Oil and Gas

BP and Verenium strike $90 mln cellulosic deal

NEW YORK, Aug 6 (Reuters) - British oil major BP Plc BP.L said on Wednesday it has formed a partnership with Verenium Corp VRNM.O to speed development and sales of alternative motor fuel ethanol made from non-food sources.

The $90 million partnership combines technical abilities and operations of the companies to advance development of plants to make cellulosic ethanol, which is made from the tough woody bits of sugar cane and corn crop waste and hardy crops like switchgrass.

Sue Ellerbusch, president of BP Biofuels North America, said in a teleconference, “we were atracted to Verenium as a joint-venture partner because of their proven and scaleable industrial biotechnology expertise in this area.”

Interest in cellulosic ethanol has grown as prices for corn, the feedstock for traditional U.S. ethanol, spiked to record levels in June after the worst floods in 15 years in the U.S. Midwest. Critics of grain-based ethanol say a boom in the industry over the last two years has contributed to a sharp rise in food prices throughout the world.

Last year’s U.S. energy law set mandates for the blending into gasoline of 500 million gallons of advanced biofuels like cellulosic by 2012 and 16 billion gallons by 2022.

Under Wednesday’s deal, BP will pay Verenium $45 million over the next 12 months for access to the company’s technology platform to make cellulosic ethanol and production plants. In addition, BP will pay $2.5 million per month over the next 18 months to co-fund Verenium’s scientific and technical inititiatives within the field.

The companies also expect to negotiate a second phase of the partnership to speed commericialization of the fuel.

Verenium operates a cellulosic pilot plant in Jennings, Louisiana. Chief Executive Carlos Riva said on Wednesday the company hopes to begin building a commercial plant next year and to start producing fuel from that plant in 2011. The company uses enzymes to break down the tough biomass into sugars which can then be fermented into fuel.

Ellerbusch said such a biological method of making cellulosic ethanol was preferable to using heat and pressure, which other companies hope to use to make the fuel. Cellulosic ethanol is better than corn-based fuel because it produces greater yields, has less exposure to commodity price swings, and offers greenhouse gas emission reductions of 80 to 90 percent, she said.

Critics of cellulosic have said the fuel costs more to make than gasoline. Riva said the company is hoping to knock down the cost of its cellulosic from about $3 a gallon now to about $2 a gallon. Verenium hopes to use locally sourced biomass feedstocks, such as sugar cane waste, which it expects will cut costs. (Reporting by Timothy Gardner, editing by Matthew Lewis)