The Story of Ethylene… now starring natural gas

It’s a $160 billion a year market you’ve probably never heard of.

Ethylene, the intermediary chemical compound from which popular plastics and many other high value products are derived, has traditionally been made in the petroleum industry via steam cracking, an energy- and carbon-intensive process. It’s the most produced organic compound in the world; annual global production is in the hundreds of millions of tons. To meet ever-increasing demand, production facilities are being added globally, particularly in the Persian Gulf and China.

The problem is, it’s complicated and expensive to make ethylene. And, or course, petroleum reserves are waning.

For decades, chemical engineers have been pursuing cost effective ways to make this key industrial compound from other things. Now, a handful of companies think they’re honing in on ways to make ethylene from the methane in natural gas with commercially viable processes.

If making ethylene from methane turns out to be possible at scale, it could be a watershed for the chemical and petroleum industries. Ethylene from methane could potentially be much less expensive, given that natural gas is one-fifth the price of oil. And its supply could be more sustainable, given the massive and growing size of natural gas reserves.

The methane conversion space is more crowded than one might expect. Kachan & Co. recently performed a consulting project for a client that uncovered and profiled 24 announced and stealth mode startups in this space, along with 19 blue chip companies and 6 universities and government labs. The project involved interviews with company and research personnel, a review of venture investment data, interviews with investors and trade organizations, an intellectual property patent search and a literature review that included media and scientific sources.

Here are some of the more interesting of the 24 small organizations we found at the forefront of methane-to-ethylene commercialization today:

Co. Name HQ Website Type Dev. Stage Tech Description Partners or Alliances Investors
Carbon Sciences Santa Barbara, California Public Experimental phase Reforming methane to syngas to fuel using advanced catalysts. Emerging Fuels Technology (EFT) & University of Saskatchewan N.A.
Fertilizer Research Institute Pulawy, Poland  Polish national research lab Unknown Currently operating a pilot methane to ethylene facility based on oxidative coupling of methane (OCM). Governmental facility N.A.
LanzaTech Auckland, New Zealand Private Prototyping, commercialization in 2013 Gas fermentation process that produces both fuels and high-value chemicals from low-cost resources such as steam-reformed methane. N.A. Series A investment from an investor consortium led by Khosla Ventures; Series B financing led by Qiming Ventures.
Quantiam Technologies Alberta, Canada Private Research & development  Working on a feasibility study on a novel catalyst for methane conversion. BASF, IRAP BASF ($3M), Ursataur Capital Management ($3M), Small investors ($2.3M)
Siluria Technologies San Francisco, California Private Research & development A “revolutionary approach combining the latest developments in nanomaterial science, biotechnology and chemical engineering.” New type of oxidative coupling of methane (OCM) process. None disclosed Wellcome Trust, Alloy Ventures, ARCH Venture Partners, Kleiner Perkins Caufield & Byers, Altitude Life Science Ventures, Lux Capital, Presidio Ventures. $13.3M Series A. $20M Series B.

Excerpt from private Kachan & Co. study of 24 methane to ethylene companies, October 2011

The companies we found worldwide pursing methane-to-ethylene arranged themselves into rough groupings by type:

  • IP Provider: Develops IP related to methane-to-ethylene, does not go beyond IP phase
  • Technology Provider: Developed a technology and a prototype, intend to license to other companies (e.g. Carbon Sciences)
  • Application Provider: Developed a technology, and sells engineering services to build facilities (e.g. BCCK) or manufacture technology (e.g. Rentech)
  • Technology Operator: Goes beyond the licensing and directly operates facilities (e.g. CompactGTL)

Global oil and gas majors have been working on the challenge of methane to ethylene for years themselves, with dozens of patents issued. But none have cracked the code of profitable commercial scale production.

Global oil majors and number of patents in converting methane to ethylene

Chevron 80
Exxon Mobil 72
Shell 54
BP 29
Nippon Oil 14
Innospec 10
Lubrizol 9
Celanese 7
Saudi Basic Industries Corporation 5
Total Raffinage 5
General Electric 5
Honeywell 3
Cosmo Oil 3
Eni S.p.A. 3

Source: IP Checkups, October 2011

High value chemicals like ethylene from natural gas would be even more compelling if the gas was derived from renewable, biological sources, and not from conventional reserves or fracking, as today. Small volumes of renewable methane are available today from anaerobic digestion and landfill gas. But large volumes are promised by a new wave of companies commercializing thermal gasification and other approaches to creating bio natural gas from wood waste and other widely available feedstocks (see the Kachan report The Bio Natural Gas Opportunity).

Complicated science aside, it won’t be easy for companies to bring methane to ethylene innovations to scale. Ethylene and other high value chemicals today are an oligopoly, a market hard to crack. Any new process will likely need to be championed by one of today’s 5 big suppliers as a partner to enter the market. Then there’s the culture clash between small, fast-moving venture backed companies seeking quick exists and the notoriously slow, conservative petroleum and chemical industries.

But those challenges are likely surmountable, according to the bets that are being made by name brand cleantech venture backers of the companies in this space.

Originally published here. Reproduced by permission.

