Lignol's ethanol ambitions fueled by fresh funding

OTTAWA, March 20 (Reuters) - Lignol Energy (LEC.V) has scored a fresh round of government funding that the tiny company hopes will advance its big ambition of making fuel and valuable chemicals from forest and farm waste.

Lignol will use the C$1.8 million ($1.4 million) to fine tune its biorefinery in Vancouver, British Columbia, and further test its technology, which produces both cellulosic ethanol and chemicals from biomass.

Cellulosic ethanol is produced from such feedstock as wood or corn stalks, as opposed to traditional ethanol made from the starch in corn, wheat or other grains.

It is more challenging and time-consuming to make cellulosic ethanol, says the Canadian Renewable Fuels Association, but studies indicate it is more effective in reducing greenhouse gas than traditional ethanol.

In recent years, as environmental concerns mount, governments are increasingly mandating the addition of ethanol to conventional transport fuel to reduce greenhouse gas emissions. Canada has set a target of 5 percent renewable content in gasoline by 2010 and 2 percent in diesel by 2012.

Annual ethanol production in Canada recently reached 1 billion liters, but that is well shy of the 3-3.3 billion liters that the renewable fuels association estimated in 2006 that Canada needed to meet its target.

Lignol hopes to narrow that gap.

It says a single commercial-scale Lignol biorefinery could produce roughly 200 million liters of cellulosic ethanol annually.

That would reduce greenhouse gas emissions by 740,000 tonnes, Lignol says, which is equivalent to removing 130,000 cars from the road each year the plant is in operation.

Lignol has spent about C$20 million to develop its facility, which it says will stand as the world's only refinery producing both cellulosic ethanol and specialty biochemicals.

FOCUS ON WOOD

Lignol has developed a process that uses such feedstocks as wood, grass, sugar cane and wheat straw, consuming less water and energy than competing processes, the company said.

"Because we're in B.C., our near-term focus is going to be on wood residues," Lignol director Gurminder Minhas said in an interview, referring to British Columbia's vast forests.

"Those are considered more challenging to process, but the abundance of them and the widespread availability of them makes them more of a viable feedstock in the long term."

Mountain pine beetles that ravaged vast areas of B.C. forest over the past decade have now spread to Alberta.

Once its demonstration plan is operational, Lignol hopes to partner with companies building and operating biorefineries for either an equity stake or royalty in the project.

Research group Clean Edge Inc has predicted that the global biofuel market will grow from US$15.7 billion in 2005 to US$52.5 billion by 2015.

Lignol had planned to develop an US$80 million biorefinery with Suncor Energy (SU.TO), Canada's No. 2 oil sands producer, but the partnership was scrapped last month due to market turbulence.

Since its formation in 2001, Lignol been working on technology first developed by General Electric and later revised and commercialized by Repap Enterprises. GE and Repap spent more than C$100 million on development, Lignol said.

Lignol has modified the process to produce both lignin, the natural glue in wood, and ethanol.

After a pre-treatment process separates cellulose from lignin, the natural glue in wood that holds cellulose fibers together, lignin can then be used to produce industrial glues.

Cellulose is broken down into sugars by enzymes, which work like scissors on the pulp. Sugars are then fermented into ethanol.

Canada's ethanol industry includes: Iogen Corp, which operates a cellulosic ethanol demonstration facility in Ottawa; SunOpta (SOY.TO), which sells equipment and facilities to produce cellulosic ethanol; and GreenField Ethanol, which makes 450 million liters of ethanol annual and claims to be the country's biggest producer.

($1=$1.24 Canadian) (Reporting by Susan Taylor; Editing by Frank McGurty)