The Brazilian Sugar Rush

Sunday, July 31, 2011

In California, Codexis and Chemtex announced a broad collaboration to develop and produce the first sustainable detergent alcohols, made from cellulosic biomass instead of from sugar, with product beginning to come online in The collaboration will bring online, in early 2012.
Detergent alcohols – a $6 billion worldwide market – are surfactants which stabilize mixtures of oil and water. They are widely used in laundry detergents, shampoos and other consumer products. Detergent alcohols today are made from palm kernel and petroleum sources.
The process will utilize Chemtex’s PROESA pretreatment technology and Codexis’ CodeEvolver directed evolution technology for high performance enzymes. Codexis will market products resulting from the collaboration.
The parties expect that this process will initially be piloted at Chemtex’s R&D facility in Rivalta, Italy. Larger scale demonstrations are anticipated at Chemtex’s 40,000 metric ton (88 million pound) per year cellulosic ethanol plant in Crescentino, Italy, that is expected to be operational in 2012.
But the storyline will take us rapidly away from Italy, and over to Brazil, where the real battle for renewable chemicals and advanced biomaterials is brewing. There’s a Codexis story, and a broader story about the rise of renewable chemicals as a powerful add-on to the fuel-centric strategy.
But the key story is the search for sustainable, affordable, available, reliable feedstocks, that is drawing the biggest brands in industrial biotech inexorably towards Brazil.

The Brazilian Sugar Rush

There, the Sugar Rush is on, for sure – with as much manic energy and pace as the gold rushes in California, the Yukon or Ballarat in the 1800s. It should not be overlooked that the COO of Amyris is Portuguese, its COO is Brazilian, that the new chief commercialization officer of Solazyme is Brazilian, and that Codexis just appointed the former CEO of Cosan Sugar and Ethanol, now EVP of the massive Raizen joint venture between Shell and Cosan, to its board.
It’s hard to say the extent to which the companies will battle each other for market share, or simply be like Crusaders, loosely allied forces headed by sometimes fractious potentates, generally fighting a common entrenched foe but occasionally sacking each other’s camps.
Their Jerusalem? The chemicals, fuels and materials markets made up of thousands of familiar and exotic molecules made from fossil oil and gas and, as in the case of surfactant alcohols, oilseeds.

The Road to Jerusalem, via Guarulhos

For now, the road to Jerusalem passes through Guarulhos International Airport in Sao Paulo. There, you can see the passing parade of Crusaders.
Who is there? The small but high-tech armies led by the Kings of Amyris, Solazyme, LS9, and Codexis. New forces now gathering under the ducal flags of KL Energy, Cobalt Technologies, Vercipia, Braskem, or BioVerde. And lesser-known Barons spread across the lounge chairs of the Sao Paulo Admirals Club, with briefcases filled with their slide decks, NDAs, MOUs and IP, gathering forces, capital, and allies – and perspective.
Exhorting them on – the bishops and patriarchs of Dow, Dupont, BASF, Petrobras, Total, BP, and Shell – cautiously investing in their success – but counting on nothing, and still wedded to their oil & gas or palm kernel lifelines – hinting of massive offtake agreements that would flow from success. All the riches and baubles of a higher heaven that might flow, if the new armies of synthetic biology can unlock the gates of Jerusalem.

