The Chemical Conference 2014Agri Meets Chemicals: The biobased (r)evolution in the chemical industry

Agri Meets Chemicals: The biobased (r)evolution in the chemical industry

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On September 29, 2014, Deloitte and Rabobank, supported by, TNO, VNCI and HollandBIO, hosted the Chemical Conference 2014. This year’s theme was “Agri meets Chemicals; the biobased (r)evolution in the chemical industry”, Highlight of the event was the official presentation of a global study; “Opportunities for the fermentation-based chemical industry: An analysis of the market potential and competitiveness of North-West Europe”. The study was commissioned by the Biorenewables Business Platform (BBP, advisor to the Ministry of Economic Affairs), and companies throughout the value chain - such as Suiker Unie, KWS, Corbion, AkzoNobel, DSM and Rabobank - have contributed their knowledge.

The event attracted a record audience of some 400 participants – including representatives of the chemical and agricultural sectors, industry associations, the financial sector, and government and universities. They were treated to a wide variety of presentations and discussions, involving key players as well as newcomers. The focus was on the significance of biobased technology for the chemical industry, now and in the years ahead, and the need for businesses in the agricultural and chemical sectors to work together to leverage the identified potential for biobased chemical production in North-West Europe. It was a meeting of different mindsets, where the seeds of mutual understanding and cooperation were planted.

Intro

Perhaps this conference will bring about happy matches between small players like Pectcof and Chaincraft with their larger peers.

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What intrigues me is the colossal amount of new investment we’re talking about today. But we have so many chemical industry assets already. With some creativity, we should be able to reapply those to new processes.

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PresentationsOpportunities for the fermentation-based chemical industry By Vincent Oomes, Partner Deloitte Consulting

Agriculture + Technology Innovation + Sustainability = diversified high value revenue By Tyler Painter, CFO and COO of Solazyme

Biobased Economy, an opportunity also for Europe By Marcel Wubbolts, CTO of DSM

Innovative sustainable solutions for the chemical industry By Rudi Dieleman, Director and Co-founder of Pectcof, and Niels van Stralen, Director and Co-founder of Chaincraft

Bringing a new 100% biobased polyester to the market: The power of pull By Tom van Aken, CEO of Avantium

Panel discussions The competitiveness of North-West Europe Panellists Coert Beerman, Head of the Region NL & Africa at Wholesale, Rural & Retail International at Rabobank Albert Markusse, CEO of Suiker Unie Ton Runneboom, Chairman of the Biorenewables Business Platform Arno van de Ven, Senior Vice President New Business Ventures at Corbion

The Strategic Implications Panellists Tom van Aken, CEO of Avantium Lambert van Nistelrooij, Member of the European Parliament Tyler Painter, CFO and COO of Solazyme Marc Verbruggen, President and Chief Executive Officer of NatureWorks Marcel Wubbolts, CTO of DSM

The audience was welcomed by Willem Vaessen, Director Chemical Value Chain at Deloitte, chairman of the event and moderator of the panel discussions. “I’m pleased to see so many of you here,” he said. “And you are right to be here. The development of the biobased economy is likely to spawn more and more strategic partnerships, networks of partners. Indeed, entire ‘ecosystems’ will emerge. No company can face the challenges alone.” He expressed optimism that the strong position of North-West Europe and the Netherlands as an efficient and reliable producer of feedstock for the biobased chemical industry would attract significant new investments, contributing to economic growth and jobs along the value chain.

Willem invited Jan van Nieuwenhuizen, Member of the Executive Board of Rabobank, to introduce the programme. Jan explained how two very different worlds are joining forces, driven by advances in biotech, changing consumer demand and the move towards a circular economy. “Rabo’s agri clients see ways to boost and diversify income sources,” he said, “while chemical companies see a long-term future in the shift from oil to soil. Meanwhile, it is the consumer-facing food and chemical companies that are creating and driving demand”. Rabo observes concerns among chemical companies about availability and quality of agri feedstocks. Jan reassured the audience that this is manageable. “Agri commodity prices can be hedged, and agri assets are bankable.” And it is certainly not impossible to achieve constant high quality products with agri feedstocks. “If beer brewers can do it, chemical companies can do it.” Rabo sees a golden opportunity for Europe to regain its competitive edge with a new industry in which we can excel by leveraging existing agri and chemical knowledge. “But the two industries, government and science will need to work together,” he stressed. “I’m delighted to see them all represented here, and am confident this meeting will result in new partnerships being forged.”

