The bio-based materials and chemicals industry is poised to attract nearly $1 billion in investment this year, according to Lux Research. The projected $974 million investment is a 28 percent increase from 2013.
“Over the last two years, funding for bio-based materials and chemicals has shifted decisively toward later-stage rounds, reflecting the growing maturing of the industry and the shift from R&D to production,” said Meraldo Antonio, Lux Research Associate and the lead author of the report titled, “Dynamics of Venture Capital Funding in the Bio-based Chemicals Industry.”
“Participation of corporate investors has also increased,” he added, “suggesting that large multinationals in many industries see bio-based materials as strategically important.”
Investment in bio chemicals and plastics is rising, but how significant is that in the total scheme of investment in chemicals and plastics? I suspect still very small. I also believe that the viability of some of these investments will be challenged by the plunging price of oil and the growth of fracking-based feedstocks in the United States.
Last week, a California startup called Badlands said it will build a $4 billion polyethylene plant in North Dakota, using ethane as a starting feedstock. The plant will use natural gas that is now being flared because there are no pipelines to carry the gas. Sound a lot like northeastern Saudi Arabia in the 1970s when SABIC decided to build massive plastic plants at al-Jubail?
Production capacity of the new plant is projected at 1.5 million metric tons of polyethylene, or 3.3 billion pounds, annually. If everything proceeds as expected, the plant will come on line by 2018.
How do biomaterials such as Coke’s PlantBottle made from Brazilian sugar cane compete economically with polyethylene made from gas that is flared? According to the PlasticsExchange, the price for the blow molding grade of high-density polyethylene is around 81 cents per pound. That price will be under pressure in the United States as fracking-derived ethylene starts hitting the market. The price for polyethylene made from sugar cane is sure to rise. And is already higher, possibly significantly higher, than the cost of polyethylene made from fossil fuels.
CocaCola is committed to the project for social reasons, although even the case for climate change will be looking debatable in my opinion. Yes, it is still a good marketing story.
According to Bloomberg, the current contract price for oil is $83 per barrel. I’ve heard, several executives of bioplastics companies make the statement that as long as the price of oil is above $90 a barrel, their economics make sense.
As I’ve written before, several bioplastics projects, starting with Telles, have gone belly-up because of weak demand and weak economics. Yet the VC money is still coming in.
The research from Lux even makes an odd statement in discussing the positive M&A outlook for biomaterials projects.
“M&A is on the rise. Subpar performances from companies such as Gevo and Amyris have dampened the public markets’ enthusiasm for the space. As a result, many start-ups have scrapped IPO plans and sought other exits – witness Stora Enso’s acquisition of Virdia, Renewable Energy Group’s purchase of LS9 and Cereplast’s cheap acquisition of Trellis Earth.”
Actually Cereplast went bankrupt, was liquidated and sold to Trellis Earth. Cereplast was a hot penny stock before it went bust. P.T. Barnum would have loved it.