DuPont pins hopes on ethanol product
By Andrew Ward in Stockholm
Published: April 24 2011 22:34 | Last updated: April 24 2011 22:34
Nestled on the edge of the Great Smoky Mountains with a population of just over 1,000 people, the town of Vonore, Tennessee, is not the kind of place investors would normally look for insights on global mergers and acquisitions.
Danisco-graphicYet, it is here that some of the strongest clues can be found about why DuPont, the US chemical group, is trying to buy Danisco, the Danish maker of enzymes and food ingredients, for nearly $6bn.
DuPont already has a joint-venture with Danisco developing second-generation cellulosic ethanol at a demonstration plant in Vonore and the planned acquisition would give it full control.
Cellulosic ethanol has long been viewed as one of the most promising long-term alternatives to petroleum-based fuels because, unlike the corn-based ethanol currently used in some motor vehicles, it can be made from agricultural waste and therefore avoids competing with food producers for crops.
Danisco makes the enzymes that enable biomass such as straw husks, switchgrass and sugarcane off-cuts to be broken down and fermented into ethanol.
Cellulosic ethanol contributes just a fraction of Danisco’s DKr13.7bn ($2.67bn) of annual revenues, most of which come from food additives, such as sweeteners and dairy cultures, and enzymes for cleaning detergents.
However, if second-generation ethanol fulfils even a fraction of its forecast potential, the product could transform the company’s growth prospects.
According to McKinsey, the consultancy, the cellulosic ethanol market will be worth between $75bn and $140bn worldwide by 2020 as the US, China, the European Union and others promote biofuels as a way to reduce carbon emissions and oil dependency.
Enzyme makers would receive just a slice of those revenues but analysts have predicted that it could double the size of the enzyme market to more than $5bn annually. Danisco is number two in the market behind Novozymes, another Danish company, which is also investing heavily in cellulosic ethanol.
Steen Riisgaard, chief executive of Novozymes, welcomes DuPont’s interest in the sector. “It would be good for the industry to have DuPont weighing in to support second-generation ethanol,” he told the Financial Times.
Cellulosic ethanol has been slow to take off, amid doubts over its economic viability and wrangling over government support in the US. But there was a breakthrough this month when construction started on the world’s first commercial-scale production facility being built by Mossi & Ghisolfi, the Italian chemical group, in Crescentino, Italy.
The plant, due for completion next year, will have capacity of 13m gallons a year and production costs of about $2.50 per gallon, similar to corn-based ethanol and competitive with current petrol prices. Novozymes will be the exclusive supplier.
“Everybody thought the US was in the lead but this plant suddenly puts Europe ahead,” says Mr Riisgaard.
The US government had been aiming for 250m gallons of cellulosic ethanol to be produced this year but President Barack Obama’s administration was forced to cut the target to 6.6m because?of?delays?to planned US production facilities.
But Mr Riisgaard said he was confident that four US plants would be built within the next two years, with China and Brazil also on course to start full-scale production by 2013.
Novozymes is working with Sinopec, the Chinese oil refiner, and Cofco, the Chinese agribusiness conglomerate, to build a demonstration plant in China this year. The International Energy Agency predicts that global biofuel consumption will increase from 55m tonnes of oil equivalent today to 750m in 2050, raising biofuel’s share of the transportation fuel market from 2 per cent to 27 per cent. “Corn-based ethanol took several years to get going and then suddenly there was exponential growth,” recalls Mr Riisgaard. “Second-generation ethanol will be the same.”
While its rival is circled by DuPont, Novozymes is protected from takeover by its main owner, the Novo Nordisk Foundation, whose rules prevent it from selling the company.
Danisco could also end up remaining independent – at least for the time being – because DuPont’s DKr665 a share offer has received a lukewarm response from investors ahead of Friday’s tender deadline. Some shareholders have questioned whether DuPont is paying enough for the company’s green energy potential.
ft.com |
