BP and Verenium Strike $90 Million Cellulosic Deal

British oil major BP Plc said recently it has formed a partnership with Verenium Corp. to speed development and sales of alternative motor fuel ethanol made from non-food sources. The $90M 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. The president of BP Biofuels North America said they were attracted to Verenium as a joint-venture partner because of their proven and scaleable industrial biotechnology expertise in this area. Interest in cellulosic ethanol's grown as prices for corn, 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 2 years contributed to a sharp rise in food prices around the world. Last year's U.S. energy law set mandates for the blending into gas of 500M gallons of advanced biofuels like cellulosic by 2012 and 16B gallons by 2022. Under the recent deal, BP will pay Verenium $45M over the next year for access to the company's technology platform to make cellulosic ethanol and production plants. In addition, BP will pay $2.5M per month in the next 18 months to co-fund Verenium's scientific and tech intiatives within the field. The companies also expect to negotiate a 2nd phase of the partnership to speed commercialization of the fuel. Verenium operates a cellulosic pilot plant in Jennings, LA. The CEO said the company hopes to begin building a commercial plant next year and to start producing fuel from that plant in 2011. It uses enzymes to break down the tough biomass into sugars which can then be fermented into fuel. The president of BP Biofuels North America said such a biological method of making cellulosic ethanol's preferable to using heat and pressure, that 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%, she said. Critics of cellulosic have said the fuel costs more to make than gas. The CEO said it is hoping to knock down the cellulosic cost from $3 a gallon to about $2 a gallon. Verenium hopes to use locally sourced biomass feedstocks, like sugar cane waste, that it expects will cut costs.