British Petroleum and Verenium, a Cambridge, Massachusetts based cellulosic ethanol company, are teaming up in a 50-50 joint venture to develop the world’s largest cellulosic ethanol plant in Florida.
The companies are putting $45 million in funding and assets to build the plant. The JV will work on raising money to build the plant which will cost between $250 and $300 million. They aim to break ground on the facility by 2010. The plant will be able to produce 36 million gallons of ethanol a year. This brings BP’s investment in Verenium up to $112.5 million. BP invested $90 million in the company last fall.
Cellulosic ethanol, which is made from non-food feedstocks like grass and wood chips, has yet to be developed on a massive scale. If this project works out, it will be a major breakthrough for the ethanol industry, which is largely struggling. It’s a win for Verenium, as funding is hard to come by in the current environment.
Yet, it’s a curious move by BP, who earlier this month said it was cutting back on capital expenditures. If oil gets to $35 a barrel for the year, it is estimated the company’s cash flow be hit by $12.9 billion. Even its CEO, said oil must be at $50-$60 a barrel for the company to pay for capital spending and dividends without borrowing.
Earlier this month BP cut back its partnership with D1 Oils a company that develops biofuels with jatropha seeds. This comes on the heels of cutting solar investment in Australia and wind projects outside the US.
We asked a BP spokesman what was going on here. His response, when you’re doing some belt tightening, you always do “a strategic review” of how you invest in different alternative energy sources. Does that mean BP lost faith in D1 or jatropha? The spokesman declined to say, telling us he’d need to do more research.
One guess: jatropha is still a long ways off, and cellulosic ethanol shows promise today. BP might want to cut ethanol, but its hands are tied by US government mandates that force gasolines to be blended with ethanol in the coming years. As a result, private investment in ethanol isn’t really optional.