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We’re a global player, but we want to be involved in initiatives at local level and help them go nationwide, Europe-wide and worldwide. At every level, the solutions you need are different, as feedstocks are very region-specific.

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A panel with representatives of the study’s sponsors went on to discuss the competitiveness of North-West Europe as a location for biobased industry. Albert Markusse, CEO of Suiker Unie, was pleased with the recognition in the report of the productivity gains and cost reductions achieved in recent years in the cultivation of “our beet”. He warns that “the competition elsewhere in the world is at our heels, so cost price is key.” Keeping the cost price low, he believes, is a matter of maintaining close relations between farmers and industry, continuing to push for higher yields per hectare and creating not the world’s biggest sugar companies, but factories with the biggest capacity and efficiency per unit in the world.

Rabobank’s Coert Beerman comments on the land use issue. “Rabobank focuses on Banking for Food, and is therefore vigilant against land use that threatens the food supply. Meeting global energy demand with biofuels would require six times today’s total global agricultural production worldwide. We clearly need a balanced approach here. But replacing petrochemical production by biobased processes would use only 5% of arable land and create more value. Thereby boosting farm income and agricultural productivity.”

Corbion’s Arno van der Ven states that the trends identified in the study certainly make Europe a more attractive place for Corbion to invest. But a factor that certainly shouldn’t be ignored is energy costs. “As the biobased industry is an emerging industry, governments should offer support,” he believes. “This is already happening in the US, for example.”

Ton Runneboom, Chairman of the BBP, explains why massive investments are needed. “If we have five millions of tonnes of sugar beets in North-West Europe, it doesn’t stop there. You need massive investments in downstream. But that’s precisely why North-West Europe should grasp this opportunity. This is not just about jobs for farmers. It’s about getting industrialisation back on the front burner. There’s ten thousand years of work involved! We can rejuvenate the whole chemical cluster, from Rotterdam to Ludwigshafen. To have indigenous raw materials for an industry in Europe is unique. We shouldn’t let this opportunity go away.”

From the audience, Marc Verbruggen of Natureworks asks whether parties wouldn’t be more willing to invest if the sugar price is regulated, with a floor for farmers and a ceiling for feedstock buyers? Ton replies that biobased companies need to make entrepreneurial decisions. And encourages them to “find raw material at the field,” and use intermediate feedstock rather than white sugar.

Asked how rapid the biobased (r)evolution is likely to be, Coert Beerman said that between five and ten years from now, investments may rise to 5 billion euros in Europe. “In the Netherlands I expect three plants with a total value of around 1 billion euros. We helped organise this conference because we believe in this scenario. And there’s something else: the biobased revolution can improve the quality of life in rural areas around the world, and slow down urbanisation.”

The competitiveness of North-West Europe

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Solazyme: artists with algaeTyler Painter, COO/CFO of Solazyme, gives the audience an inside view of how this pioneering company, now 11 years old, has been developing and commercialising the technology of producing oil from algae. Basically, a carbohydrate based sugar feedstock is used to cultivate microalgae with an oil content of 80% (as opposed to wild algae, which contain 5-10% oil). Solazyme has developed a proprietary technology to tailor the specific oil profiles it can produce. This flexibility enables the company to make customised oils for products with higher profit margins like personal care, foods and specialty chemicals. The company’s history is one of large investments, and cooperation through public-private partnerships with big companies like Unilever, Bunge and Akzo. “What we’re doing is not easy,” he said. “It takes years of commitment, significant capital and a healthy recognition of where you fit in the value chain. We are working with some of the world’s largest companies to improve the products they make and the sustainability with which they make them.” An important choice early on was one of location. Solazyme chose Brazil for its first plant, based on the presence of feedstock (cane sugar), a sophisticated business partner (Bunge) and financial support (Brazilian Development Bank). Its facilities there will have nameplate capacity of 100k MT. The company also has two plants operating in the US. The first is a small scale commercial plant, fully owned by the company, producing food ingredients. The second is a 20K MT nameplate plant, owned and operated by ADM, which is producing multiple products today. He dispelled any suspicions that he and his colleagues are dewy-eyed idealists: “Sustainability is important,” he said. “Ultimately, the process has to provide value in addition to sustainability.”

