Renewable Chemicals and Advanced Biofuels Company Gevo Files for IPO; Non-binding Letter of Intent with United Airlines for Renewable Jet Fuel
|Gevo has a low capital cost retrofit strategy for ethanol plants to produce isobutanol for direct use; for use in the production of plastics, materials, rubber and other polymers; and for use in the production of hydrocarbon fuels. Click to enlarge.|
Gevo, Inc., a renewable chemicals and advanced biofuels company that converts renewable raw materials into isobutanol and renewable hydrocarbons that can be directly integrated on a “drop in” basis into existing fuel and chemical products, has filed a registration statement on Form S-1 with the US Securities and Exchange Commission (SEC) relating to the proposed initial public offering of shares of its common stock. Gevo anticipates a $150 million maximum from the offering, according to the S-1.
The number of shares to be offered and the price range of the offering have not yet been determined. UBS Investment Bank and Goldman, Sachs & Co. will be acting as joint bookrunning managers, with Piper Jaffray acting as a co-manager for the offering.
Gevo’s technology platform is high yielding, approaching 94% of the theoretically possible conversion of plant sugars to isobutanol, according to the filing. Carbon dioxide is the renewable carbon source, which is converted to sugars by plants, and those plant sugars can be converted to isobutanol using the Gevo Integrated Fermentation Technology, or GIFT.
Gevo designed its biocatalysts (engineered E. coli bacteria for the first generation, with the isobutanol pathway now being transferred to an industrial relevant yeast) to operate in existing ethanol plants, yet produce isobutanol. The GIFT retrofit package uses well-known processing equipment and is expected to cost approximately $40 million for a standard ICM-designed 100 MGPY ethanol plant. In the filing, Gevo says that its approach will be capital efficient for several reasons:
- a relatively short 14-month buildout;
- the ethanol plant undergoing retrofit can continue to produce marketable ethanol during most of the retrofit period; and
- the plant subject to retrofit is operational and only the retrofit will be new.
GIFT consists of two components, proprietary biocatalysts which convert sugars derived from multiple renewable feedstocks into isobutanol through fermentation, and a proprietary separation unit which is designed to continuously separate isobutanol from water during the fermentation process.
Gevo sees three primary market applications for its isobutanol: direct use; isobutanol for the production of plastics, fibers, rubber and other polymers; and isobutanol for the production of hydrocarbon fuels and specialty blendstocks.
Direct use. Chemical-grade isobutanol can be used as a solvent and chemical intermediate. The global market for chemical-grade butanol is approximately 1.1 BGPY, based upon volume data from SRI, Gevo said.
Isobutanol also has direct applications as a specialty fuel blendstock. Fuel-grade isobutanol may be used as a high energy content, low Reid Vapor Pressure (RVP) gasoline blendstock and oxygenate, which will be compatible with existing refinery infrastructure. Additionally, fuel-grade isobutanol can be blended in conjunction with, or as a substitute for, ethanol and other widely-used fuel oxygenates. The potential global market for fuel-grade isobutanol as a fuel oxygenate is approximately 40 BGPY, based on IEA volume data.
Isobutanol for the production of plastics, fibers, rubber and other polymers. Isobutanol can be dehydrated to produce butenes which have many industrial uses in the production of plastics, fibers, rubber and other polymers. The straightforward conversion of isobutanol into butenes is a fundamentally important process that enables isobutanol to be used as a building block chemical in multiple markets. Isobutanol can be converted into:
- hydrocarbons which form the basis for the production of rubber, lubricants, and additives for use predominantly in the automotive markets.
- methyl methacrylate (MMA) which is used to produce plastics and industrial coatings for use in consumer electronics and automotive markets.
- propylenes used in packaging, fibers, and automotive markets.
- para-xylene and its derivatives, including polyesters, which are used in the beverage and food packaging and fibers markets.
- styrene and polystyrene for use in food packaging.
