Cobalt Technologies Grabs Cheap Waste to Break into Vehicle Fuels
Cobalt Tech 1
Chyna Darner/Cobalt Tech
Clean Energy: Scientist Erin Fetsch in the anaerobic hood preparing Cobalt's proprietary strain for fermentation to produce butanol.
Clean Energy: Scientist Erin Fetsch in the anaerobic hood preparing Cobalt's proprietary strain for fermentation to produce butanol. Photographer: Chyna Darner/Cobalt Tech
Cobalt Tech 2
Chyna Darner/Cobalt Tech
Clean Energy: Preparing samples for analysis.
Clean Energy: Preparing samples for analysis. Photographer: Chyna Darner/Cobalt Tech
Harry Nguyen
Kathy Kelsey/Cobalt Technologies
Clean Energy: Engineer Harry Nguyen at Cobalt Technologies.
Clean Energy: Engineer Harry Nguyen at Cobalt Technologies. Photographer: Kathy Kelsey/Cobalt Technologies
For biofuels startup Cobalt Technologies, the quest to replace petroleum has led to sugary waste water from Decorative Panels International, a wood paneling manufacturer in the small town of Alpena in northern Michigan. Mountain View (Calif.)-based Cobalt and its partner, biorefinery consulting firm American Process in Atlanta, are building an industrial-scale cellulosic refinery -- one of the world’s first -- on Decorative Panels’s campus. When it’s complete, they will use the paneling byproduct -- which Decorative Panels pays American Process to take -- to produce petroleum-free fuels.
To break into the U.S. vehicle fuel market, low-cost feedstock is essential. Highly efficient U.S. petroleum refineries provide some of the world’s cheapest gasoline. That’s why 38-employee Cobalt -- which aims to sell bio-butanol, a solvent that can serve as a higher-energy-density fuel than ethanol -- plans to use Decorative Panels’s waste, as well as agricultural and forestry wastes: They average $60 to $80 per ton, vs. $200 to $400 per ton for corn and other traditional feedstocks.
Before tackling fuels, Cobalt Chief Executive Officer Rick Wilson is targeting the chemicals market, where prices are several dollars higher per gallon than in the U.S. transportation-fuels market. Butanol is a more complex molecule than ethanol and can serve as a building block to a wide array of industrial chemicals. “The way to fuels is chemicals; your first plants you focus on going after [are] chemicals, high value product, and as you build plants and the costs come down, then you look at entering the fuels market,” says Wilson, previously BP’s (BP) vice-president of global derivatives, where he was responsible for its $3.5 billion petrochemical business, later spun out as Ineos. “What you are seeing in all these recent IPOs is that the companies that are successful are the ones that have figured this out,” he adds, referring to a string of public launches, including GEVO (GEVO), Amyris (AMRS), Solazyme (SZYM), and KiOR (KIOR).
Cobalt, which has raised $55 million in venture capital since it started up in 2006, operates a 5,000-gallon-a-year pilot plant adjoining its Silicon Valley headquarters. The company is already selling samples and performing contract research, earning revenue that Chief Financial Officer Steven K. Shevick expects to exceed $2 million this year. He says that the U.S. Navy, currently testing Cobalt’s butanol as jet fuel, is a particularly promising customer because of its aggressive goal of operating on 50 percent renewables by 2020.
“NOTHING WORKS THE FIRST TIME”
Reaching the broader civilian market requires performance equaling that of petroleum- based butanol at no higher cost. That’s where the Alpena plant, which Wilson expects to be operational by the second quarter of 2012, comes in. It’s a demonstration plant meant to be capable of producing 470,000 gallons of butanol a year. “You build a plant that size to figure out what can go wrong as you scale up -- nothing works the first time - - and it is a lot cheaper to fix things at that scale than at a 10-million-gallon scale,” explains Shevick. Cobalt’s investment in the refinery is less than $10 million. American Process is picking up the larger chunk; the rest is covered by a $18 million grant from the Energy Dept. and a $4 million grant from the State of Michigan.
The absence of a tax credit for biochemicals -- as there is for biofuels -- could slow the sector’s development, notes Michael McAdams, executive director of the trade group Advanced Biofuels Assn., especially if substantial amounts of biochemicals hit the market about the same time. Government mandates and tax credits have been a boon to advanced biofuels -- now targeted to supply 2 billion gallons next year -- four years after the supports were put in place. Says McAdams: “It took the ethanol industry 20 years to deliver the first 2 billion gallons … that’s a hell of an achievement [for biofuels].”
Cobalt’s Shevick says it is in discussions with large makers of paints and coatings, a $7 billion market in the U.S. Wilson notes these are just the first targets. “I am expecting to see a transformation of the chemicals market from the genesis of these efforts around biofuels … they will essentially replace petroleum-based chemicals first, and it’s going to be monstrous -- I mean you are going after a $1 trillion market,” he says. Jim Lane, editor of daily newsletter Biofuels Digest, is also enthusiastic. If any of these new alternatives succeeds in diverting a meaningful slice of the chemical or fuels markets -- as Standard Oil did -- he says: “One of these guys is going to be a Rockefeller.”
To contact the reporter on this story: Ken Stier at kenstier@earthlink.net
To contact the editor responsible for this story: Nick Leiber at nleiber@bloomberg.net
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