiners. The company also has committed to several cellulosic ethanol investments, including conventional (old fashioned) cellulosic with Iogen (Canada), more advanced biotech approaches with Virent, Codexis (CDXS). The company recently signaled a reduced commitment to algae-fuels processes.
Shell publishes a very interesting review of energy scenarios over the next forty years, depending on the cost of carbon and proactive/reactive policy effects, with model-based implications for demand of the usual range of fuel sources. the company has largely exited solar and wind ventures
BP – Long-time modest position in solar PV, acquired through the ARCO transaction (2000), and biofuels investments in the US and Brazil, along with a Jatropha (oilseed plants) investment. The company committed to $8 billion investment around 2005, but has little to show for it and its solar/renewables business is unprofitable.
Chevron – Geothermal power production from (mostly) acquired Unocal assets in Indonesia. Numerous smaller solar PV projects in Californiab with announcement of a joint development in Qatar. C\VX also claims an active Biodiesel pilot program, with National Renewable Energy Labs.
Valero – Owner of nine corn -based ethanol plants in the US, and a private equity investor in several cellulosic/synthetic biology approaches to chemicals and fuels. The company has signed a Memorandum of Understanding (subject to other financing and final agreements) to provide equity to Mascoma for a commercial scale cellulosic ethanol facility in Michigan. The company has received high grades from advanced fuel experts for its measured investment in the best pieces of each step likely required to commercialize new routes to transport fuels. However, internally, VLO management appears skeptical that advanced ethanol technologies will be competitive with $4 gasoline anytime soon.
While some contend that these investments are ‘extensions of the Big Oil advertising budget,’ it’s one thing to allocate capital to the media, and another to actually commit scarcer resources – skilled employees and strategic planning, to the cause. It’s also interesting to notice that, while only BP and TOTAL are participating in solar PV, almost all other ventures are fuels related, with focus on, for them, the most practical opportunities for success – algae to oil (drop-in to refinery), cellulosic ethanol (drop-in to nascent ethanol infrastructure.
I’ve studied the ‘advanced biofuels’ opportunity enough to offer several observations:
Many approaches have been ‘waiting’ for lower cost enzymes, which do not seem to have developed to the extent promised/anticipated. Scale up continues to be a challenge. Most concepts exploit various biotechnology processes which, while promising in the laboratory, do not scale well due to purity and water management issues. Processes to convert cellulose (corn stover, woody biomass, sugar bagasse, waste) to a fuel are well understood, but unlikely to be economic under $100-120 oil. There are over fifty high profile (VC-funded) US startups, but the most successful appear to be using their intellectual property (IP) to make specialty chemicals, which attract much higher prices, and much reduced scale-up risks, than commodity fuels. A number of the ventures still use a food product as input, an unlikely path to success as a commercial fuels venture. Muddying the waters of low carbon/advanced cellulosic fuels is a Sierra Club suit to halt the construction of a wood-ethanol plant in Michigan. It’s never easy! Another ethanol-related matter which is rising toward top-of-mind is the prospect for reduced first generation (corn-based) ethanol subsidies as existing credits expire at the end of this year. Like it or not, ethanol comprises almost 8% of the current gasoline-based transport fuel mix, and it is not clear what the price of ethanol might be in a ‘free market.’
The sudden removal of ethanol from the mix could drive HIGHER gasoline prices – a political disaster as the electoral calendar turns to 2012. On the other hand, gradual rollback of the credit may allow for a transition of fuel-based corn into international/export food markets.