Recognizing Hype versus Practical Limitations in Fuels and Alternative Feedstocks

William F. Banholzer Executive Vice President and Chief Technology Officer

March 24, 2011

Inven%on  to  Innova%on  

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Business  Success  LO

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PE

RFOR

MANC

E

HIG

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LOW COST HIGH

NICHE

NICHE

BANKRUPT

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Business  Success  vs.  SCIENCE  LO

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USIN

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SUCC

ESS

HIG

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers Cellulosic Fuels

Bio Based PET PE from Ethanol

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Novel  Route  to  Key  Aroma%cs  

“The   transforma%on   of   simple   alkanes  into   valuable   aroma0c   compounds   is  remarkable,   and   demonstrates   exquisite  control  of  selec%vity.”    

 Prof  A  Haynes,  University  of  Sheffield  

Sources:  Ritu  Ahuja,  Benudhar  Punji,  Michael   Findlater,  Carolyn  Supplee,  William  Schinski,  Maurice  Brookhart   and  Alan  S.  Goldman,  Cataly%c  dehydroaroma%za%on  of  n-­‐alkanes  by  pincer-­‐ligated  iridium  complexes,    Nature  Chemistry,  Volume  3  ,No  2  (2011)  

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But  Before  You  Begin,  You  Should  Ask….  

Where  do  n-­‐alkanes  come  from?    With  BTX  global  produc%on  at  100  million  ton/year,  what  do  you  do  with  >  400  million  ton/year  of  2,2-­‐dimethylbutane?  

Authors propose the use of high value propylene as sacrificial hydrogen acceptor to

produce low value propane.

Sources:  Ritu  Ahuja,  Benudhar  Punji,  Michael   Findlater,  Carolyn  Supplee,  William  Schinski,  Maurice  Brookhart   and  Alan  S.  Goldman,  Cataly%c  dehydroaroma%za%on  of  n-­‐alkanes  by  pincer-­‐ligated  iridium  complexes,    Nature  Chemistry,  Volume  3  ,No  2  (2011)  

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How  CAPITALISM  Works….

Companies  have  to  make  money      

Money  flows  towards  higher  returns      

Investors  are  risk  adverse      Wrong  investments  drive  companies  to  collapse      

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The  Energy  Outlook En

ergy  (Q

uad)  

Sources:  DOE  –  Annual  Energy  Outlook  Early  Release  2011,  Table:  Total  Energy  Supply,  Disposi%on,  and  Price  Summary  

Energy  =  Prosperity  &  Real  Challenge  

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Managing  Energy  and  Feedstocks  

ENERGY SOURCES CHEMICAL

NUCLEAR

ENERGY TRANSPORT & STORAGE

ELECTRONS

CHEMICAL BONDS

POTENTIAL

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The  Scale  of  Industry

2% of Global MEG Consumption

0.3% of Global Ethylene Consumption

0.02% of Global Electricity Generation

Revenue $441MM/y

0.05% of Global Electricity Generation

Revenue $1051MM/y

Original Investment

Capital for Single Plant

Largest Social Community on Internet

Sources:  facebook  original  investment  showing  combined  amounts  from  Peter  Thiel  (PayPal  cofounder),  Accel  Partners  and  Greylock  Partners  as  described  in  the  History  of  facebook  on  wikipedia;    Power  Plants:  RL34746  report  -­‐  Stan  Kaplan  -­‐  Congressional  Research  Service;    MTO:  PEP  Report  261  –  SRI  and  EG:  PEP  Repor  2I  –  SRI;  Revenues  for  Power  Plants  calculated  using  2010  electricity  average  retail  prices  (all  sectors)  9.88  cents/kWh  (data  from  DOE)    

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The  Challenge  of  a  New  Company

Frac7on  of  companies  that  survived  a=er  launch  

Energy  &  chemical  industries  require  very  high  reliability    Energy  &  chemical  industries  are  extremely  capital  intensive    Failure  has  massive  financial  and  social  consequences  

Source:  Knaup,  Amy  E.,  May  2005,,  “Survival  and  longevity  in  the  Business  Employment  Dynamics  data,”  Monthly  Labor  Review,  pp.  50–56;  Knaup,  Amy  E.  and  MC.  Piazza,  September  2007,  Business  Employment  Dynamics  Data:  Survival  and  Longevity,  Monthly  Labor  Review,  pp  3-­‐10. W  Banholzer  

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Feedstock  Oxida%on  States  

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Business  Success  vs.  SCIENCE  LO

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USIN

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SUCC

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HIG

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers

Bio Based PET •  Economic  Feasibility  •  Technical  Challenges  •  Consumer  Sen0ment  &  Demand  

•  Product  Complexity  and  Uses  

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Managing    “Green” Fads – Green PET  

