Iogen CEO: Focusing on Raízen Partnership; Industry Consolidation Expected
June 05, 2013
Cellulosic biofuel developer Iogen has been pursuing the second-generation biofuel for a number of years, but experienced setbacks after pulling the plug on previously planned facilities in the U.S. and Canada. The company has since partnered with Raízen Group for a plant in Brazil and is now considering new plant sites in North America. On Tuesday, OPIS spoke with Iogen President and CEO Brian Foody to get his thoughts on where the company is headed and what challenges lie ahead of the industry.
OPIS: In April 2012, Iogen announced plans to refocus its strategy with Shell by cutting 150 jobs and said it would not pursue plans for a commercial cellulosic plant in southern Manitoba. Meantime, in October 2012, Raízen Group announced it was committing an initial investment to jointly develop a commercial cellulosic ethanol plant in Brazil with Iogen, while in January, Novozymes acquired Iogen Bio-Products, the industrial enzyme business of Iogen. Given these announcements, what is Iogen's current near and long-term strategy for the company?
Foody: Our focus is on cellulosic ethanol. We've got one of the world's largest and most experienced teams in the field. We're developing, designing, debugging and scaling up and deploying this technology. We have a great group of people and we intend to use our knowhow to drive a successful commercial cellulosic biofuel business.
We have three near-term strategies: First is to make our program with Raízen a success; second is to differentiate and distinguish our technology; and third is to develop a commercial path for cellulosic ethanol outside Brazil.
On the Raízen front, we have a substantial program with them to advance our technology. They have said their goal is to have a 10-million gal/yr plant operational in 2014 at a cost of roughly $100 million and eight plants operational by 2024. That is what we are working towards.
In terms of differentiating our technology, we are working towards delivering high yield and high performance elements of the technology. We're optimistic about pushing overall yields to cellulosic up substantially and making other improvements that are important to the deployment of the technology, like reducing overall water requirements.
In developing a commercial pathway outside of Brazil, we're principally looking at developments in the U.S. and particularly in converting corn ethanol facilities to cellulosic biofuel production. We believe there are ways to repurpose those assets to generate substantially extra value.
Longer term, we really appreciate that this is going to be a great and huge industry. We're not going to get there without operating through alliances and partnerships and forming effective strategic partnerships is going to be a core element to seeing our technology grow.
OPIS: What is the status of Iogen's 1-million gal/yr cellulosic ethanol demonstration plant in Ottawa? Does it still use wheat straw as its main feedstock? Are there plans to expand production at the demo plant? What has it taught Iogen since being in operation in 2004?
Foody:The facility is operational, although we run it in campaigns to target different feedstocks. The plant is multi-feedstock, so it runs on wheat straw, corn stover and most recently bagasse to support our work with Raízen. Over the years, we have made a huge commitment to its operation. We went through all of the tough work to get high reliability running 24/7 operations over many months.
We worked through all sorts of bugs. ... I feel like we built a whole wealth of knowhow in nine years of operation, together with 300 patents. That is really going to put us in a super position to manage scale up effectively and address operating problems.
OPIS: Are there plans to expand production at the demo plant?
Foody: I think we're not going to be expanding production. The demonstration plant is like a very high fidelity process-testing system and a fairly expensive system. It really allows one at quite substantial scale to test out and run operations.
OPIS: A handful of years ago, Iogen had been planning to build its first commercial-scale plant in Idaho, however plans were scrapped in 2008 after it appeared that the U.S. grant process was taking much longer than expected. Does Iogen have any plans to again focus on the U.S. market? If not, what would be needed to make the U.S. market attractive?
Foody: In terms of what has changed, we're going to be operating from a base of proven commercial technology with large scale. The work we did with the U.S.
government initially was on helping to finance the first commercial plant and we will have put that together with Raízen. America is really the key place developing renewable transportation fuels. We are looking at a number of locations.
We have actually done a lot of work in terms of sourcing feedstocks in different sites around the U.S. We've developed a template for collecting feedstocks because we think feedstock security will be critical to the commercial deployment. We put together an approach for building a feedstock supply chain and actually assembled contracts to acquire roughly 2.8 million tons/yr of cereal straw and corn stover over the years. Our organization is well experienced in the U.S. We think we will have passed a critical milestone with the technology proven at commercial scale to be able to deploy effectively in the U.S.
