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Poet, Royal DSM Create Joint Venture to Make Cellulosic Ethanol

Poet LLC, the largest U.S. corn- based ethanol producer by installed capacity, established a joint venture with Royal DSM NV (DSM) to produce cellulosic ethanol and license the technology to other plants in the U.S. and globally.

The companies will each own 50 percent of the joint venture, named Poet-DSM Advanced Biofuels LLC, Poet said today in a statement. Its headquarters will be in Sioux Falls, South Dakota, where closely held Poet is based.

The venture will let Poet build one of the first cellulosic ethanol plants in the U.S. and decline a $105 million U.S. loan guarantee. Wider adoption of the technology is needed for oil companies to meet federal requirements to blend 16 billion gallons (61 billion liters) of the fuel with gasoline by 2022, said Chief Executive Officer Jeff Broin.

“We have the raw material to make it happen,” Broin said today on a conference call with reporters. “There’s more than one billion tons of biomass available every year in the U.S. that could be used to produce enough cellulosic ethanol to replace a third of America’s gasoline.”

Initial capital expenditure by the venture will be $250 million, which will be invested in Poet’s Project Liberty facility in Emmetsburg, Iowa. The funding makes it unnecessary for Poet to take advantage of the $105 million loan guarantee the U.S. Energy Department offered in September, and it will be declined before any funds are drawn, Broin said.

Project Liberty

The Emmetsburg plant is expected to begin production in the second half of 2013 and will convert corn cobs and other crop residue into 25 million gallons of ethanol a year. The venture intends to deploy the technology at Poet’s 26 other U.S. corn ethanol plants and license the technology to other producers globally.

DSM is contributing its enzyme and yeast technologies, which complement Poet’s processes and make the company “an excellent strategic partner,” Broin said.

The U.S. Environmental Protection Agency estimates that as many as 400 new biorefineries must be built by 2022 in order to produce the 16 billion gallons of cellulosic biofuel required under the agency’s regulations, Poet said.

As much as 1 billion gallons of cellulosic ethanol could be produced annually at Poet’s 27 plants if the technology is deployed at all of them, according to the statement.

‘Quick Build-Out’

“I think you’ll see a pretty quick build-out of the cellulosic industry once it’s proven,” Broin said. “I think the dollars will be available, and I think this product will be very important to our country becoming more independent from foreign sources of oil.”

DSM and POET expect the venture to be profitable in 2014 and to deliver “substantial revenues” and an “above-average” contribution to earnings before interest, taxes, depreciation and amortization in the medium to longer term.

Based on Project Liberty’s expected initial capacity of 20 million gallons, and current average prices, annual sales may reach $100 million, Chairman and Chief Executive Officer Feike Sijbesma of Heerlen, Netherlands-based DSM told reporters on the call.

Sales may grow by another $100 million or more depending on licensing deals, he said.

Prices for ethanol have dropped 30 percent from the 2011 high of $3.068 a gallon on the Chicago Board of Trade. Poet’s cost to make its cellulosic fuel is “just under $3” now, Broin said.

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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