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Biobased Economy, an opportunity also for EuropeMarcel Wubbolts, CTO of DSM concedes that his company’s focus for biobased activities in recent years has been more on the US, Brazil, and Asia. But he is convinced that in the biobased economy there is a role for Europe, too. He therefore welcomes the public-private partnership between the EU and the Biobased Industries Consortium, of which he is Chairman. DSM is open to opportunities in Europe, he says, but “it has to make economic sense.” A key to success in biobased business, he believes, is bridging the communication gap between value chains, for instance between agriculture and the chemical industry. “You have to learn to speak the language of a totally different sector.” And what he believes will really create momentum is the emergence of biobased products that are not just greener, but also better than existing solutions. Marcel highlighted DSM’s EcoPaXX nylon. Launched in 2010, it is the preferred solution in many high-performance environments, from Daimler and BMW engine covers to ski bindings and from insulation to castor wheels of airline trollies. In many of its ventures, DSM operates jointly with partners along the value chain. Marcel highlighted Reverdia, DSM’s joint venture with the French starch company Roquette. The aim was to build a commercial-scale plant for the production of bio-based succinic acid, a basic chemical used to produce pharmaceuticals, foods, plastics and much more. The joint venture began in 2008, and the first commercial plant came on stream in Italy in 2012. Another successful partnership, this time in the US, is with ethanol producer Poet. The mission: to globally license (to third parties as well as to Poet's existing plants) an integrated technology package that converts corn crop residue to cellulosic bio-ethanol. The first commercial-scale plant opened for business in September 2014. On the road to success, Marcel says, government bureaucracy and silo thinking can get in the way of cooperation. “If you have a ‘tropical island’ perspective, and commit as parties to go there together, that helps a lot.”

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Volumes are still modest compared to what we’re used to. And that the focus of biochemical industry is not on acetone, ethanol and ketones, which means it’s not intruding on our space. So biobased and oil-based chemical industry can easily coexist in the years ahead.

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Innovative sustainable solutions for the chemical industryThe next presentation highlighted the exciting efforts of two young entrepreneurs, both Wageningen University graduates. With great flair and enthusiasm, Rudi Dieleman introduced the start-up Pectcof, which creates valuable products from coffee pulp biomass - currently just a pollutant. The process involves drying, shipping, extraction and, enzymic modification. The result is a range of food ingredients, fermentable sugars for the creation of polymers, proteins and polyphenols, and second-generation biofuels. Moreover, using the coffee pulp in this way solves a huge waste problem in coffee-producing regions. Rudi concluded by sketching an ambitious roadmap for the years ahead. Niels van Stralen, in his turn, pitched his startup Waste2Chemical. But first he treated the audience to a scoop: the company is being rebranded, and this conference was chosen for the launch of its new name: Chaincraft. A fitting name for the company’s core business: mixed culture fermentation of organic residues (2nd generation feedstocks), such as agricultural and supermarket waste, to produce medium-chain fatty acids. The company was established in 2010, and has emerged from the lab phase, with its first pilot production facilities just coming on stream. R&D is sponsored by the BE-Basic foundation and performed in cooperation with Wageningen University, while DGF and HORIZON3 provide venture capital. Applications are sought in higher-end products like chemicals, food and feed. Demo-scale production will start in 2016 and full-scale production is feasible in 2017.

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Our region has a lot to offer to the biobased industry, and we want to create a Biobased Delta to help these companies make the most of the opportunities.

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Avantium harnesses the power of pullTom van Aken, CEO of Avantium, spoke to us about his company’s success in producing a new, 100% biobased polyester called PEF- and skilfully managing its market introduction. PEF, currently being produced in a pilot plant in Geleen, is destined to replace PET in soft drink bottles and eventually challenge other packaging like glass and aluminium. “PEF is not just a green alternative,” he explains. “It has unique benefits.” The key one being that PEF bottles are much better than PET (and just as good as glass and aluminium) at keeping CO2 gas and water inside and oxygen out. For food and beverage companies, an important factor is also enhancing their brand value and looking for sustainable packaging materials that can help them to grow market share. Avantium’s approach in commercialising this new technology is an edifying example of John Hagel’s “power of pull” at work. From the very start, Avantium has sought cooperation with a range of parties. Future customers like Coca Cola and Danone are already co-investors. The design of the first commercial plant is underway, and it should be coming on stream in 2017. In 2018, the first PEF bottles will appear in our shops.

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DSM’s Marcel Wubbolts observed that “It is not economically feasible to transport second-generation feedstocks – biomass – over long distances. This means that relations with suppliers and feedstock prices will be more stable, and plants will typically be smaller compared to petrochemicals plants.”

