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US company using M'sian palm kernel oil for green product

Publication Date : 19-05-2014

 

US-based industrial biotechnology company Verdezyne Inc, which is on the verge of introducing a “disruptive technology” for the production of high value renewable chemicals, has earmarked Malaysia for the commercial production of the world’s first “green” dodecanedioic acid (DDDA) to be derived from plant-based oils such as palm oil and palm kernel oil (PKO).

The DDDA, which is conventionally produced from fossil fuel, is a raw material used to produce nylon and resins in the manufacturing of many daily products such as clothing, footwear, adhesives and automobile lubricants.

Hence, Verdezyne’s next step is to build its first large-scale plant in Malaysia.

Recently, the biotechnology company signed an MoU with Malaysia’s plantation conglomerate Sime Darby Bhd, under which the latter was expected to take up a 30% stake in Verdezyne for US$30 million.

The acquisition would effectively make Sime Darby the single-largest shareholder in Verdezyne.

Sime Darby’s investment follows other big-name investors of Verdezyne such as international oil and gas company BP Plc, and health nutrition and materials science-based company, Royal DSM.

As a strategic investor, Sime Darby will be supplying its oil palm plantation byproducts to Verdezyne.

Verdezyne’s move into Malaysia is spearheaded by two venture capitalists, OVP Venture Partners managing director Chad Waite and Enterprise Partners Venture Capital managing director Andrew E Senyei who sits on the company’s board.

“Five years ago, Chad and I started Verdezyne because we thought there was opportunity in taking the tools that biotech has provided in the last decade or so and applying it to metabolic engineering of yeast for the production of high value chemicals,” Senyei tells StarBizWeek in a recent interview.

Both venture capitalists have always looked for companies which are at the brink of commercialisation and assist them in making the leap.

Verdezyne is based in San Diego, California, one of the world’s top three biotech centres.

Using its metabolic engineering technology, Verdezyne has been able to “trick” yeast into producing the chemicals used in nylon production, instead of beer.

“By changing the way the yeast interact with the oil, in this case PKO, you can determine what is the by-product.

“And using the same platform to change the yeast slightly to expose it to other oils,” Waite explains.

Senyei, meanwhile, believes that the disruptive technology will change the existing landscape in both the palm oil and the nylon industries.

To that, Waite adds an important point: “What we have proven so far is that the performance of our material, made out of PKO, is substantially equivalent to the material currently used, which is generated from petroleum-based source.”

Waite points out that two potential customers which had carried out their own tests have given positive feedbacks on Verdezyne’s DDDA.

Why palm oil?

Although Verdezyne’s technology platform has multi-oil capabilities, the company has chosen PKO for its high value chemical production because of the lower cost and higher volume compared with other plant-based oils like coconut, corn or soya bean.

“Palm oil has a higher yield and is much more cost-effective for large-scale production of DDDA,” explains Senyei.

Verdezyne is currently working on sourcing the raw materials to produce DDDA and other chemicals from the by-products in the palm oil industry.

For example, PKOis often considered as “unusable” in the edible oils segment, but it has become a valuable raw material in Verdezyne’s chemical production.

Senyei describes this relationship as a classic “one man’s treasure is another man’s junk” scenario.

As a major player in the oil palm industry, Sime Darby’s main focus has been on edible oils. The conglomerate hasin fact been selling its palm oil by-products as a commodity.

Under the arrangement between both parties, Sime Darby will supply its PKO to Verdezyne while the latterwill extract lauric acids derived from the PKO to produce its chemicals-related items.

By supplying its palm oil by-products to Verdezyne, Sime Darby is also diversifying its revenue stream in the plantation business by unlocking “the gems in its backyard”, which had previously been shoved away as “waste”.

Using plant-based oils as opposed to fossil fuel for the production of chemicals, also meant that Verdezyne was able to produce DDDA at considerably better cost-efficiency.

“At what price does a barrel of oil have to be to make it the same cost as making it from palm oil? We are (certainly) cost competitive and much cheaper,” Senyei points out.

