BP and Shell make fresh biofuel bets

Oil giant BP has announced it is to invest up to $90m as part of a deal with US cellulosic ethanol specialist Verenium intended to accelerate the development of a commercially viable form of biofuel that does not affect food supplies.

Under the terms of the alliance, the two companies will form a 50:50 joint venture that will license intellectual property from both firms and undertake new research into the development of cellulosic ethanol made from waste organic matter, such as wood chips, corn stalks and discarded sugar cane.

BP will commit to pay $45m over the next 12 months to Verenium in return for access to Verenium's cellulosic ethanol technology and production facilities, including its expertise in developing enzymes that speed up the breakdown of organic waste material. It will also invest a further $2.5m a month to co-fund the company's research and development efforts.

The companies said that following this initial phase of the partnership, they expect to sign a second deal that will see the new joint venture invest in building new cellulosic ethanol refinery facilities and potentially license the company's technology and enzymes to third parties.

Advocates of cellulosic ethanol claim that it represents a more sustainable alternative to first generation biofuels made from food crops such as sugar cane and corn. They argue that they deliver deeper cuts in carbon emissions of up to 90 per cent compared to conventional gasoline and as they are made form waste organic matter have no impact on food supplies and prices.

The new partnership was welcomed by Sue Ellerbusch, president of BP Biofuels North America, who argued that it puts the oil giant "at the front of the cellulosic biofuels game". She added that Verenium's ability to turn "energy grasses" such as miscanthus and energy cane was already proven and gave the company a head start in meeting new US targets for the production of cellulosic ethanol.

She also hinted that the technology could be implemented by BP's biofuel assets in Brazil, including its recent joint venture with Tropicale BioEnergia.

However, BP's claims that it has carved out a leadership position in the development of second generation biofuels is likely to be disputed by a number of rivals, all of whom are similarly investing the technology.

The BP-Verenium announcement came just a week after oil company Shell revealed it has increased its stake in cellulosic ethanol specialist Iogen from 26.3 per cent to 50 per cent. The two companies said that they would also be working closer together in the future, and that Shell was considering investing in a full scale commercial cellulosic ethanol plant to accompany the firm's existing demonstration facility.

That deal followed several other similar biofuel alliances already this year that have seen chemicals giant DuPont and Danish food company Danisco launch joint venture Genencor; GM take stakes in biofuel outfits Mascoma and Coskata; and food company Archer Daniels Midland team up with German engineering giants Daimler and Bayer to investigate the feasibility of Jatropha as a biofuel crop.