Entering the bioproducts marketplace: Know the market

1. March 27, 2012 Entering the bioproducts marketplace: Know the market

2. Bio-based plastics: huge market but largely unrealized

3. Projected world-wide capacity of bio-based plastics* (based on company announcements made before March 2009) PLA – polylactic acid PHA - PolyhydroxyalkanoatesPLA – polylactic acid PHA - Polyhydroxyalkanoates

4. Bio- based chemicals: even more potential (high scenario)

5. Nearer term - Top 10 Predictions for 2012 from Biofuelsdigest 1. US Farm Bill contains reduced, targeted energy title.  2. “Carbon capture & re-use” 3. Ethanol producers begin switch to biobutanol and chemicals en masse 4. Aviation biofuels capacity increases, but US $510M investment de-funded 5. Oil and chemical companies rule – as customers and resource partners 6. US Renewable Fuel Standard is revised 7. Momentum shifts to Asia 8. Selected IPOs go forward 9. Merger-Mania 10. Advanced biofuels capacity surges to 1 billion gallons, globally DAVE – the highlighted points are those I think are most relevant to Ontario – the notes below came from the original slide you used in one of your presentation files. Top 10 Biofuels Predictions for 2012 from BioFuels Digest 10. Advanced biofuels capacity surges to 1 billion gallons, globally. We see 570 million gallons in capacity from Neste Oil alone; 137 Mgy from Diamond Green, 75 Mgy from Dynamic Fuels, 62 Mgy from KiOR, 37 Mgy from Gevo, and 25 Mgy from POET.  New, smaller commercial facilities (8-20 Mgy) are expected from Amyris, Chemtex, Solazyme, INEOS Bio and POET; the rest, 50 Mgy in capacity at Nature Works and Metabolix, and small demonstrations and pilots from nearly 200 other companies. 9. Merger-Mania. 200 companies can’t all continue to march forward, developing advanced bioenergy projects. Projects that have completed pilots are going to be ripe for merger and acquisition as they search high and low for expansion capital and find that the well is getting quite dry, as many oil and chemical giants will have already placed their bets. Look for projects to attempt to tap feedstock providers next – absent that, the projects seeking $100M+ for commercial-scale expansion will be looking to make themselves more attractive to investors by issuing so much equity to investors that it will feel like a merger even if the projects remains technically independent. 8. Selected IPOs go forward. The buzz around Elevance and Genomatica continues to be strong, and Fulcrum and Mascoma have put themselves into very strong positions with financing deals from Valero and Waste Management. All of the IPOs in the queue, and there are 10 of them, have merit, but we expect that several of them might opt instead to be acquired. 7. Momentum shifts to Asia. Brazil has ruled the roost for the past two years – now, sugarcane shortages, surging demand, and the fact that many of the partners have already chosen their partners for the Brazilian shuffle – well, momentum is shifting to Asia. For those that can utilize palm oil or palm waste – think Indonesia and Malaysia. Cassava? Thailand or Vietnam. Cane? That’s India. Need industrial partners, coal, or residues from forest, animal or municipality? That’s China. Thinking algae? Think a little farther to the south, in Algstralia, where cane is also in relatively plentiful supply. 6. US Renewable Fuel Standard is revised. Though most US biofuels trade associations have kept strongly to a “don’t mess with the RFS” strategy, its common sense that the forces that opposed the VEETC ethanol tax credit – chicken and beef producers, anti-corn activists and small government zealots – will now pivot their full attention to the Renewable Fuel Standard, showcasing the shortfall in the cellulosic biofuels pool. Oil companies may be divided on the RFS given their increasing investments in the sector, but chemical investors won’t care much, and the algae-based biofuels developers will support a revision of RFS targets. 5. Oil and chemical companies rule. Venture capital is just about maxed out in advanced biofuels, and the players that are making a difference are a handful of visionary feedstock-side investors (ADM, Cargill, Bunge) on light duty, more aggressively so from Waste Management. But the big dollars will be downstream in 2012. Valero and BP are stepping up, Shell expects to deploy billions in Brazil, and Petrobras, too. The major Indian oil companies may go big, and we expect to see more and more interest in the sector from Dow, BASF, Dupont, Rhodia and others in the chemicals businesses. 