Cleantech Forum Snaps – Affirmative Action, Star Trek, and Starvation

Three comments I really liked from the premier conference on cleantech:

Art Rosenfeld, California Energy Commission – It’s all about cool white roofs to combat climate change.  Art is one of the deans of energy efficiency in California.  It’s been long known that white roofs can cool a building and help reduce the heat island effect in cities (cities are always hotter than the country, basically because they make more heat, and shifting from trees to concrete, asphalt and asphalt shingled roofs both reduces the cooling affects of aspiration and absorbs a larger portion of heat into the phyiscal environment).

So Art is now effectively calling for step by step, low cost and simple geoengineering through policy to combat both energy efficiency demons and climate change.  E.g, not only do cool white roofs reduce heat in the city, they reduce the cooling bill in the building, and reduce GHGs from energy use.  He posits that a shift from black roofs to white roofs and/or shifting roof design to flatter roofs that are more effective in white roofs would save literally billions upon billions of tons of CO2e over time, with no measurable cost difference.

So, call it the affirmative action program for cleantech, but color matters.

Sheeraz Haji, CEO Cleantech Group – It’s all about Data.  The idea is pretty simple – everything in cleantech from here on out – e.g. smart grid, energy efficiency, solar performance, water use, EVs, etc all depends on more, cheaper, faster, more granular, timely and better data and the analysis it can drive.  Sheeraz’s question to define future opportunities in cleantech is, “so what does data need?”

John Denniston, Kleiner Perkins – It’s all about food.  Think food security, food v fuel, water use, fertilizer source and ag run-off, crop yields, etc.  I love this topic.  For those of you who haven’t heard of him, go google Norman Borlaug, the recently passed away sage who made possible our ability to not starve and threw Malthus for a loop for the last few decades with dramatic crop yield improvements from his selective plant breeding and fertilizer intensive ag.  The favorite argument of the day, which John mentioned, is the “in the next x decades of years we’ll need more food than in the last x – thousands of years”.  Right or wrong, the scale is sure changing. 

So, whether your answer to John’s all about food is less people, more GMO, more technology, more water efficiency, or shifting diets, we’re going to need another Norman Borlaug or life is gonna suck.

Cleantech Blog Power 5 – Top Investors in Cleantech

It’s been a long year and a half or so since we published our last Cleantech Blog Power 5 on the top investors in cleantech.  Time for round two.

As usual the criteria for inclusion.

  • Investor made a significant contribution to the cleantech investment sector
  • More smart looking investments than stupid looking investments
  • On balance, I’d like to have your portfolio.
  • I actually might like you.

And the middle two criteria have some wiggle room.

So our Power 5 this year:

  1. CMEA Capital – A long time player, with a slice of venture capital in last year’s top cleantech IPO, A123, one of this year’s top cleantech IPOs, Codexis, and this decade’s biggest cleantech gamble, Solyndra, real hard to leave them off the list.  They come in at number 1.  Hopefully Solyndra doesn’t take back all those profits when it’s solar cattle-guard finally gets caught out.
  2. CalPERS – Despite somewhat skeptical on the performance to date, CalPERS has certainly played its part, and really anchored the explosion of venture money in cleantech.  And it continues to support it with another $500 mm commitment this fall.
  3. Bayard Capital – Makes the list for 1 deal, that is all their deals in one company.  This is the Australian firm who turned their capital fund into Landis + Gyr through a series of acquisitions before anyone in the US had heard of smart grid.
  4. Us – I mean the US DOE – Single-handedly carrying the the entire cleantech venture sector on its back?  Wow.
  5. Foundation Capital – Makes it because despite a couple of deals in their portfolio that make me cringe, they’ve gotten a lot of kudos in California for sticking it out with Silver Spring in the early days, and with one of the better cleantech exits behind them in EnerNOC and multiple bets in both solar power development and financing, and smart grid, I have to like the strategy.

And the 5 for the Royal Questioner to Question:

  1. Advanced Equities – If I need to explain why, you shouldn’t be in investing.  Do your google search.  I’m not even going to give you some links to point to this time.
  2. Every single cellulosic biofuels investor – Hey you guys, start reading our blog and stop playing the “watch my magically shrinking cellulosic biofuels forecast and my oh so please don’t notice the bait and switch to bio-anything but fuels business plan”.  Let alone the, “we can be cheaper than gasoline” or “this process has solved the oh so tricky problems and it’s just a little engineering scale-up”.  And for the record, we think the Cello Energy debacle is hilarious.
  3. Kleiner Perkins – EEStor, Bloom Energy, I turn green 1/3rd of the way down their list.  They’re the originators of the fundamentally flawed “stealth in cleantech investing strategy.”  And they make me look humble (which is hard to do).  Even making a few dollars in Amyris, doesn’t come close to making it up.  Of course, maybe the latest news articles are right, and they’re pulling out of cleantech?
  4. The American Taxpayer/ errrrr, I mean US Department of Energy – Hmmmmmmh.  Who’s the genius who signed off on massive low interest loan guarantees to Solyndra, Tesla, Beacon, and friends?  But just wait until the conditional commitments in big project dollars get spent, I’m sure that will fix it.  But for the record, it’s not generally a good sign when the government brags about out investing the private sector.  How about you guys invest my share of the total in a real chief credit officer.  I’d apply for the job, but only if you term it chief workout officer.
  5. Ok, we’re stopping, now, my stomach is still churning after number 4.

Note to all:  This list is waaaaaaaaaaaaaaaaaaaay too US centric.  I’m feeling very parochial.  More international suggestions please?