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By Robert Rapier on Jul 30, 2012 with 5 responses

Analyzing Coskata’s Major Strategy Shift

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.

Link to Original Article: Analyzing Coskata’s Major Strategy Shift

By Robert Rapier

  1. By Tim C. on July 30, 2012 at 1:53 pm

     It is not clear to me which is the better technology. Both Celanese and Coskata have claimed production costs around $1.50/gallon.  Celanese TCX does use more processing steps (syngas to methanol to acetic acid to ethanol) than Coskata’s syngas fermentation.  But TCX, as you said, uses far less water, and should have lower DSP costs. 

    Celanese seems to have a picket fence of patents around TCX, while Coskata’s competitors (Ineos Bio, LanzaTech) have much the same IP as they do, and could switch their focus from biomass to NG just as easily.  Others in this space, like Enerkem, may also decide that NG looks like a better feedstock than biomass.  The economics of converting natural gas to ethanol seem compelling. On an energy basis, natural gas futures are at $3/MMBTU, while ethanol at $2.85/gallon rack price is about $37/MMBTU.  The entrenchment of corn ethanol will take time to overcome, but eventually I see fossil (NG and coal) ethanol dominating. 

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  2. By Tom G. on August 2, 2012 at 12:36 am

    Robert:

    I certainly could use a copy of last weeks Energy Trends.  The one with “How to Make Money in Solar as Every Solar Manufacturer Goes Bankrupt”.  

    Thank you

     

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    • By Samuel R. Avro on August 5, 2012 at 11:51 am

      I’d be happy to send you a copy of the archive, Tom. Shoot me a quick e-mail to: editor@consumerenergyreport.com

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      • By Robert Rapier on August 5, 2012 at 3:16 pm

        I already took care of him Sam.

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      • By Tom G. on August 6, 2012 at 10:12 am

        Thank you both very much.  Some of the information is being wrapped into a paper on solar power for city council members.  The city is currently preparing to lease enough solar to cover about 30% of the cities electrical needs.

         

         

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