4. Aviation biofuels capacity increases, but US $510M investment de-funded. Aviation biofuels will continue to get hotter and hotter – more and more airlines will try small purchases to try and stimulate large-scale production and helping costs to come down. But we expect only a series of delays and frustrations in US government efforts to fund its $510M commitment to invest in military and aviation biofuels. It’s going to be “sorry” from the House of Representatives throughout 2012 on the question of either re-purposing funds from earlier appropriations, or granting new funds for the Navy’s and the DOE’s side of the investment. After the US elections, in 2013 – that’s a different story. 3. Ethanol producers begin switch to biobutanol and chemicals en masse. If last year was the year of the IPO, as 2009 was the summer of algae, 2012 will be the year that ethanol producers begin to switch over to higher-value molecules, such as butanol or various organic acids. For ethanol producers, its the path of least resistance in getting around the ethanol blend wall. For the high priests developing the new technologies and magic bugs, its an opportunity to partner with companies that have feedstock, infrastructure, 90 percent of the required steel in the ground, and existing markets for co-products. 2. “Carbon capture & re-use” is the new buzzword. It’s been “carbon capture and storage” for some time, but it is beginning to dawn on technologists that, in the end, the costs are too high and the technology can only help stem the flow of carbon into the atmosphere, not provide a permanently sustainable solution. The problem is not that there is too much carbon. There is exactly as much carbon now as 100 years ago – it is a distribution problem. Carbon that needs to be in the soil, helping to produce food and fuel, is trapped in the atmosphere and in the ground. Technologies that capture carbon emissions before they are vented into the atmosphere, and pipe CO2 to technologies that can utilize CO2 to make products for a fast-growing world – that’s where the action will be. 1. US Farm Bill contains reduced, targeted energy title. A new farm bill is due in 2012, and there continue to be a question as to whether there will be a Farm Bill at all, any kind of Energy title within the bill, and what that title might look like. Our belief? Yes, the grand coalition that brings forth a Farm Bill will re-form, fractiously as ever. Yes, Virginia, there will be an energy title. But, holy Vilsack, will it be smaller or what? Look for the energy title to focus on four key programs programs – a revised biomass crop assistance program, designed to help bring cellulosic feedstocks to market; direct equity to inject in commercializing advanced biofuels for military use, that utilize rural biomass; loan guarantees to ensure that a project finance market emerges for advanced biofuels, at scale; finally, a blender pump program to help industry to circumvent the E10 ethanol blend wall with expanded E30 and E40 availability. DAVE – the highlighted points are those I think are most relevant to Ontario – the notes below came from the original slide you used in one of your presentation files. Top 10 Biofuels Predictions for 2012 from BioFuels Digest 10. Advanced biofuels capacity surges to 1 billion gallons, globally. We see 570 million gallons in capacity from Neste Oil alone; 137 Mgy from Diamond Green, 75 Mgy from Dynamic Fuels, 62 Mgy from KiOR, 37 Mgy from Gevo, and 25 Mgy from POET.  New, smaller commercial facilities (8-20 Mgy) are expected from Amyris, Chemtex, Solazyme, INEOS Bio and POET; the rest, 50 Mgy in capacity at Nature Works and Metabolix, and small demonstrations and pilots from nearly 200 other companies. 9. Merger-Mania. 200 companies can’t all continue to march forward, developing advanced bioenergy projects. Projects that have completed pilots are going to be ripe for merger and acquisition as they search high and low for expansion capital and find that the well is getting quite dry, as many oil and chemical giants will have already placed their bets. Look for projects to attempt to tap feedstock providers next – absent that, the projects seeking $100M+ for commercial-scale expansion will be looking to make themselves more attractive to investors by issuing so much equity to investors that it will feel like a merger even if the projects remains technically independent. 8. Selected IPOs go forward. The buzz around Elevance and Genomatica continues to be strong, and Fulcrum and Mascoma have put themselves into very strong positions with financing deals from Valero and Waste Management. All of the IPOs in the queue, and there are 10 of them, have merit, but we expect that several of them might opt instead to be acquired. 