European Member of Parliament Lambert van Nistelrooij, on potential for EU funding for the commercialisation phase of product development: “In recent years, the EU parliament has approved a lot of investments in R&D. As a result, biotechnologies became available and went to the market, but now we are losing ground in this area. So we’ve agreed on a different model, involving a public-private commitment with the biobased industry in which we contribute 1 billion euros and the industry 2 billion, to move technologies from pilots further to demos. To make this possible, parliament needed to change EU competition rules. Another trend is that we’re shifting from subsidies to guarantees for commercial loans.”

What needs to come together to derisk investment in this sector? Marc Verbruggen, CEO of Natureworks, answers: “In plastics production, we have to start with reasonably large plants to achieve the necessary economies of scale to compete with traditional plastics. Investments typically run in the hundreds of millions. Everybody is in favour of a biobased economy, but apparently it’s up to the industry – essentially a start-up industry - to make all the investments. It would be fantastic, of course, if all consumers were prepared to pay a significantly higher price for a biobased product. But if not, we need other dynamics to boost market penetration. Finally introducing a carbon tax would be one way of creating a level playing field. EU legislation specifying that a portion of the market must be biobased would also be helpful. This would give Europe an edge over other feedstock locations worldwide.” Avantium’s Tom van Aken adds, “Having a big parent company with deep pockets is an advantage that some biobased start-ups enjoy. In our case, large partners help to take the commercial risk off the table – but of course that comes at a price. Some companies addressed this problem by going public, but the results to date have been mixed at best.”

Asked what we can do to increase the sense of urgency in Europe, Lambert van Nistelrooij encouraged the industry to take more trouble to inform politicians of what is going on, and keep them up to date.

The use in the bio-based industry of first-generation feedstocks like sugar beet is frowned upon because it creates a situation of competition with food production. There is a lot of pressure to focus on second generation feedstock, i.e. waste. But can we really develop a competitive, sustainable biobased chemical industry in Europe if we don’t start with sugar? Marc Verbruggen of Natureworks replies, “In the Netherlands, Suikerunie is producing a lot of sugar on present acreage and can produce a lot more. Making fuels from this would indeed be questionable. That’s where the decoupling in thinking has to take place. If you truly want to change 20% of your fuel requirements to biobased, you’d probably have to look to cellulose. But if you want to change 20% of your chemical production to biobased, let’s use the most efficient crop out there and not force the chemical industry to spend even more capital than now. I’d really like to make a clear distinction, and I hope legislators understand that distinction, between energy (massive user) fuels (massive user) and chemicals (a much smaller user).”

Lambert adds, “You have to look at how sugar is organised in the Netherlands. You don’t deal with individual farmers here but an organisation. You can act as a sector. That gives an opportunity to accelerate, and to create a higher added value for the farmers and the sugar industry. Then other parts of Europe can copy the good practices here. I’m really optimistic about the potential of this. So use your capacity, take your chance if possible.” Tom van Aken observes that “based on rational facts, you need to use sugar. But consumers are not always that rational. They are raising the sustainability bar higher on emotional grounds. We need to start with first generation feedstock, and not wait for second gen. But meanwhile, it’s important to communicate to consumers that we’re working on that next step.” Marcel Wubbolts agrees. “If we want fast progress, we can’t wait for the second generation of feedstocks to become mainstream. We would lose ten years.

The Strategic Implications

The challenge for growers is to earn more money with the same acreage. By growing bigger quantities, but also increasing the quality - the sugar, starch or protein content.

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Tim Hanley thanked the speakers and panellists for the insight they had provided into the developments in the biobased industry and into the relationships being forged between agri companies and chemical companies in particular. “Closer cooperation between the two is our best hope if the biobased industry is to meet the challenge of delivering sustainable solutions for tomorrow’s world and creating healthy economic activity in Europe. As always, Deloitte’s experts will be around to help the industry make the most of the opportunities and to master the challenges that lie ahead. Our annual Chemical Conference is one of the many ways we do that ...”

Conclusion

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Willem VaessenDirector Chemical Value ChainDeloittewilvaessen@deloitte.nl+ 31 613 121 120

Daan DijkManaging Director Sustainable Business DevelopmentRabobankd.dijk@rn.rabobank.nl+31 622 934 186

www.thechemicalconference.nl

Contacts

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