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Big Oil Cozies Up to Ethanol, Biofuels

JENNINGS, La. -- Once arguing against ethanol's potential to solve the country's energy program, big oil companies are now warming up to biofuels technology. BP, for example, is now working at an experimental ethanol plant here, helping to make it more efficient, according to a report in The New York Times.

Oil companies and farmers are gradually learning to get along, as refiners see a need to become involved in ethanol production, the newspaper reported. Ethanol, made chiefly from corn, now represents approximately 9 percent of the country’s market for liquid fuels. Federal mandates are spurring an increase in that number.

The refiners' interest is coming in the nick of time for small ethanol firms that need capital and cannot find it in the private markets, according to The New York Times. Verenium Corp. for example, is partnering with BP here to test new forms of biofuels made from grasses in the sugar cane family.

The experiments are preparation for building a second, $250 million plant in Florida with the capacity to produce 36 million gallons of biofuels each year, the first commercial plant of its type built with oil company money and expertise.

"Any time you get Big Oil into the game, that changes the paradigm because nobody can go large scale chemical engineering like Big Oil," Brent Erickson, an executive vice president of the Biotechnology Industry Organization, told the newspaper.

Two years ago, BP had a minuscule investment in biofuels. It has since committed $1.5 billion to various projects. BP executives speak optimistically 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, in the report. "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 newspaper noted.

Oil companies also contend ethanol can bolster their reserves as crude oil becomes more difficult and expensive to find.

"There will be a need for all these fuels," Graeme Sweeney, executive vice president for future fuels and carbon dioxide at Royal Dutch Shell, told the newspaper. He predicted 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 in 2002, providing money to Canada's Iogen Corp. to research making ethanol from plant waste. Shell did not disclose how much money it is now investing in biofuels, but said it had quadrupled biofuel research spending since 2007.

Shell 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 biogasoline from sugary liquids derived from plant materials.

Chevron has a joint venture with Weyerhaeuser to develop biofuels from wood waste. Valero Energy Corp. recently purchased seven corn ethanol plants from VeraSun Energy since VeraSun filed for bankruptcy protection last fall. Valero has suggested that it could transform the plants for newer blends of ethanol, the newspaper noted.

Still, skeptics say oil companies are more interested in improving their image than producing clean fuels.

"If we depend too heavily on the big oil companies to drive the biofuel agenda," warned Jeff Broin, chief executive of the ethanol producer Poet, "we’ll be using large volumes of oil for many, many years to come."

But the support is welcome for small entrepreneurial companies long on new technologies and short on capital, the newspaper noted.

"With any start-up company, people say ‘Wow, but is it going to work?’" said Randy Cortright, founder and chief technical officer of Virent Energy Systems. His company wants to make a biogasoline from plant sugars that is chemically similar to gasoline produced by conventional petroleum refineries.
He told the newspaper Shell’s investment raised his company’s credibility with lenders "by giving their vote of confidence in this technology, spending resources and providing their own people for development."

Shell will eventually distribute the product, he said, "and they already have the infrastructure for taking the product to the fuel pump so the consumer can use it."

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