Isobutanol for the production of hydrocarbon fuels and specialty blendstocks. Isobutanol may be converted into isooctane, which can be used to reduce gasoline’s RVP and increasing its octane rating. Compared to alkylate, which is currently used to reduce vapor pressure, isooctane has a lower vapor pressure and higher octane rating. Isooctane produced from bio-based isobutanol may also be blended with isobutanol and low-value gasoline components to create gasoline with a high percentage renewable content.
Gevo has already demonstrated the conversion of isobutanol into a renewable jet fuel blendstock which meets current ASTM and US military synthetic jet fuel blendstock performance and purity requirements, and is working to obtain ASTM approval for the use of such jet fuel blendstock in commercial aviation. (Earlier post.) Gevo can also produce diesel from isobutanol.
As of August 2010, Gevo has entered into business arrangements with:
LANXESS, a specialty chemical company (and affiliate of a Gevo investor) with global operations that currently produces butyl rubber from petrochemical-based isobutylene. LANXESS has proposed to purchase at least 20 million gallons of isobutanol per year for an initial term of 10 years, with an option to extend the term for an additional five years.
Total Petrochemicals. In February 2010, Gevo entered into a non-binding letter of intent with Total Petrochemicals, an affiliate of oil and gas major Total, and an indirect investor in our company. Under the terms of the letter of intent, Gevo has agreed to negotiate a definitive supply agreement, for a term of up to five years, for the sale of a specified amount of isobutanol to Total Petrochemicals for use as a second-generation biofuel. Total anticipates that it will require a volume of isobutanol ranging from 5 to 10 million gallons during the first year of the agreement. After the first year, the parties will mutually agree upon a ramp-up schedule to increase the annual volume of isobutanol to be supplied by us over the remaining term of the agreement.
Toray Industries. In April 2010, Gevo received a non-binding letter of interest from Toray Industries, Inc., a leader in the development of fibers, plastics and chemicals. Under the terms of the letter of interest, the parties have agreed to negotiate a supply agreement, pursuant to which, beginning on or after 2012, Toray Industries would purchase 1,000 metric tons per year of bio-based p-xylene made from isobutanol, potentially building to 5,000 metric tons within five years. Production of 5,000 metric tons of p-xylene is expected to require approximately 2.3 million gallons of isobutanol. Gevo believes that the p-xylene can be produced by third-party manufacturers using isobutanol; Gevo will solicit commitments from these manufacturers to purchase isobutanol in order to supply Toray Industries.
United Airlines. In July 2010, Gevo entered into a non-binding letter of intent with United Air Lines. This letter of intent sets forth the initial terms for a supply agreement for renewable jet fuel, produced from Gevo isobutanol, to serve United Airline’s major hub airport in Chicago. Gevo anticipates that the quantity of renewable jet fuel provided to the hub airport in Chicago will initially be 10,000 barrels per day, beginning in the fourth quarter of 2012. The production of this quantity of renewable jet fuel will require approximately 205 MGPY of isobutanol. The memorandum also contemplates a ramp-up in the supply of renewable jet fuel to 30,000 barrels per day by 2015 and 60,000 barrels per day by 2020. The pricing of the renewable jet fuel will be indexed to the cost of corn, the feedstock that Gevo will use to produce our isobutanol.
To further assist its entry into the jet fuels market, Gevo is engaged in discussions facilitated by the Air Transport Association of America (ATA) with several major passenger and cargo airlines in order to secure commitments from the ATA member airlines to purchase significant quantities of renewable jet fuel made from our isobutanol once the proper certifications have been obtained.
To serve this market, Gevo is also in discussions with major refiners to produce renewable jet fuel using isobutanol at their refineries. In May 2010, Gevo received an expression of interest from a major US oil refiner and marketer that is interested in evaluating the suitability and economics of using our isobutanol to produce iso paraffinic kerosene, or IPK, a renewable jet fuel blendstock. This expression of interest, which is subject to ongoing discussions with potential airline customers, among other things, contemplates an initial term of at least five years and an initial volume of renewable jet fuel of up to 300 MGPY, up to 50% of which would be IPK produced from Gevo isobutanol.
Gevo has also secured a non-binding development and marketing commitment from CDTECH, a leading hydrocarbon technology provider for the petrochemical and refining industry.