OPIS: What are Iogen's timelines for U.S. plants and general plant production capacity?
Foody: We're looking at matching to existing corn ethanol plants. That's in the
100 to 115 million gal/yr range. We are looking at converting corn ethanol plants to make cellulosic biofuel. In terms of timelines, it's fair to say we're beginning to look at sites and the overall timeline will depend on how our own work develops on the commercial front and with partners.
OPIS: Iogen has been in the biofuels business for a long time. What do you see as the biggest barriers for why first and second generation biofuels are experiencing challenges in the marketplace and how they can be overcome?
Foody: Let's distinguish between first- and second-generation biofuels. For second-generation, obviously the biggest challenge has been to get commercial plants out the door and rolling, including ourselves with Raízen.
We have now five groups pursuing commercial-scale enzyme based cellulosic ethanol. That's a multi-billion dollar industry-wide commitment. In that sense, I feel like the challenge of three or four years ago has been met with really quite huge investments. The challenge in the future is to ensure those plants deliver reliable, cost effective production and then to deploy the technology. Those are the keys for second-generation biofuels.
For first-generation biofuels, I think almost by any measure, it's been a huge success, delivering something like 10% of the U.S. gasoline volume. The price of ethanol is well below gasoline. The challenges are associated with the blendwall and from an investor perspective, with the play in pricing between corn and gasoline and then excess capacity they have now. From a U.S. perspective, we have an industry that has done every bit of what it has promised.
OPIS: What is the cost per gallon estimate on the planned plants in the U.S.
and with Raízen?
Foody: We expect the plant in Brazil is going to be a profitable commercial venture and we expect the plants we build in North America to do the same.
As for detailed prices, those are sometimes site specific or dependent on scale. I don't want to get into the debate of my number is cheaper than the other guy's number. It turns into a game of liar's poker.
However, I think that generally people would be targeting to be below $3/gal, with capital costs below $5 an annual gallon.
OPIS: Petro-Canada has been a long-time sponsor and supporter of Iogen. Has that helped make inroads in the petroleum community in Canada? Would you suggest similar partnerships between U.S. biofuel and petroleum interests?
Foody: I see all sorts of partnerships in the future that will strengthen our industry. That includes alliances between technology developers, biofuel producers and the oil industry players. I think our alliances with PetroCanada and Shell have really helped us in that way. I also think we're going to see horizontal alliances within the industry to deliver stronger and more integrated technology platforms. We have a lot of players in this industry committing a lot of money. The truth is good ideas are spread among them. We probably will see some degree of, I hope, constructive consolidation.
OPIS: Can you elaborate on horizontal alliances?
Foody: Think of two of the companies developing biofuels teaming up together to delivery better technology. The obvious choice is POET and DSM.
OPIS: Will there also be consolidation in the advanced biofuels space?
Foody: I think there will be. I am not sure how it will be deployed, but in the advanced biofuels space, even for enzyme cellulosic ethanol, we're going to have five groups driving forward with plants and another three or four queued up to do the same thing later. Eight technology platforms is a huge number and then if you go to other people making cellulosic ethanol or advanced biofuels, you're talking about a dozen separate technology platforms. I think ultimately there won't be a dozen exclusively successful platforms, even though these platforms have seen hundreds of millions in investment. I think we may see some consolidation among them. ... I don't think any reasonable person would expect we'll see 12 separate technology platforms moving forward in a decade.
OPIS: While there have been numerous challenges in the U.S. to meet our RFS, Canada's version doesn't seem to have as many snags. Why is that and do you believe any changes should be made to the U.S. RFS?
Foody: On cellulosic biofuels, there's no doubt that the financial crisis delayed investment in plants. It's been a challenge to bring forward good, working technologies. But as I said earlier, we now have a number of really strong groups driving commercialization. Whether they will be able to deliver the kind of growth envisioned in the RFS, I don't know. But I think America and America's policymakers should feel really good about the signal that the RFS has given to advanced biofuel. A lot of private sector money has been to deliver on the promise.
OPIS: There are some major differences between the Canadian and U.S.
versions of the RFS, mainly that Canada's version doesn't have specific renewable volume obligation buckets for each type of biofuel. Did that cause any complications?
Foody: I am a great proponent of the U.S. RFS. I was involved in its development. I think the different RVO [renewable volume obligation] buckets are a central feature to providing the policy signal that has got the investment going in cellulosic biofuel and I think the divisionary targets are what are growing the business tremendously. If we went back to RFS1, we wouldn't have nearly the investment we have in corn ethanol or cellulosic ethanol.
