Big Oil Warms to Ethanol and Biofuel Companies
By CLIFFORD KRAUSS
New York Times
Published: May 26, 2009
Joe Judice, top, amid cane he is growing in New Iberia, La., for Verenium ethanol
research, a venture with BP. - Michael Stravato for The New York Times
JENNINGS, La. — For decades, the big oil companies and the farm lobby have been
fighting about ethanol, with the farmers pushing to produce more of it and the refiners
arguing it was a boondoggle that would do little to solve the country’s energy problems.
Michael Stravato for The New York Times
Enzymes used in the process.
So why are technicians for BP, the giant oil company,
now working at an experimental ethanol plant in this old
Louisiana oil town, helping to make it more efficient?
The erstwhile enemies, it turns out, are gradually learning
to get along, as refiners increasingly see a need to get
involved in ethanol production. Ethanol, made chiefly
from corn, now represents about 9 percent of the
country’s market for liquid fuels. And the percentage is
growing year after year because of federal mandates.
With the nation’s thirst for gasoline, and the ethanol that is blended into it, expected to
revive when the economy does, the oil companies want to be in a position to take full
advantage.
The interest expressed by big oil companies is coming in the nick of time for small
companies that desperately need capital and cannot find it these days in the private
markets. Take the case of Verenium Corporation, a small company based in Cambridge,
Mass., that here in Jennings is testing new forms of biofuels in alliance with BP. Instead
of ethanol made from food crops, the partners are devising a version from grasses in the
sugar cane family.
The experiments here are preparation for building a second, $250 million plant in Florida
with the capacity to produce 36 million gallons a year of new biofuels — the first
commercial plant of its type built with oil company money and expertise. Verenium
scientists have already developed a secret sauce of enzymes and microbes that ferment
and distill biomass into ethanol. Now BP is contributing technical expertise aimed at
getting the temperatures and pressures in the vats just right.
Commercial success is not assured, of course. But the fact that a major oil company has
even made an alliance to go commercial with Verenium is considered a breakthrough by
many ethanol executives.
“Any time you get Big Oil into the game, that changes the paradigm because nobody can
go large scale chemical engineering like Big Oil,” said Brent Erickson, an executive vice
president of the Biotechnology Industry Organization, a trade group.
Only two years ago, BP had only a minuscule investment in biofuels. But since then the
company has committed $1.5 billion to various projects. Along with its work with
Verenium, it entered a partnership with a Brazilian concern last year to produce ethanol
from sugar cane.
Lessons learned in Louisiana may eventually help convert Brazilian cane into more
advanced biofuels, researchers say, producing a potentially vast new reserve for BP.
BP also speaks with optimism about a partnership with DuPont to test production of
biobutanol, an advanced liquid alcohol fuel that is made from the same feed stocks as
advanced ethanols and is compatible with existing pipelines and car engines. Executives
say they hope to begin making the fuel in large amounts by 2013.
“We can see biofuels as being a really big potential reservoir,” said Phil New, president
of the company’s BP Biofuels unit. “For an energy firm to get into sugar cane farming is
a pretty big move.”
Oil companies are still skeptical about conventional ethanol, especially the type made
from corn, which they say corrodes pipelines and is inefficient.
The plant here is just one sign that the big oil companies are now at least grudgingly
accepting biofuels — particularly those made from wastes and nonfood sources, which
do not bear corn ethanol’s stigma of raising food prices.
The big change came in the 2007 energy law enacted by Congress that set ambitious
mandates for refineries to blend increasing amounts of biofuels over the years. By 2022
they will be obliged to blend 36 billion gallons of biofuels, or more than three times
current levels.
“If the government is going to make a market happen, we needed to be able to participate
commercially in that market,” Mr. New said.
The oil companies also say that as crude oil becomes ever more difficult and expensive to
find, biofuels can bolster their reserves.
“There will be a need for all these fuels,” said Graeme Sweeney, executive vice president
for future fuels and carbon dioxide at Royal Dutch Shell. He predicted that the 1 percent
of the world’s transportation fuels that are biofuels today “could easily be 10 percent in
the next decade or so.”
Shell was the first of the big oil companies to venture significantly into the new biofuels,
getting its toes wet in 2002 by providing money to a Canadian company called Iogen
Corporation to research making ethanol from plant waste. Shell would not discuss how
much money it is now investing in biofuels, but said it had quadrupled biofuel research
spending since 2007.
Shell has also formed partnerships with a variety of small companies at work on
improving enzymes that break down various plants and waste materials for ethanol,
making fuels from algae and even biogasoline from sugary liquids derived from plant
materials. Chevron has formed a joint venture with Weyerhaeuser to develop biofuels
from wood waste.