Synergy by Design
Forming a strategic partnership, joint venture or collaborative agreement with a major oil company isn’t a new concept for emerging biorefining firms in the effort to deliver advanced drop-in biofuels and biobased chemicals to the commercial marketplace. In fact, for many the move is a necessary—not an optional—business decision. This was precisely the approach Madison, Wis.-based Virent Energy Systems took when it established a strategic partnership with Royal Dutch Shell in 2007 as Virent and Shell Hydrogen LLC, a Shell subsidiary, first launched a five-year joint development project to develop biomass-derived hydrogen systems designed for fueling station applications, says Greg Keenan, vice president of business development and engineering for Virent.
“Historically, strategic partnerships have been always been a part of Virent’s business plan right from the beginning,” Keenan tells Biorefining Magazine. “We initially viewed it as we need to find partners to validate and really be the voice of the customer. I think that’s one of the great parts of the partnership we have with Shell.”
Co-founded in 2002 by Randy Cortright, Virent’s current chief technology officer, and James Dumesic, professor at the University of Wisconsin-Madison, Virent deepened its relationship with Shell and refocused its business strategy in 2008 to produce advanced biofuels such as drop-in biogasoline and light and heavy biobased distillate fuels such as diesel and biojet fuel, in addition to biobased chemicals, derived from soluble plant sugars via its patented catalytic BioForming technology. Invented by Cortright and Dumesic, Virent’s BioForming technology platform combines aqueous phase reforming (APR) and traditional petroleum refining technologies to generate hydrocarbon molecules that look and perform similar to petroleum-based fuels and chemicals.
In June 2010, Virent closed on a $46.4 million Series C equity round led by Shell with strong participation from existing partners such as Cargill Inc. and Honda. With its new equity stake, Shell acquired a seat on Virent’s board of directors. The financing followed a milestone in March in which Virent announced the successful startup of its 10,000-gallon-per-year “Project Eagle” demonstration facility in Madison.
Understanding that the company’s current and future successes and milestones aren’t exclusively reliant upon its strategic partnership with Shell, Keenan points how fast and more efficient the company is able to grow and mature alongside a major oil company like Shell. When Virent initially engaged Shell, he says, Virent only had about 20 people on staff. Keenan says today the company has roughly 120 employees, and he adds that Virent spent a lot of time and resources early on putting together a solid proof-of-concept prior to approaching Shell that, in the end, would ultimately provide a competitive advantage for the young biorefining firm.
“From 2007 to 2009, Virent went from proof-of-concept to product demonstration,” Keenan says. “That’s unheard of in this industry. A company like Virent can’t do that by itself. It really was a combined effort.”
When the company first started testing its biogasoline, according to Keenan, the fuel could only be used in lawnmowers and that’s it. But, through technical validation and analysis, Virent was able to move quickly and optimize its fuel product because of Shell’s robust technical and market resources, not only domestically, but also globally.
“Back in 2007, when we solidified our partnership with Shell, there was a stigma on small start-up biorefining companies that it was risky to align themselves with big energy companies…that they would get lost in the shuffle or get squashed,” Keenan says. “We decided that was a risk we were willing to take and the rewards far outweighed the risks. We actually saw it as, if we didn’t partner with an energy company, that would be riskier than partnering with an energy company.”
While the partnership between Virent and Shell may be primarily driven by commercializing Virent’s technology and its bioproducts, Virent CEO Lee Edwards points to three broad categories where Shell has enabled Virent to accomplish milestones over the course of the partnership. Edwards took the helm as Virent’s CEO in 2009 after a 25-year career holding several different executive positions while working for BP. Edwards is also chairman of the Advanced Biofuels Association.
The first, Edwards says, is access to funding for Virent to be able to invest in research and development in order to demonstrate scalability, yield and commercial benefit of the company’s technology.
“Our relationship with Shell has been strong and increasing since 2007,” Edwards says. “That, in part, is reflected in the funding that they’ve done to help our research and development and, most recently in May 2010, invested in our company as an investor. That’s clearly provided resources that we desperately need to deliver the full potential of the technology.”