OPIS: Do you support expanding Canada's RFS to include different RVO buckets?
Foody: The truth is, we have not been highly engaged in the Canadian market.
I certainly would support expanding the mandate. One of the things Canada has done is put in place a system for helping first commercial plants through Sustainable Development Technology Canada (SDTC) funding. That was very helpful to us, although ultimately we are pursuing something in Brazil.
But it would be helpful to other companies.
From what Canada should do, when you argue policy issues, you have to look at the interests of what the recipient or the country at hand is. Canada is in quite a different situation than the U.S., as a net energy exporter. One of the things we do have issues with is the greenhouse gas emissions associated with our petroleum sector. That has been a debate that has had an impact on the approval of pipelines and on the access of oil produced in Canada to serve markets in the U.S. To the extent that Canada was looking at stepping up its RFS, I would think the most practical thing would be to link it to reducing greenhouse gas emissions from its own petroleum sector. I really think when you look at public policy at its core, it's not about helping industry, but about helping the people of the country achieve things that are important to the country.
When people look at corn ethanol and look at the problems with RIN prices, it is certainly clear corn ethanol is having to face up to its success and deal with the blend wall. But from my perspective, the RFS is operating exactly how it was designed to. It is giving an incentive to the most cost effective renewable fuels to come into the mix. The rise in D6 RIN prices is making E85 a very economic choice. ... This whole thing is going to provide all sorts of opportunity for the drop-in options that can come into place without any infrastructure issue. May the best man win, but what we have here is a well-functioning regulatory system that is providing a signal that we need to overcome infrastructure barriers and it is not doing it in a command and control way.
It's doing it in a way that the market is going to make the right choice and give America access to the vast quantities and cost effective renewable made fuel.
OPIS: Did Iogen seek any SDTC funding?
Foody: We did file for SDTC funding. It is a fine organization and they did not hold us up at all. The truth of the matter was what held us up was the cost essentially. In Western Canada, where we were building, is a very high construction cost market because of the success of oil sands. And for better or worse, we were pursuing a greenfield design, which is intrinsically more expensive, especially if you're doing a bit of a smaller scale commercial plant.
It just became too costly for it to be appropriate. I think our switch to Brazil was in that respect, very successful.
OPIS: Would Iogen support a low carbon fuel standard (LCFS) in Canada?
Foody:I would be very happy to see an LCFS measure in Canada. Canada has a very difficult issue in dealing with greenhouse gas emissions of oilsands production.
The country very much wants to have a globally green profile and its oilsands have greater greenhouse gas emissions than conventional oil. I think the country is seeking to find the best way to achieve reduced emissions and you might do it as an LCFS. You might do it through an RFS that has a tiered [greenhouse gas emission reduction] structure the way the U.S. system does. A lot depends on what gets through the push and pull of what's going in the country. My own guess is that an LCFS would be hard to sell through Canada ... but the engagement of the people in the oilsands is an important part of making it a success.
OPIS: Is Iogen also looking at building plants in Canada?
Foody: I think there are a lot of opportunities in Canada, as well as the U.S.
for construction. I do think the RFS makes a natural market for ethanol and cellulosic ethanol. I think as this industry builds, you'll probably see a more continental energy policy in respect to renewable fuels. ... There are some great opportunities in Canada.
OPIS: What are the timelines for plants in North America?
Foody: A crucial thing for us is the scale up and operation of our facility with Raízen. We are now looking at sites and where and how we would deploy it. But I don't think those deployments will start until the Raízen facility is up and operating next year. The timeline will be driven by our success.
OPIS: Do you regret any "roads not taken" by Iogen since your leadership began in 1982?
Foody: I must say, it's hard to look back a long distance, but I have one that in some ways I think about it all the time. In my view, we really should have shifted our focus to Brazil two or three years earlier than we did. The economics and the opportunities for doing cost effective scale up there are just really compelling and instead, we spent too much time developing a greenfield plant in a very high-cost environment, and that led us to the setback that cost
150 people their jobs. It's a huge regret for me. If I revisit anything, the roads not taken would have been to have more aggressively pursued the relationship with Raízen at an earlier date. I think we could have been three years faster and would not have to have taken so many people through such a wrenching time.