A powerful market entry from Codexis

The market entry announced by Codexis is a powerful one. First of all, it reveals for the first time Codexis as a product company, rather than as a developer of technologies and enzymes for the likes of Shell and Cosan. Having secured the rights to the chemical applications of their technology from Maxygen, out of the proceeds of their IPO, they are going to be making surfactant alcohols, an entry into a $6 billion global market.
Powerful, but not immediate. Raymond James analyst Pavel Molchanov wrote in his daily note, addressing Codexis, “In the absence of positive full-year EPS until 2014 at the earliest, we apply a discounted cash flow (DCF) approach to value CDXS shares, the same as we do with Codexis’ Gen2 peers. We estimate a DCF value of $8.54 per share, which is in line with the current share price.”
The key: they are using sugarcane bagasse, not the sugar itself, as a feedstock, thereby side-stepping the global shortage in sugar, which is evinced in the huge surge in global sugar prices and the reduction of ethanol blends in Brazil to as low as 18 percent, from the usual 25 percent range.
Their technological edge: the cellulase enzymes that Codexis has been developing in partnership with Shell for the fuels market. In this case, its based on an enzymatic process for a diesel molecule that Shell was looking at.
The project is designed for, above all things, speed to market. The pretreatment process for the bagasse is available now, through Chemtex. The cellulase enzymes are available now, from Codexis. Pilot testing already underway, demonstrations next year in Italy.
And one of the largest shareholders in Codexis is, not coincidentally, Raizen, which through its JV controls access to the largest privately-held portfolio of sugarcane bagasse in Brazil.
Deployment? An announcement is expected by year-end on a 60,000 metric ton facility, co-located with a sugarcane mill in Brazil, by year end, with opening expected in 2014. Surfactant alcohols sell in the $2,000 – $3,000 per metric ton range in the international market. Ultimately, Codexis envisions three facilities. With the projected capacity, Codexis expects to be able to capture 9 percent of the global market share, or $540 million in revenue, with an advantaged cost structure over current suppliers.
“You need three things to be successful,” Codexis CEO Alan Shaw told, “you need feedstock, process and technology, and customers.” The feedstock is bagasse, where we are partnered with the largest producer, and appointed today the most respected leader in Brazilian sugarcane ethanol to our board. I think we have killed off any doubts about who has the real relationship with Cosan, despite some of our competitors making a lot of statements during their roadshows. We have got the relationship with Cosan.”

Unlocking the value in bagasse

Bagasse. Much talked about, but this is the first significant market entry made with bagasse as the primary feedstock. The leftovers from the sugarcane production process, bagasse is already aggregated at the mill, and available at scale. The limiting factor, to date, has been the lack of technology, and the importance of bagasse in providing electricity to power the mills, when it is combusted in the large onsite power generation systems at the mill location.
“I don’t expect any problem on bagasse,” predicted Shaw. “Current sugarcane is 1/3 sucrose, 1/3 tops and leaves, and 1/3 bagasse. In the past, tops and leaves were burnt in the field, but that practice is being phased out, and producers are now leaving it and letting it rot. There’s too much, and its arresting the productivity in the field because it’s not degrading as fast as we like. The tops and leaves can be used for co-gen. Plus, Raizen is putting in new cane that can grow twice as much biomass, and is rapidly expanding its overall cane production. Brazil is going to have bagasse, and a lot of it.”
So, there are logistic challenges on bagasse, but as Shaw points out, there are market challenges on sugar. “The crop harvest is down 15 percent this year, and sugar prices are at all time high. The government has pledged that ethanol production must be doubled. Companies like Amyris have relationships with Chemtex and Cosan, too, but their achilles heel is access to sugar. Where is all the sugar going to come from? The only way to do it is to deploy cellulosic technology.”
Of course, Brazil has a plan to expand sugarcane cultivation on a potentially massive scale, identifying an area seven times the size of Brazil’s current cane footprint, that it plans to open up for sugarcane cultivation over the next decade.
But plans and plants are a different thing, and the armies need sugar for their glucose micro-economics, sooner rather than later. So there is good reason to look at low-cost cellulosic sugars, and companies such as Proterro and Comet are working on that right now – as well as Codexis.

My Brother, My Rival

Would Codexis put its technology for producing low-cost sugars together, say, with the technology of Amyris, Solazyme or LS9 on a licensing basis, and giving those companies, too, and end-to-end chain from bagasse to high-value chemicals, fragrances and flavors?
Yes, that’s a possibility, says Codexis’ Shaw. reminding us that, in renewables, coopetition is the order of the day, just as it was for the fractious Crusaders - divided by emotion and interest, united in shared desire for the rewards earned – both worldly and spiritual – from vanquishing a mighty and entrenched foe.
Bagasse, sugar – cellulases, or magic bugs? Varied are the technologies behind the siege engines – but for sure, there is reason to suspect that they have the technology, and growing market power, to storm Jerusalem and take it. Unless, as many an oil company has discovered — just as the Byzantine Emperors knew before them, you buy into, or buy off, the infidels at the gate.

Biofuels Digest

Tags: sugarcane, bagasse, biomass, ethanol, enzymes, renewables, sustainability