It’s this added funding, Edwards says, that enables biorefining firms such as Virent to accelerate a development cycle in order to meet joint, prescribed milestones.
“We respect the size, strength and thoroughness of Shell, but as a startup, we are urgent and must move quickly and learn as quickly as possible so that we can continue to make progress,” Edwards says. “We work with the understanding that the nature of the risks and the investment uncertainties for big oil companies like Shell and others all need to be balanced with the urgent startup mentality that we need to prove and move rather than be complacent and just wait.”
The second is, given that Virent and Shell are collaborative partners, a large company like Shell understands the energy markets on a global basis like no other regarding long-term planning perspectives, intimate understanding of the supply chain, economics, engineering and technology, particularly as a global player in refining and marketing, something that Edwards says “is important because they provide a great deal of capability that doesn’t come from Virent expenses, but comes from their willingness to co-invest to help us, based on programs that we’ve worked on together with their technology teams based in Houston, Amsterdam and the U.K.”
Edwards adds, “They’ve also been helping us a great deal on engineering and design. In some cases we would pay for this through third parties and in other cases you wouldn’t be able to access the capability that companies like Virent can access through strategic partnership collaboration.”
Admitting that it may be a bit esoteric, Edwards says how his third point illustrates that his company’s partnership with Shell provided it a significant degree of endorsement of potential and confidence within the biorefining sector; something that gives Virent an edge within a competitive and emerging market.
“In other words, it enables Virent to accelerate and attract additional investors who may see [the partnership] as a risk-mitigator—‘Well, if Shell is investing it’s easier for me to say yes because of the nature of what we’re doing and the scope of the opportunity that I see in Shell in terms of being a long-term investor in deploying the technology at scale.’”
Another important area Edwards highlighted as a valuable benefit that comes with working alongside a major oil company is that Shell has extensive wherewithal when it comes to policy, and not just in the U.S. Shell is actively involved in energy policy globally and while Virent is focused on initially deploying its technology commercially in the U.S., Edwards says that with Shell’s help, it will be more educated on compliance issues prior to deploying its technology and delivering its future product to unfamiliar markets abroad.
“As a global player, they have a combination of market opportunity for new manufacturing and products that new customers will ultimately want, and they also have compliance obligations that are emerging based on regulatory and policy mandates,” Edwards says. “Their interest is to remain compliant and be able to offer new products given their strategic interest in providing transportation fuels to the marketplace, and biofuels in general is a new opportunity for growing their own margins in manufacturing.”
Although Virent has already completed a number of significant milestones in its young history, the most notable accomplishment to date thanks to its collaboration with Shell, according to Kennan and Edwards, come from those that have validated Virent’s biogasline for performance testing in real-world applications. These types of tests, according to Keenan, are tangible examples of how Virent’s vision is coming to life because of its partnership with Shell.
For instance, Virent and Shell conducted a summer-long testing program in 2010 where Virent’s biogasoline was blended into fuel supplied by Shell to fuel 10 different vehicles, which compared Virent’s product to traditional petro-based gas. Shell used five identical pairs of late-model European cars for the road trial. Five cars used a baseline Shell gasoline. Each car was driven several thousand miles over the course of 2010. After the test, each engine was disassembled and inspected. The test determined that Virent’s biogasoline didn’t cause any harm to the vehicles in comparison to Shell’s baseline fuel. Virent followed up the test with another in August that included Virent’s biogasoline blended into fuel supplied by Shell to Scuderia Ferrari for the last three races of the 2010 Formula One championship.
“I think the use of the fuel in a very technical application such as in the Ferrari Formula One racecar was a highlight for the company because it really demonstrated the fuel we’re producing is truly a replacement drop-in molecule that has high quality,” Kennan says. “That was very exciting.”
According to Edwards, Virent intends to build on successful milestones such as these to accomplish more in the future with Shell. “We’re naturally restless,” Edwards says. “We want to keep making progress and move on to the next challenge.”
Author: Bryan Sims
Associate Editor, Biorefining Magazine