Fermenting Natural Gas
There is a joke in that title somewhere
I think as employees of companies this concept of mergers and acquisitions (M&A) strikes fear into the hearts of many mainly because of the uncertainty. It’s why I try to write about it at least once a month because not only is M&A common, but it can sometimes transform struggling businesses into thriving companies or inject capital into a business that needs investment, but cannot get there on its own. In the chemical industry M&A is a definite constant so instead of being afraid I view it as what happens in a healthy, functioning mature business environment.
Our sponsor has asked for a reprieve this Friday as they figure out the next banner and copy. I’m hoping they rejoin us on Tuesday.
From Ethanol To Methane — Fermentation Is Still Being Used
I think things have been somewhat slow in the M&A space lately and there are really only two stories that stood out to me. Mike McCoy had a nice tidbit of reporting on the old DuPont cellulosic ethanol plant in C&EN. Essentially, DuPont wanted out of their cellulosic ethanol plant due to struggling to make enough money so Verbio, a German biofuel and technology company, stepped in and bought the plant. They reconfigured the plant to produce natural gas from corn stover (the stuff leftover from growing corn) and have plans to eventually produce ethanol from corn as well. Once fully operational the plant will be able to process 100,000 tons of corn stover a year and they will distribute throughout Iowa via pipelines.
Verbio calls this process “renewable natural gas” or RNG. The conversion of the DuPont facility to run anaerobic fermentation from the original aerobic fermentation is their first major foreign investment. Verbio already has four similar plants in Europe and it sees this technology primarily as a way to decarbonize agriculture and transport:
"We don't use high-quality grain but only wasted corn stover. Farmers benefit from our new technology: We collect the straw from the field, which would otherwise simply rot there. This reduces CO2 and methane emissions. At the end of our production chain, straw humus is produced, which is a high-quality bio-fertilizer. Our RNG contributes to the decarbonization of transport and agriculture,” explains the biofuels expert
I have no idea who the “biofuels expert” is here in the press release, but it all sounds relatively interesting. I think I’m slightly skeptical that they will be making methane at scale and perhaps I’d feel somewhat better about it if there was a natural gas plant or an ammonia plant next door, but being able to utilize biomass to produce valuable chemicals is important. In the event that Verbio’s renewable methane does leak it would have a GWP 28 times greater than carbon dioxide.
I think Verbio’s plans here will work, but I wonder how much better this plant will be for reducing greenhouse gasses. I suspect that other routes to natural gas that are not fracking or derived from extracting fossil fuels should be considered a big step in the right direction and if successful this could be a new model for how to integrate agriculture waste into a high value energy source that can easily be converted to energy.
Petronas Buys Perstorp
When I saw this headline the only thing I could think of was the Mercedes F1 team. I bet Lewis Hamilton wishes he had Bottas back as his wingman, but Petronas is actually an oil company or “energy solutions provider” as they like to call themselves. The investment into Perstorp will enable Petronas to diversify their cash flows away from just oil and gas as they look towards other high margin businesses that are similar or dependent on oil and gas as feedstocks. This what the CEO of Petronas had to say about the acquisition:
“Perstorp is an outstanding strategic fit for PCG and enables us to participate in attractive end-markets such as paints and coatings, construction, plastic additives, personal care and food, feed & nutrition, paints and coatings that share a robust growth outlook. This acquisition will also provide us critical talent, know-how, technological platforms and proven customer channels to address the pressing needs of the market for more eco-friendly and sustainable solutions,” said PCG Managing Director and CEO, Ir. Mohd Yusri Mohamed Yusof.
Further, Perstorp has been working on sustainable chemicals for a very long time and is considered a leader when it comes to developing sustainable chemical products. This aim of sustainability I think also plays into how Petronas intends to transition their company into an ESG powerhouse. This acquisition gives Petronas access to the European markets and for Perstorp to gain access to APAC markets, which would have been difficult for either company to enter on their own. I think the deal may provide Perstorp with some much needed cash to get additional sustainability initiatives off the ground.
Finally, I think this also confirms my suspicions from a year or two ago about how oil and gas companies will seek to move downstream from basic commodity chemicals and energy products to specialty chemicals due to more attractive margins and flexibility of feedstock. Alex Scott of C&EN agrees with me:
The planned purchase of Perstorp continues a trend of state-owned oil and gas companies acquiring independent chemical makers in a bid to move into higher-value products. Such deals include Saudi Aramco’s 2018 acquisition of Lanxess’s synthetic rubber business and PTT’s recent purchase of the coating resin producer Allnex. Petronas bought Da Vinci Group, a Dutch specialty chemical firm, in 2019.
If you are interested in this trend also check out Alex Tullo’s article from 2019 for C&EN. Maybe he is the one who planted this idea in my mind that oil companies would seek to become chemical companies? Either way, I think we can look forward to years of more M&A deals like this occurring as our global economy contemplates a shift from oil and gas to something else.