In last week’s Energy Trends Insider our featured stories were How to Make Money in Solar as Every Solar Manufacturer Goes Bankrupt, Analyzing Coskata’s Major Strategy Shift, and Rough Road For Biobutanol. As we have done previously, we would like to share one of those stories with regular readers of this column. Interested readers can find more information on the newsletter and subscribe at Energy Trends Insider.
Analyzing Coskata’s Major Strategy Shift
Last week Coskata announced that they were abandoning their planned $100 million IPO along with a fundamental shift in company strategy. No longer will their immediate plans involve the conversion of wood into ethanol, but instead they will focus on natural gas to ethanol.
It is no secret that I was skeptical that Coskata could make a go of it in the wood to ethanol business. In 2008 I wrote “Coskata: Dead Man Walking” in which I took a very skeptical view of their claims that they would make ethanol for “under US $1.00 a gallon anywhere in the world.”
But what to make of Coskata’s shift? I predicted in that article that their projection that “they will produce ethanol for less than $1/gal will look ridiculous in hindsight.” And so it does. But might they find more fertile ground in their shift to natural gas?
It is certainly true that the low price of natural gas has greatly lowered the production costs of a number of petrochemicals. It is also true that producing syngas from natural gas is a well-established, commercial technology. Thus, one of my criticisms of Coskata — that they were patching together commercially unproven technologies — should be addressed for the syngas production step.
But what about their competitors? Celanese (Full disclosure: My former employer) already has a process that converts syngas into ethanol, and they don’t saturate the ethanol with water in the process. They have built a facility in Texas that is scheduled to come online soon, and they are building one in China that is due to come online in 2013. They are a $5 billion company with a significant head start. (I also know that they have looked at the Coskata process in detail).
Of course since it will not be produced from biomass, this ethanol does not qualify for the cellulosic ethanol tax credits. This issue was discussed in a recent Forbes article describing the Celanese process. Both companies will be trying to penetrate a market in the U.S. that is already saturated with corn ethanol, and now Coskata will certainly face some opposition from renewable fuel advocates that formerly supported their efforts.
All together, I foresee a rough road ahead for Coskata. However, they do have a strong management team that is showing the capability to adjust to changing conditions. Perhaps their best chance of survival is to pick up the phone and ascertain whether there is any room to work with Celanese to jointly commercialize natural gas to ethanol.