He estimates that for fossil fuel-made DDDA to cost the same, the price of petroleum will have to depreciate to $50 per barrel or lower, and “I don’t think we are going to see that happening for a long time.”

The Brent crude oil benchmark is currently traded at about $102 per barrel.

Meanwhile, Waite says the saving “green” DDDA can give userscould be between 10% and 30%.

“It’s a complicated equation and hard to tell how much savings until you reach a commercial scale.

“However, based onthe small scale we produce so far, there is about 10% to 30% cost advantage,” Waite says, adding that there are also other factors to consider like theoretical maximum yield, logistics, waste management, energy and water.

Senyei points out that: “That’s why we are here (in Malaysia). For the proximity (to the purification plants) and transportation.”

In addition to its mission to produce renewable chemicals, Verdezyne is also not competing for food source.

“People are not eating these by-products in the first place. We are not in the food chain because we’re using non-edible feedstock,” he says.

At the recent MoU signed between Sime Darby and Verdezyne, the latter had identified an industrial park in Johor and Lahad Datu, Sabah as two potential locations for its manufacturing plant. However, it still has not decided on either and if a better location is found, Verdezyne will go ahead with it.

Planting roots here

The Malaysian Biotechnology Corp is currently “handholding” Verdezyne to meet the various economic corridors in Malaysia to seek the best location for its manufacturing facility.

According to Waite, Verdezyne needs to take into account the power cost, water, waste management, logistics, infrastructure, skilled personnel, and easy access to a port.

Apart from the plant, the biotech company has a vision to build a campus as it also plans to commercialise other chemicals innovation it has in the pipeline. This include the commercialisation of adipic acid, which is another chemical precursor to making nylon for clothes and shoes.

“We believe we could be breaking ground for a second manufacturing plant, while the first plant for DDDA production is still under construction,” Waite says.

Verdezyne will leverage on the same technology platform for its other plants as the platform, which revolves around fermentation, is transferable to produce other chemical products.

Both Senyei and Waite concur that the manufacturing campus could take about three to five years to be completed.

Verdezyne will be investing about 200 million ringgit ($62 million) for the first plant, which is expected to begin construction within the next six to 12 months.

Verdezyne also has a pilot plant in Michigan, United States, where it has produced its first tonne of DDDA.

“We are currently working with a German-based engineering firm to assist in our efforts to grow from a pilot plant into a larger production plant.

“We have a demonstration plant in Germany, from which we will take the footprint of and bring it to Malaysia to set up the commercial plant,” Waite says, adding that the German plant will be used toaddress the manufacturing issues prior to the final design meant for Malaysia.

While the company builds it commercial plant in Malaysia, the German plant will be used to produce some samples to be sent out to potential customers.

“Hopefully we can get commitments from these customers so that when our Malaysian plant is operational, our production is already sold,” Waite explains.

Verdezyne will be scaling up its capacity from the demonstration plant by 30 times, giving the facility in Malaysia some 13,600 tonnes capacity per year.

In terms of financing the Malaysian plant, Waite says the company is open to various options.

“Some local parties have approached us. The private equity people who were not interested initially are also jumping in. We’re looking at debts and grants to optimise our financing and we want long term partnerships that will go beyond the first plant.”

Among the reasons Verdezyne picked Sime Darby and Malaysia to further its business agenda was the combination of political stability, infrastructure and feedstock supply.

Waite says Verdezyne was looking for a large and stable company to collaborate with. “We wanted to work with a company that thinks like we do, very progressive in their business ventures. And we needed a country that has respect for intellectual property,” he says.

Verdezyne has 15 patents so far.

Sime Darby has 859,000 hectares of plantation land, of which 349,000 hectares are in Malaysia.

By having Verdezyne’s commercial operation here means the local palm oil industry will have much to gain.

Some of the positive spin-offs include growth in the research and development, job creation and training for skilled workforce, which can help enhance the image of the palm oil industry in Malaysia.

Verdezyne is also exploring potential collaborations with local universities to train up skilled employees for the manufacturing campus.

 

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