Market outlook: Biotechnology for strategic leverage

By using fermentation technologies, chemical companies can reduce complexity and costs in manufacturing

While our industry delivers products that enable the modern world, our dependence on the chemistry-based process technologies of oil and natural gas presents challenges.

New supplies of lighter feeds? Great, but the resulting shift in production mix disrupts our businesses. New, emerging markets? Yes, but cost-optimised plants are large, expensive and create regional oversupply. Volatility in oil prices? Lower prices may reduce some costs but can also reduce supply if high-cost producers suspend operations as chemical prices drop. Customers want greater sustainability? Challenging.

Biotechnology can cut chemical manufacturing complexity Copyright: Rex Features

How can we do even better and address the challenges that come with fossil fuels?

After years of development, biotechnology is ready to assume an increasing role by adding new business opportunities. Biotech can now provide options to make many of our exact same high-volume chemicals from alternative feedstocks rather than just ‘green’ specialty chemicals made from renewable feedstocks.

BIO-BASED CAN CUT COMPLEXITY
Biotechnology is used to design customized organisms that act as catalysts to efficiently convert a feedstock into a desired molecule, such as butadiene, caprolactam or butanediol. Recent innovations enable biotechnologists to engineer these organisms and comprehensive end-to-end processes so they can produce a wider range of molecules, starting from a broader set of raw materials – and do so with ever-increasing speed. These bio-based processes can use renewable resources, like various sugars or cellulosic biomass, as well as traditional petroleum-related feedstocks, including C1 sources.

Biotechnology uses fermentation as its key unit operation, and the actions inside an organism may substitute for multiple unit operations of chemistry-based processes, reducing complexity and cost. Bio-based processes, like chemistry-based ones, also include steps like feedstock preparation and downstream processing.

POTENTIAL FOR BETTER ECONOMICS
The economics of a process is more than just its operating costs; and the economics for a business is more than just the total process cost.

First, bio-based processes afford the potential for substantially lower capital expenses per ton of capacity:

• Fewer unit operations: Biology can often handle multiple steps of a process in a single unit operation – fermentation. Fewer operations means less equipment and lower costs.
• Greater selectivity: Biology can often design organisms to produce exactly the chemical of interest, rather than the mix of hydrocarbons resulting from a chemical process. This increases yields and reduces separation costs. For example, production of caprolactam often results in large amounts of ammonium sulphate as a by-product, which adds complexity in storage, management and sales; bio-based processes can avoid this.
• Gentler operating conditions: Bio-based processes run at near-ambient temperatures and pressures. Plant equipment is less expensive to build and maintain because operating conditions are less extreme.

Second, bio-based processes enable new economic savings and opportunities:

• On-purpose production: Producers can plan more accurately because their bio-based plants deliver on-purpose production volumes of their product of interest, rather than varying levels of output as a by-product of a chemistry-based process. The on-purpose production of bio-based processes could reduce the volatility experienced in certain markets as crackers move to lighter feedstocks. Examples include the C4 (e.g. butadiene) and the C6 (e.g. benzene) value chains.
• Right-sized plants: Traditionally, bigger plants are more cost-effective. Unfortunately, gradually-increasing demand in regional markets adds to supply pressure on local plants – until one producer builds their next world-scale plant, which leads to local oversupply and a drop in prices and profits for everyone. Because the lower capex of a bio-based plant can make it economical to deploy at more modest scale, producers can avoid these market swings and also enter new geographies with lower risk. For example, this could enable entry into countries where plants to serve the market are required to be built and operated within the market.

ADVANTAGE FOR COMMODITY CHEMS

• Differentiated products: Users of the major commodity chemicals are increasingly looking to differentiate themselves and their products by responding to growing end-user demand for greater sustainability, which bio-based processes can provide. In a 2014 survey by ICIS and Genomatica, producers noted that 80% of their customers are showing the same or higher interest in sustainable chemicals than just one year earlier. Producers that adopt bio-based processes to make more sustainable chemicals can enable them to differentiate their “commodity” offerings and capture the fast-growing demand from chemical users.
• Backward integration: Chemical users may be able to economically backward integrate and produce their own supplies of key ingredients. This is due to both the lower costs of building bio-based plants, as well as savings from a purpose-built plant.

Biotech also has potential for feedstock diversification and value creation:

• Feedstock diversification: For bio-based processes that use renewable feedstocks, these key input costs are disconnected from petroleum markets, allowing producers to balance risks.
• Up-value C1s: The petrochemical industry has considerable C1 sources. Emerging bio-based technologies have the potential to multiply the value of those C1s by converting them to high-value chemicals more economically than current approaches.

IMPACT ON YOUR STRATEGY
Biotech will become a must-have component of a strategy toolkit and production portfolio, as bio-based processes have begun to prove their commercial reliability and economics.

To derive greatest benefits, one needs to stay current, as the field is developing very quickly. It takes a lot more than just designing the right organism.

Christophe Schilling is CEO of Genomatica, a leading innovator in biotechnology for the chemical industry. Genomatica harnesses biotechnology to develop new, advantaged processes for major chemicals as well as custom solutions for its partners. The firm has been honoured to win the Kirkpatrick Award and Christophe has also been named an ICIS Top 40 Power Player. Christophe can be reached at cschilling@genomatica.com. Visit genomatica.com

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