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Biochemicals: Challenges of commercialisation
in a low oil price environment
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Sustainability
is increasingly becoming important for the chemical industry, and even more
so to consumer-facing industries that are eager to show their commitment to
the cause of the environment. This is driving shifts in the choice of
chemicals made and sold and creating impacts down several value chains. One
of the effects is the emergence of a modern, though still nascent
biochemicals industry that aims to successfully bring to market chemicals and
materials, in addition to fuels, based on renewable feedstocks, not fossil
fuels.
Biochemicals
generally have a lower carbon footprint – an advantage that stems from the
fact that they are by definition based on renewable carbon. This could come
from sugars, starches, oils & fats, or as is increasingly desired,
biomass. The latter encompasses a whole range of materials, varying in
chemical composition, availability and price and includes agricultural
residues & wastes, woody & non-woody plants, crops grown specifically
for the purpose, and municipal & other wastes.
Each
region of the world has its own ample supply of feedstock for the biochemical
industry. In India and more so in Brazil, sugarcane is widely considered a
readily available resource that can be exploited for the purpose; in the US
it is corn; and in Malaysia & Indonesia oil palm. Nearly everywhere in
the world, however, biomass is abundantly available, though its collection,
aggregation, transport and availability at the point at which it is needed
remains a significant challenge that needs to be effectively overcome for
commercial success of biochemicals.
Price of crude oil & its impacts
Investments
in biochemicals are not just done for altruistic reasons, but are widely seen
as a hedge against high oil prices. This may seem an anomaly at these times,
when oil is finding it hard to regain levels above $50 a barrel, but nobody
really knows how this will pan out going forward.
Industrial
biotechnology companies that aim to produce fuels, chemicals and materials
from renewable raw materials have had to make a significant pivot in the
recent times due to the low prices for oil. There has been a distinct
disengagement from the biofuels sector – notably bioethanol and biodiesel –
and greater emphasis on biochemicals and biomaterials. The reason is simple:
biochemicals are typically at least twice as expensive as biofuels.
Biofuels – government mandates & supports needed
Biofuel
investments are still likely to happen, but only when there is a clear policy
backing and long-term support for the industry through some price
intervention, viability gap funding etc. In India, for instance, a pathway
for ethanol blending in petrol (EBP) has been announced that calls for
increasing the level of blending from 10% now to 20% in about five years.
This will require a 6- or 7-fold increase in ethanol supply (the actual
nationwide blending level is only about 3% due limitations of alcohol availability)
– a level that can only be reached by second generation (2G) ethanol plants
that use biomass as a raw material, instead of the molasses-based production
that is currently the norm here.
The
ambitious plans call for investments in as many as 50 world-scale 2G ethanol
plants – with about ten to be set up in the next few years. This is a pace
unmatched anywhere in the world and is risky due the fact that the indigenous
technologies that are to be the backbone of the effort are yet to be fully
tested even at the demonstration scale.
Unlike
biofuels, biochemicals are usually bereft of government doles and need to
make it on their own.
Drop-in or novel: a quandary
Biochemical
products can be broadly classified into two categories: drop-in replacements
for chemicals produced through the petrochemical route; and novel molecules
not hitherto produced efficiently or at large scale. Bringing either of these
to the market comes with challenges, albeit different ones.
Drop-in
biochemical replacements for petroleum-derived products need to compete on
price – a huge challenge considering that the petrochemical industry has
undergone decades of optimisation and improvements and is now a very
efficient one. A low crude oil price does not help at all. Novel chemicals need
to come with a significant value proposition that makes it worthwhile for a
customer to evaluate it for use, and needs to be available at a scale and
from a diversity of vendors to assuage supply chain concerns. Regulatory
requirements for novel products is another big challenge, as providing safety
data, for example, can call for expensive and time-consuming tests that can
delay launch to market.
Furthermore,
that capital to scale-up exotic technologies from a concept in a laboratory
through a pilot, demonstration and commercial unit is scarce and not readily
available. In addition, typical technology developers – especially start-ups
– typically do not have commercial expertise that their bigger counterparts
in the petrochemical industry have, and need to hire experienced executives
from the latter to take products to market. For many this is not an option,
given the limited resources on hand.
Partnerships – the key
One
way to work around these challenges is partnerships and the industry is
replete with such examples. They often include upstream feedstock suppliers,
and end-use customers from one or more industries where the biochemical could
be used. Partnerships allow a significant de-risking of projects and make
them more bankable for novel or traditional finance. Up the value chain, they
bring assurance of feedstock supply, and the ability to handle price
volatilities that may otherwise seem a mystery. Down the value chain, they
allow for testing and prototyping, and gauging market needs and acceptance
quickly.
Transition to next generation feedstock
Notwithstanding
the effort to coax recalcitrant biomass to yield sugars for chemical
transformations, much of biochemical products on offer today are largely made
from first generation feedstocks such as corn, sugarcane, soy, palm etc.
There are concerns about the use of these food resources for chemicals
production, although it must be clarified that all the biochemical production
in the world today accounts for less than 2% of the cultivated land, with the
rest going to food, fodder or other crops.
Fermentation – the technology of choice
From
a technology perspective, fermentation remains the most widely used tool. A
variety of organisms can now be identified, cultured at scale and even
genetically altered to yield the chemical desired. Advances in genomics and a
better fundamental understanding of biochemical pathways have allowed for
tinkering microorganisms to selectively produce the desired products and to
improve yields. Downstream processing, which has the ability to ratchet up
costs to uneconomic levels in any fermentation based industry, is key to
commercial success and chemical engineers have a great role to play in
optimising them through process intensification and other approaches.
Thermochemical
and catalytic technologies are also becoming increasingly more important for
biochemical production, but they are still not very common. When used, they
are mostly in tandem with fermentation to get to the desired product. Their
advantages include the fact that they can be carried out using conventional
equipment and via unit operations the industry is very familiar with.
Evolving landscape
Given
the risks involved in the business of biochemicals it is no surprise that the
landscape is continually changing. Smaller companies – often the innovators
of the idea – are being acquired usually by larger entities in more
conventional businesses, or have gone bust. Several have also had to pivot
their strategies as the realities of the marketplace come to bear on them.
There is now a rush to serve markets such as flavours & fragrances, food,
cosmetics and pharmaceuticals, under the presumption that these are more
discerning and willing to more ready to accept innovative offerings than
old-world industries like plastics or paints & coatings, to cite two
examples. But producers are finding that even here there is no premium for
being ‘green’ and that the demands on performance, value proposition and
product safety are critical to gain even a foothold with customers.
Niche business
The
current share of biochemicals in the global chemical industry is still very
low – less than 1%, and though the segment is expected to grow at a more
rapid pace than the chemical industry as whole, its share of the pie will
remain small for the near future.
Competitiveness
of biochemicals under a low oil price scenario that does seems likely for the
short-term (if not longer) will be very challenging.
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Ravi
Raghavan CHWKLY 1AUG17
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