By Antonio Ligi and Richard Weiss
Oct. 19 (Bloomberg) -- Wal-Mart Stores Inc.’s new line of food containers made from corn starch also hold the promise of a revolution by global chemical companies including BASF SE.
BASF is developing chemicals from bacteria and fungi instead of processing oil derivatives, cutting back on smokestacks that belch carbon dioxide into the atmosphere. Royal DSM NV will start a project by year-end with enzymes to produce succinic acid for car coolants. Mass production may start 2012.
“It’s not voodoo anymore,” said Claus Bollschweiler, a trained biologist who heads up BASF’s research into hydrophobin proteins derived from fungi. “This is a good investment.”
Engineering acids and substances from cells is the nascent part of a biotech chemical industry that’s fueled by demand for bioethanol and set to grow in sales by one-half to 153 billion euros ($227 billion) between 2007 and 2012, McKinsey & Co. estimates. The migration from food, fuels and drugs to basic industrial chemicals is a potential lifeline for BASF and rivals that have struggled to compete with oil-rich Middle East peers.
Bollschweiler’s lab is a dot on the landscape of BASF’s Ludwigshafen headquarters, a 4 square-mile complex dominated by interconnecting pipes, chimneys and plants. The hydrophobins he’s researching can be used for shoe waterproofing or cosmetics that are easier to apply. A venture with bakery ingredients supplier CSM NV to ferment succinic acid will start next year.
Bollschweiler’s efforts underscore the fallout from volatile crude costs that threaten to return to near $100 a barrel by 2012, according to a Bloomberg analyst survey, forcing chemicals suppliers to seek alternative sources of production.
Sales from industrial biotech-derived chemicals totaled about 230 million euros in 2008, only a fraction of BASF’s 62 billion euros in total revenue. The world’s largest chemical company has spent 135 million euros to research bio-chemicals over three years. Total research spending will be about 1.35 billion euros this year, BASF said in May.
DSM, based in Heerlen, the Netherlands, has closed traditional chemical factories for biotech sites, responding to demands from companies like Walmart who seek more environmentally friendly materials. Procter & Gamble Co., the largest consumer-goods company, is looking for bio-based compounds for diapers to replace acrylics.
DSM’s new succinic acid is produced by the fermentation of glucose in large stainless steel vats, avoiding the need for a cracker that breaks oil and gas down into components like naptha that’s used in plastics and adhesives. The biotech version may cut energy use by 40 percent as well as reduce carbon dioxide emissions, the company said.
“This is no longer just a promise,” Volkert Claassen, head of DSM’s unit developing the acid, said in an interview. “It’s reality. Two years ago we made the strategic decision to sell our chemical production route for succinic acid. We will be one of the front runners. Companies close to the consumer are driving this change.”
Saudi Basic Industries Corp. bought General Electric Co. plastics business for $11.6 billion in 2007, highlighting the move nearer to the consumer by Middle East petrochemical companies. Both BASF and Dow Chemical Co. are exiting styrene markets after inflated oil prices reduced margins.
Crude approached almost $80 a barrel last week on optimism demand will increase amid improved prospects for a U.S. recovery. That’s an impetus to the so-called white biotech industry. The label contrasts with red biotech for medicinal applications, and green biotech for gene-modified seeds.
With oil at $65 a barrel, Novozymes A/S’s enzyme-based acrylic acid in the U.S. is competitive with oil-based equivalents, said Thomas Schaefer, the Bagsvaerd, Denmark-based company’s senior research director. If made in lower-cost Brazil, it would be competitive with oil at $45.
“As a strategist or top manager, you have to think what you will offer in 10 years that is not a commodity and not in complete competition with rivals because then it is a price issue,” said Harald Gruber, a Silvia Quandt Bank analyst based in Frankfurt. “Some day in the future, fossil fuels will become scarce. The oil price will again increase.”
DuPont Co. is looking to broaden its bio-chemical range after creating propanediol by fermenting corn sugar and adding it to fabrics that make carpets and clothes more stain resistant, said biomaterials head John Ranieri. The Wilmington, Delaware-based company’s product pipeline includes thermoplastic elastomers, a rubber-plastic cross used in tubing and hoses.
More Complex, Better
“Four or five years ago, we would have said we are just looking for new specialties products,” Ranieri said in an interview. “Now it’s different, we are looking at all.”
Novozymes will announce two contracts for different chemicals over this year and next, adding to its acrylic acid for diapers. Within 30 to 50 years, biotech refineries will have sprung up all over the countryside, replacing the old-school plants and chemical complexes typically located in ports where the crude arrives, CEO Steen Riisgaard said in an interview.
Wacker Chemie AG is assessing if its success in producing acetic acid, used to make polymers, can be translated into large-scale production, said Guenter Wich, Wacker’s head of biotechnology.
“The more complex the chemistry, the greater the opportunities for white biotech are,” he said.