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KiOR seeks to double cellulosic fuels production at Columbus plant; $50M in from Khosla for Columbus II
26 September 2013
Cellulosic gasoline and diesel company KiOR, Inc. is pursuing plans to double production capacity at its Columbus, Mississippi, facility through construction of a second facility incorporating KiOR’s commercially proven technology. KiOR estimates that the Columbus II project will cost approximately $225 million; will break ground within 90 days of it raising sufficient equity and debt capital to commence the project; and will take approximately 18 months to construct and start up.
Once completed with its latest technology improvements, KiOR expects that the Columbus II project will allow each Columbus facility to achieve greater yields, production capacity and feedstock flexibility than the original design basis for the existing Columbus facility, enabling KiOR to more quickly make progress towards its long-term goal of 92 gallons per bone dry ton of biomass.
KiOR also announced that it has received commitments, subject only to negotiation and execution of final documentation, from Khosla Ventures and Vinod Khosla for an aggregate commitment of up to $50 million as the cornerstone investor for the Columbus II project and to meet the its ongoing liquidity needs. Khosla Ventures incubated KiOR in 2007 and is the lead investor. (Earlier post.)
Khosla Ventures and Khosla are prepared to fund these commitments either as part of a broader debt and/or equity financing structure, in connection with a note that would convert at a premium to the current price of the common stock or on alternative terms if requested by KiOR, and mutually agreed by the parties.
Fred Cannon, KiOR’s President and CEO, said that the Columbus II project is important to KiOR for several reasons:
KiOR believes the project will enable it to achieve cash flow profitability in 2015 at a lower capital cost with decreased execution and start-up risk.
KiOR expects that construction timing and cost are more certain for the Columbus II project, as it is essentially a duplicate of the existing Columbus facility that can be leveraged to reduce construction risk.
KiOR plans to achieve significant operational and technological synergies between the two Columbus facilities, as it will incorporate the most recent technology developments into both the new Columbus II facility and retroactively to the existing Columbus facility, thereby improving facility economics for both Columbus I and II.
KiOR expects a shorter startup period for the Columbus II facility as a result of sharing personnel, infrastructure and operational knowledge with the existing Columbus I facility. This expansion of Columbus has been partially enabled by significant improvements to our technology that we expect will facilitate our use of a wider range of less expensive feedstocks such as railroad ties.
We believe that the Columbus II project also enables KiOR to continue to execute on our long-term business plan consisting of larger, standard scale commercial production facilities. In parallel with the Columbus II project, we plan to accelerate our efforts to refine the design, based on the newest technology improvements, of our next standard scale commercial production facility, currently planned for groundbreaking in the second half of 2014 in Natchez, Mississippi.
As a result of these additional efforts, we would expect to improve both the capital and operating cost profiles of the planned Natchez facility against the estimates outlined in our last earnings call. We believe these improvements to both capital and operating costs will enable us to attain financing for the planned Natchez facility on terms more favorable to KiOR and less dilutive to its shareholders.—Fred Cannon
While KiOR has faced normal start-up issues at the Columbus I facility, I believe that the Columbus I facility has proven that KiOR’s technology can meet and over time exceed the technology performance metrics of approximately 80 gallons per bone dry ton I expected for 2015, driving toward the ultimate goal of producing 92 gallons of hydrocarbon fuels (or over 150 gallons of ethanol equivalent) per bone dry ton of biomass, particularly given the company’s continued progress in research and development.
I believe that KiOR’s proprietary technology platform is substantially better, and can produce hydrocarbon fuels at lower cost, than any other currently visible biofuels fermentation technology, cellulosic or otherwise, that I am aware of. I expect that cash costs per gallon (excluding depreciation) on an energy content basis at the two Columbus facilities should be lower than today’s corn-based ethanol. I also believe that KiOR’s cellulosic fuels, which have a higher per gallon energy content than ethanol and can integrate seamlessly into the existing hydrocarbon fuels infrastructure, will provide a biofuel alternative without blendwall issues that is more attractive than ethanol, considering both production costs and logistical efficiencies.—Vinod Khosla
KiOR has developed a proprietary catalytic pyrolysis process to convert non-food biomass into drop-in fuels. The company’s technology platform combines its proprietary catalyst systems with a process based on existing Fluid Catalytic Cracking (FCC) technology, a standard process used for more than 60 years in petroleum refining. The efficiency of KiOR’s process—Biomass Fluid Catalytic Cracking (BFCC)—and the proven nature of catalytic cracking technologies allow for cost advantages, including lower capital and operating costs, versus traditional biofuels producers, the company says.
Earlier this month, KiOR reported that in July and August, the Columbus facility produced 172,398 gallons of fuel, bringing the 2013 production total from the facility to 357,532 gallons through 31 August. (Earlier post.) In the US EPA’s RFS targets for 2013, KiOR is projected to provide the bulk of the cellulosic fuels.
The ratio between gasoline, diesel and fuel oil produced in the Columbus plant during the most recent two months equaled to approximately 83% gasoline and diesel, with the remaining production as fuel oil. Production from Columbus during July and August exceeded total second quarter production by nearly 40,000 gallons.
As of 31 August, Columbus has shipped 199,071 gallons of fuel since the beginning of 2013, about half of which (99,175 gallons) were shipped in July and August.
At the beginning of August, the US Environmental Protection Agency (EPA) The US Environmental Protection Agency (EPA) finalized the 2013 percentage standards for four fuel categories that are part of the Renewable Fuel Standard (RFS) program. The final 2013 overall volumes and standards require 16.55 billion gallons of renewable fuels to be blended into the US fuel supply (a 9.74% blend).
As part of those targets, EPA projects 6.00 million gallons (0.004%) of cellulosic biofuels. For the purposes of establishing the standard, EPA projected the bulk of the cellulosic biofuels to come from the KiOR plant in Columbus, Mississippi (5-6 million gallons of renewable gasoline and diesel), with the remainder coming from INEOS Bio’s cellulosic ethanol plant in Florida (0-1 million gallons).
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