Once Antagonistic, Big Oil Now Warms to Ethanol and Other Biofuel Companies

For decades, the big oil companies and the farm lobby have been fighting about ethanol, with the farmers pushing to produce more of it and the refiners arguing it was a boondoggle that would do little to solve the country's energy problems.

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Right, an ethanol plant in South Dakota.
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So why are technicians for British Petroleum, the giant oil company, now working at an experimental ethanol plant in the old Louisiana oil town of Jennings, helping to make it more efficient?

The erstwhile enemies, it turns out, are gradually learning to get along, as refiners increasingly see a need to get involved in ethanol production, according to a report in Wednesday's New York Times. Ethanol, made chiefly from corn, now represents about 9 percent of the country's market for liquid fuels.

And the percentage is growing year after year because of federal mandates. With the nation's thirst for gasoline, and the ethanol that is blended into it, expected to revive when the economy does, the oil companies want to be in a position to take full advantage.

The interest expressed by big oil companies is coming in the nick of time for small companies that desperately need capital and cannot find it these days in the private markets.

Take the case of Verenium Corporation, a small company based in Cambridge, Mass., that in Jennings is testing new forms of biofuels in alliance with BP. Instead of ethanol made from food crops, the partners are devising a version from grasses in the sugar-cane family.

The experiments are preparation for building a second, $250-million plant in Florida with the capacity to produce 36 million gallons a year of new biofuels - the first commercial plant of its type built with oil company money and expertise.

The Times reports that Verenium scientists have already developed a secret sauce of enzymes and microbes that ferment and distill biomass into ethanol. Now BP is contributing technical expertise aimed at getting the temperatures and pressures in the vats just right.

The Jenning plant is just one sign that the big oil companies are now at least grudgingly accepting biofuels -  particularly those made from wastes and nonfood sources, which do not bear corn ethanol's stigma of raising food prices.

The big change came in the 2007 energy law enacted by Congress that set ambitious mandates for refineries to blend increasing amounts of biofuels over the years. By 2022 they will be obliged to blend 36 billion gallons of biofuels, or more than three times current levels.

The oil companies also say that as crude oil becomes ever more difficult and expensive to find, biofuels can bolster their reserves.

Shell was the first of the big oil companies to venture significantly into the new biofuels, getting its toes wet in 2002 by providing money to a Canadian company called Iogen Corporation to research making ethanol from plant waste. Shell would not discuss how much money it is now investing in biofuels, but said it had quadrupled biofuel research spending since 2007.

Shell has also formed partnerships with a variety of small companies at work on improving enzymes that break down various plants and waste materials for ethanol, making fuels from algae and even biogasoline from sugary liquids derived from plant materials. Chevron has formed a joint venture with Weyerhaeuser to develop biofuels from wood waste.

And Valero Energy Corporation, the country's largest petroleum refiner, has snapped up seven corn ethanol plants from VeraSun Energy in recent months since VeraSun filed for bankruptcy protection last fall. Valero has suggested that it could transform the plants for newer blends of ethanol.

Posted by

Scott Doggett May 28, 2009, 1:35 PM

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