Natural  Gas  

$/MMBTU

Ethane

$/gal

Ethylene

cents/lb

Gasoline

$/gal

Polyethylene  

cents/lb

Coal

$/ton

Electricity (Industrial)

cent/kwh

MEG

cents/lb

PET

cents/lb

Ethanol

$/gal

USA  Brazil  Middle  East  Sources:    Natural  Gas,    ethane,    ethylene,  polyethylene,  gasoline,  MEG,  PET:  CMAI  Coal:  EIA,    Electricity:  DOE,  Ethanol  US:  ICIS,  Ethanol  Br:  ESALQ  Price  Densi%es  shown  for  Dec  2008  to  Dec  2010  Prices  shown  from  Dec  2010  

As  of  Dec  2010  

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Managing    “Green”  Fads  –  Green  PET  

USA  Brazil  Middle  East                  Global   Prices  shown  as  of  Dec  2010    2  years  price  variaAon  

Natural  Gas  

$/MMBTU

Ethane

$/gal

Ethylene

cents/lb

MEG

cents/lb

PET

cents/lb

Ethanol

$/gal

p-­‐xylene  

cents/lb

PET

cents/lb

Naphtha  

cents/gal

isobutanol  

$/gal

“Hypothetical” Bio-route cost

Natural  Gas,  Naphtha,  xylene    ethane,    ethylene,  MEG,  PET:  CMAI  Ethanol  US:  ICIS,  Ethanol  Br:  ESALQ;  isobutanol:  report  SRI  PEP  274  

Oxo-process Mkt price

Bio-route Real Cost - unknown

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Business  Success  vs.  SCIENCE  LO

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USIN

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SUCC

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers Cellulosic Fuels

PE from Ethanol Bio Based PET

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Business  Success  vs.  SCIENCE  LO

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USIN

ESS

SUCC

ESS

HIG

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers

•  Economic  Feasibility  •  Technical  Challenges  •  Supply  Chain  

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Glycerin  to  Epichlorohydrin  

New  Route  

Industry  Standard  Route  

Hypothesis  Glycerin  from  biodiesel  Economically  aprac%ve  • Low  Capital  (2x  lower)  • Simple  &  compe%%ve  process  • Addi%onal  market  value  for  renewable  feedstock  

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Glycerin  to  Epichlorohydrin  

Sources:      Glycerin  price  from  December  2010  Oleoline  market  report  with  prices  corrected  to  Tallow  glycerin.    Propylene  prices  from  CMAI,  spot  simple  average  Biodiesel:    EIA  Biodiesel  Overview  2001-­‐2009,  Table  10.4  +  AEO  2011  for  2010  data  GDP  (%):  The  World  Bank  database  

Significant  Issues:  Supply  chain  uncertain%es  for  crude  glycerin    Dependence  on  biodiesel  =  uncertain  future    Dow’s  investment  decision  coincided  with  global  economic  downturn    Propylene  price  varia%on  challenges  profitability  

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Business  Success  vs.  SCIENCE  LO

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B

USIN

ESS

SUCC

ESS

HIG

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers Cellulosic Fuels

PE from Ethanol

Bio Based PET

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Business  Success  vs.  SCIENCE  LO

W

B

USIN

ESS

SUCC

ESS

HIG

H

LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers

Cellulosic Fuels

•  Capital  Costs  •  Feedstock  Availability  •  Technical  Challenges  

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Fads  and  Hype  Do  Not  Survive….  

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The  Cellulosic  Ethanol  Fad  

70

50

90

110

130 150 170 190 210

230

250

Sources: Crude Oil price, CMAI, Spot Average FOB price; monthly average prices from Jan 2005 to Jan 2011 Targets from DOE for Biochemical and Thermochemical routes; Capital from Biomass Multi Year Program 201 report from DOE (revisited by DOE on Nov 2010) Corn Ethanol from the Center of Agricultural and Rural Development from Jan 2005 to Jan 2011 Reality today: based on announced Verenium Capital Intensity and assuming: yield of 70 gal EtOH/ton of biomass, enzyme cost at $0.50/gal EtOH and biomass at $75/ton

270

290

310

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Ethylene  Cost  Curve  

To replace a $1.5B plant producing 1 MM tons per year with a cash cost of $492/ton (NA average) with a new $1.5B plant requires a cash cost of $216/ton or less*

*13% discount factor

MEA

NA EU

NEA SEA

Zero NPV @ 13% disc.

