Has KiOR Solved the Biofuels Riddle?

Are we witnessing the beginning of the next energy revolution? Or merely the rise of yet another doomed-to-fail biofuels startup? KiOR, a Texas-based company that has been developing technology to transform plants into crude oil since 2007, announced last week that its newest factory is capable of producing commercial quantities of gasoline and diesel.

If true, the announcement means KiOR’s plant in Columbus, Mississippi, has won a race that frustrated investors for years, and that killed off dozens of other biofuels companies.

“Production at Columbus – the first such milestone for any commercial-scale cellulosic biofuel production plant in the U.S. – is a big step not just for KiOR but the entire Gen2 biofuel space,” Pavel Molchanov, an energy analyst at Raymond James, told BioFuels Digest.

Some questions remain. Fred Cannon, KiOR’s President and CEO, said in a recent conference call with reporters that the company has experienced “normal start-up issues,” and said that the plant has not yet begin making commercial shipments of crude. (Those will commence later in November, Gannon said.) The company incurred a $47-million loss in the third quarter, up from $23 million the previous quarter, as it completed its new factory and continued research and development efforts with zero revenue.

Those issues did not seem to worry industry analysts, however, who believe KiOR’s current investments will pay off in the form of greater efficiency and total output. Already, the company claims its newest process can produce 72 gallons of crude from each ton of biomass, an increase from 67 gallons achieved during earlier tests.

“This translates into higher production compared to fixed capital and overhead costs,” said Rob Stone, an analyst at Cowen & Company. “While expected production for Q4 was not in the press release, we believe the fact that oil production has started, along with new catalyst data, greatly reduces the risk profile.”

Even with no revenue and continued setbacks for biofuel rivals including Amyris and GEVO, which lost 82 percent and 87 percent of their value respectively since their IPO’s, Bloomberg Bussinessweek reports, KiOR’s announcement of successful commercial-scale production means it remains on track to attract significant investment in the coming months.

KiOR is in a much better position to access the capital markets,” Molchanov says. “We anticipate an equity raise in 1Q13, consistent with management’s previously stated plans.”

How has KiOR succeeded where so many others have failed? The first step, Cannon says, is the fact that the company starts with plants including chipped trees that are not part of the human or livestock food chain. By using wood chips instead of plants including corn, “allowing significant societal and cost benefits food-based feedstock,” Gannon said during the conference call.

Second, rather than creating fuels that require an entirely new distribution system, KiOR focuses on transforming biomass into the same gasoline and diesel used by “vehicles already on the road,” Cannon said, which means they “can be delivered to gas stations, and can leverage the billions of dollars already invested in our country’s liquid fuels infrastructure.”

Finally, the heart of the company’s technology is a new iteration of catalyst systems used in the oil refinery industry for decades. Improving on well-established technology helps boost efficiency and keep costs low, according to statements by the company. KiOR’s latest process creates 25 percent less coke byproduct than its original efforts, which translates to 15 more gallons of crude produced from every ton of biomass with no additional capitol costs.

The end result: oil derived directly from plants, rather than geological forces, that may soon compete on a cost-per-gallon basis with traditional sources of crude. according to a statement by the company, “In essence, KiOR’s technology simply reduces the time it takes to produce oil from millions of years to a matter of seconds.”


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