7. Momentum shifts to Asia. Brazil has ruled the roost for the past two years – now, sugarcane shortages, surging demand, and the fact that many of the partners have already chosen their partners for the Brazilian shuffle – well, momentum is shifting to Asia. For those that can utilize palm oil or palm waste – think Indonesia and Malaysia. Cassava? Thailand or Vietnam. Cane? That’s India. Need industrial partners, coal, or residues from forest, animal or municipality? That’s China. Thinking algae? Think a little farther to the south, in Algstralia, where cane is also in relatively plentiful supply. 6. US Renewable Fuel Standard is revised. Though most US biofuels trade associations have kept strongly to a “don’t mess with the RFS” strategy, its common sense that the forces that opposed the VEETC ethanol tax credit – chicken and beef producers, anti-corn activists and small government zealots – will now pivot their full attention to the Renewable Fuel Standard, showcasing the shortfall in the cellulosic biofuels pool. Oil companies may be divided on the RFS given their increasing investments in the sector, but chemical investors won’t care much, and the algae-based biofuels developers will support a revision of RFS targets. 5. Oil and chemical companies rule. Venture capital is just about maxed out in advanced biofuels, and the players that are making a difference are a handful of visionary feedstock-side investors (ADM, Cargill, Bunge) on light duty, more aggressively so from Waste Management. But the big dollars will be downstream in 2012. Valero and BP are stepping up, Shell expects to deploy billions in Brazil, and Petrobras, too. The major Indian oil companies may go big, and we expect to see more and more interest in the sector from Dow, BASF, Dupont, Rhodia and others in the chemicals businesses. 4. Aviation biofuels capacity increases, but US $510M investment de-funded. Aviation biofuels will continue to get hotter and hotter – more and more airlines will try small purchases to try and stimulate large-scale production and helping costs to come down. But we expect only a series of delays and frustrations in US government efforts to fund its $510M commitment to invest in military and aviation biofuels. It’s going to be “sorry” from the House of Representatives throughout 2012 on the question of either re-purposing funds from earlier appropriations, or granting new funds for the Navy’s and the DOE’s side of the investment. After the US elections, in 2013 – that’s a different story. 3. Ethanol producers begin switch to biobutanol and chemicals en masse. If last year was the year of the IPO, as 2009 was the summer of algae, 2012 will be the year that ethanol producers begin to switch over to higher-value molecules, such as butanol or various organic acids. For ethanol producers, its the path of least resistance in getting around the ethanol blend wall. For the high priests developing the new technologies and magic bugs, its an opportunity to partner with companies that have feedstock, infrastructure, 90 percent of the required steel in the ground, and existing markets for co-products. 2. “Carbon capture & re-use” is the new buzzword. It’s been “carbon capture and storage” for some time, but it is beginning to dawn on technologists that, in the end, the costs are too high and the technology can only help stem the flow of carbon into the atmosphere, not provide a permanently sustainable solution. The problem is not that there is too much carbon. There is exactly as much carbon now as 100 years ago – it is a distribution problem. Carbon that needs to be in the soil, helping to produce food and fuel, is trapped in the atmosphere and in the ground. Technologies that capture carbon emissions before they are vented into the atmosphere, and pipe CO2 to technologies that can utilize CO2 to make products for a fast-growing world – that’s where the action will be. 1. US Farm Bill contains reduced, targeted energy title. A new farm bill is due in 2012, and there continue to be a question as to whether there will be a Farm Bill at all, any kind of Energy title within the bill, and what that title might look like. Our belief? Yes, the grand coalition that brings forth a Farm Bill will re-form, fractiously as ever. Yes, Virginia, there will be an energy title. But, holy Vilsack, will it be smaller or what? Look for the energy title to focus on four key programs programs – a revised biomass crop assistance program, designed to help bring cellulosic feedstocks to market; direct equity to inject in commercializing advanced biofuels for military use, that utilize rural biomass; loan guarantees to ensure that a project finance market emerges for advanced biofuels, at scale; finally, a blender pump program to help industry to circumvent the E10 ethanol blend wall with expanded E30 and E40 availability.