Source: CMAI - 2010 World Ethylene Cost Study

Variable Cost from Cellulose EtOH route 1100

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The  Promise  versus  The  Reality  

Corn  50  years  to  3x  yield  

Soybean  50  years  to  2x  yield  

Cumula%ve  Total  R&D  Investment    Dow  Agrosciences  Syngenta    Monsanto  

Switchgrass  today  =  4.6  ton/acre  Miscanthus  –  trials  only  

“Promised”  to  10-­‐15  ton/acre  in  a  decade  and  15-­‐20    ton/acre  over  following  few  decades  

PROMISE  

REALITY   Area  Produc0vity  

Source:  USDA  –  quickstats.nass.usda.gov  –  reports:  AFBDFE1E-­‐1AFC-­‐35DE-­‐8A93-­‐7FB72F0DA089  0DB967AF-­‐4F8E-­‐32ED-­‐9D5D-­‐D150ADE7D838  Source:  Bloomberg  for  2007  to  2009  and  Annual  financial  reports  from  2010  

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The  Promise  versus  The  Reality  

Soybean  50  years  to  2x  yield  

Switchgrass  today  =  4.6  ton/acre  Miscanthus  –  trials  only  

“Promised”  to  10-­‐15  ton/acre  in  a  decade  and  15-­‐20    ton/acre  over  following  few  decades  

PROMISE  

Source:  USDA  –  quickstats.nass.usda.gov  –  reports:  AFBDFE1E-­‐1AFC-­‐35DE-­‐8A93-­‐7FB72F0DA089  0DB967AF-­‐4F8E-­‐32ED-­‐9D5D-­‐D150ADE7D838  Source:  Bloomberg  for  2007  to  2009  and  Annual  financial  reports  from  2010  

Cumula%ve  Total  R&D  Investment    Dow  Agrosciences  Syngenta    Monsanto  

REALITY  

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Cost  and  Time  to  Implement  

Actual  Growth  from  Corn  Ethanol  

1  New  Plant  every  8  days    ∼$200B  in  capital  

   Na0onal  Academy  of  

Sciences  Projected  Biomass    (550MM  ton)  with  

Thermochemical  Process  

9% of US Liquid Fuel Consumption in 2020 3% of US total Energy Consumption in 2020

Data shown in 2020 includes only the energy generated by the 550 MM ton of biomass (Nat. Academy of Sciences) with performance of 2012 DOE target W  Banholzer  

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Business  Success  vs.  SCIENCE  LO

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B

USIN

ESS

SUCC

ESS

HIG

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LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers Cellulosic Fuels

PE from Ethanol

Bio Based PET

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Business  Success  vs.  SCIENCE  LO

W

B

USIN

ESS

SUCC

ESS

HIG

H

LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers

PE from Ethanol

• Economic  Feasibility  • Technical  Challenges  • Geographic  Constraints  &  

 Advantages  

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An  Alterna%ve  Feedstock  -­‐  Cane  to  LLDPE  

Ethanol Ethylene

Fully-­‐integrated  facility  in  Brazil  U%lizes  state-­‐of-­‐the-­‐art  Dow  polymeriza%on  catalysis  

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Ethanol  to  Polyethylene  –  A  Niche  Opportunity  

Ethane

$/gal

Ethylene

cents/lb

Polyethylene  

cents/lb

Ethanol

$/gal

Sources:    Ethane,    ethylene,  polyethylene  (US):  CMAI;  Ethanol  US:  ICIS,  Ethanol  Br:  ESALQ;  PE  Brazil  calculated  based  on  market  price  differen%al  Br  to  US  (reference  )  Price  Densi%es  shown  for  Dec  2008  to  Dec  2010;  Prices  shown  from  Dec  2010  

• Exis%ng  logis%cs  for  ethanol  in  Brazil  • High  polyethylene  price  in  Brazil  • Ethanol  price  fluctua%on  requires  integra%on  

cents/lb

Polyethylene  Ethanol

$/gal

UNITED STATES BRAZIL

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Business  Success  vs.  SCIENCE  LO

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B

USIN

ESS

SUCC

ESS

HIG

H

LOW QUALITY OF SCIENCE HIGH

STATIN Drugs

Man Made Diamond

LEDs

Ethylene Styrene Interpolymers

Cellulosic Fuels

PE from Ethanol

Bio Based PET

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Compounding  Miracles  

Photosynthetic Yield

Collection & Transportation

Conversion/Cost

Production of Hydrogen

Hydrogen Storage

Fuel Cells

Distribution & Infrastructure

Hydrogen  Fuel  Cell  Technology  requires  4  miracles  

Cellulosic  Ethanol  Technology    requires  3  miracles  

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Thank You

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Feedstock  Oxida%on  States  

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Understanding  the  Key  Issues  

• The  requirements  of  CAPITALISM  must  be  addressed.  • ENERGY  R&D  is  a  mul0  level  challenge  • NEW  FEEDSTOCKS  have  uncertainty  in  supply  chain  complexity,  long  term  availability  and  market  pull  

• TIME  &  SCALE  TO  IMPLEMENT  cannot  be  ignored  • The  rela0onship  between  SCIENCE  and  BUSINESS  is  hard  to  predict  • INCUMBENT  TECHNOLOGY  sets  the  standard  for  compe00on  

• COMPANIES  FAIL!     For a successful technology, reality must take precedence

over public relations, for Nature cannot be fooled.

- Richard Feynman W  Banholzer  

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