6. Bioproduct industry in canada

7. Biochemical supply chain

8. Bioproduct Value Chains – linking bio with traditional value chains

9. Not enough green in canada’s bioproduct industry

10. Quick Facts – Canada (2009) 208 firms 81% are small firms Bioproduct revenue: $1.3-billion Cost of biomass: $1.8-billion Contributes 9% of total firm revenue $64.6-million spent on bioproduct R&D 10.5-million MT of agri-biomass 16.4-million MT of forestry Leading bioproducts (by # of firms): Bioenergy, biodiesel, other organic chemicals Leading bioproducts by revenue: Ethanol Red flag for the bioproduct revenue versus the cost of biomassRed flag for the bioproduct revenue versus the cost of biomass

11. 1. 208 -- number of firms involved in the bioproducts industry in 2009 down from 239 2006 2. The number of employees involved in bioproducts, total bioproduct revenue and the value of exports all fell during the 2003-2009 period 3. Total bioproduct revenue of $1.33 billion in 2009 was dominated by one product – ethanol – with over 68% of bioproduct industry revenue coming from ethanol firms 1. 208 -- number of firms involved in the bioproducts industry in 2009 down from 239 2006 2. The number of employees involved in bioproducts, total bioproduct revenue and the value of exports all fell during the 2003-2009 period 3. Total bioproduct revenue of $1.33 billion in 2009 was dominated by one product – ethanol – with over 68% of bioproduct industry revenue coming from ethanol firms

12. Small firms are focused on bioproducts - large firms aren’t Agricultural and forestry biomass most widely used inputs Almost $1-billion in cost savings from producing bioproducts for internal use – mainly in BC The industry remained challenged by access to capital, regulation and most recently the cost of acquiring biomass

13. Collaborations are common Majority of collaborations undertaken by small firms Yet average number of collaborations is highest for large firmsMajority of collaborations undertaken by small firms Yet average number of collaborations is highest for large firms

14. With a variety of partners Small firms showed greatest engagement with other firms in Canada while large firms turned to firms outside of Canada (could speak to larger firms networks/access to partners) Small firms showed greatest engagement with other firms in Canada while large firms turned to firms outside of Canada (could speak to larger firms networks/access to partners)

15. Collaborations extend capabilities and resources REASONS FOR COLLABORATION SIMILAR TO REASONS FOR CONTRACTING OUT WORK: Accessing outside scientific expertise/knowledge Bioproduct activity was outside core competence of firm Access external R&D expertise Answers were consistent with all sized-firms – though large firms ranked accessing IP ahead of accessing capitalREASONS FOR COLLABORATION SIMILAR TO REASONS FOR CONTRACTING OUT WORK: Accessing outside scientific expertise/knowledge Bioproduct activity was outside core competence of firm Access external R&D expertise Answers were consistent with all sized-firms – though large firms ranked accessing IP ahead of accessing capital

16. Money is always an issue - 148 firms attempted to raise capital 120 of the successful firms were small120 of the successful firms were small

17. Regional overview National experience not necessarily the situation in all regions

19. GBR up from $483-million in 2008 Exports up over 228% from 2008 Employment number withheld for 2006 GBR up from $483-million in 2008 Exports up over 228% from 2008 Employment number withheld for 2006

20. Findings - Ontario Ontario only region to show increase in number of firms Firms reported significant increases in bioproduct gross revenue and exports (2006-09) Used primarily agri-biomass Number of firms with patents and number of patents was up Ontario firms invested almost half of national bioproduct R&D total Some good news

21. Cost of biomass at national level up 500% from 2003 – values not available at regional level – but trend would be the same.Cost of biomass at national level up 500% from 2003 – values not available at regional level – but trend would be the same.

22. Many reasons to be optimistic More activity along the chain Benefits reaching into chemical, plastic and manufacturing firms Continued demand for capital, people and partnerships Policy support will continue to be essential as the industry builds scale and viable business models 2011 survey should show a different picture

23. ‘Not enough green in Canada’s bioproduct industry’ paper available at www.ivey.uwo.ca/agri-food