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DuPont Pushes the Green Fuels Agenda

DuPont (NYSE: DD  ) is a chemicals giant, but it's also getting ready to become a green fuel giant. That puts it up there with specialized companies like Solazyme (NASDAQ: SZYM  ) , but with the heft of a $60 billion market cap Dow 30 Component. Green fuels could be a nice niche for DuPont to dominate, if it gets its technology right.

What's DuPont up to, anyway?
DuPont is working on a plant that makes ethanol. That in and of itself is nothing new, in fact the United States mandates that ethanol be added to gasoline already. So ethanol is a big business and DuPont won't change that one bit—unless it changes the feedstock.

Right now most ethanol uses corn. DuPont is working on technology that will allow ethanol to be made from corn stover. Corn stover is essentially what's left of a corn plant after the corn has been harvested. That means that farmers can stop diverting eatable corn to the ethanol market and start using it to feed people, and still make ethanol.

(Source: Royalbroil, via Wikimedia Commons)

Such technology could upend the ethanol market, but that wouldn't be such a bad thing with a growing world population. More people means more mouths to feed, and the United States could more easily live up to the historical nickname "the breadbasket of the world."

DuPont's efforts are vastly different from Solazyme, which uses microalgae to produce oil from plant based sugars like sugarcane and corn. That's a fascinating technology that uses "indirect photosynthesis" to create marketable products, but it still means growing food crops specifically for fuel use. In a country like the United States where food and arable land is abundant, it may not matter too much what crops are being used for. But in less developed countries or those with inhospitable climates, using farm waste is much more desirable than wasting food.

It's the tech that matters
And that brings up another difference between what Solazyme and DuPont are doing with their high tech bio-fuels businesses. Solazyme has some big name partners, including the U.S. Navy, which uses fuel Solazyme creates in its ships. However, green pioneer Solazyme is more like an oil company than a technology company. It simply wants to make and sell oil. That's why it's spending heavily on building new facilities and why it's bled red ink since its IPO.

Once Solazyme has built its infrastructure and acquired a core group of customers, it should finally be able to not only turn a profit but a consistent profit. That said, there's no guarantee that this will come to pass, especially if the market for algae created bio-fuels stays a niche business.

DuPont, meanwhile, isn't really looking to become an ethanol maker. It wants to prove its technology works and then sell the technology to others, earning licensing fees along the way. According to Ken Hill, business development and licensing leader with DuPont Industrial Biosciences Global, "Our approach is to take DuPont's 'know how' to potential ethanol producers. It is a big part of what we can do as a fully innovated licensing company."

(Source: Lukáš Mižoch, via Wikimedia Commons)

DuPont's plant should start producing ethanol by the end of the year. "We provide basically a turn key solution on the engineering for someone who wants to build a cellulosic ethanol plant," noted DuPont's Hill. So having the Iowa plant up and running will be a key milestone and sales tool. If you are a green enthusiast, keep an eye on DuPont's progress.

Needle moving?
Clearly, cellulosic ethanol won't be a huge needle mover for DuPont. At least not like a big new customer would be for Solazyme. However, that's exactly why you should find DuPont's green venture of interest. Solazyme could take off just as easily as it could flame out. DuPont, on the other hand, isn't going anywhere. It has plenty of time to build its green businesses and take you along for the ride.

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Read/Post Comments (7) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On June 26, 2014, at 2:50 PM, upl8n8 wrote:

    I'm no expert on Dupont, but you may want to check your facts regarding Solazyme. Yes, they did start off as a bio-fuel producer, and bio-fuel is still part of their business, but things have significantly changed. Bio-fuel is a low margin industry, and hence Solazyme has moved their business towards the high value tailored oils market for multiple industries including lubrications, cosmetics, nutritionals, soaps, etc. All markets that are massive, and warrant substantially higher margins than bio-fuels.

    Solazyme's process like Dupont can use any crop that is high in polysaccharides, including crop waste and forest waste. While it's likely easier to use the main kernel of the crop, I don't see you pointing out any information as to whether Dupont's process significantly differs in this respect.

    Excuse me for being blunt, but if you haven't done the research and are not up to date on the products and markets a company caters too, then you are not qualified to write the article and make the claims that you've made.

    Disclaimer: I'm a Solazyme shareholder, and an active participant in discussions relating to this technology. I don't mind if you bad mouth the company, just do it factually.

  • Report this Comment On June 26, 2014, at 2:56 PM, Lachplesis wrote:

    Dupon't CEO Ellen J. Kullman was not named by Fortune Magazine the next Rockefeller of the Energy space. Solazyme's CEO Wolfson was.

    US Navy hasn't really been a partner of Solazyme for the last few years. Solazyme doesn't need government to survive. The market cap of Solazyme's disclosed (BG, ADM, UN, AKZA, Mitsui) and undisclosed partners dwarf DD's $62B market cap.

    Solazyme already holds patents for creating fuel out of junk stuff like corn stover. However, there's no need to use corn stover or glycerol because pure sugar is so cheap at this time.

    Solazyme makes oil. Any oil. And it is so much more than just one end derivative like ethanol. The many dozens of patents that Solazyme holds in this space support the notion that it is more a technology than a manufacturing company.

    When it comes to actual manufacturing Solazyme partners with behemoths like ADM and Bunge. This is because they bring manufacturing know-how, while Solazyme supplies technology.

  • Report this Comment On June 26, 2014, at 3:01 PM, Lachplesis wrote:

    Sorry, correction. Make that Forbes magazine (Disruptors of 2013 list), instead of Fortune.

  • Report this Comment On June 27, 2014, at 12:19 PM, funfundvierzig wrote:

    DuPont's lumbering bureaucracy has been dabbling with DuPont corn cob "gasoline" (bad mileage ethanol) for a decade, but nothing much has come of it. DuPont shareholders are not likely to ever see a dime of profit from this whacky bio-foolishness and "Sustainability Stunt".

    DuPont corn cob "gasoline" is flawed from the get-go, environmentally destructive, very costly to harvest corn stover and to produce, and in short, economically infeasible particularly in the face of low-cost gas and oil being produced in the mid-continental section of the Unites States.


  • Report this Comment On June 27, 2014, at 3:03 PM, Tgar13 wrote:

    Solazyme has executives on the board

    Of a small company developing a process to make

    Sugar from water and co2 which would greatly

    Reduce sugar costs

    In addition, Solazyme is not a fuel company

    They are a maker of tailored oils.

  • Report this Comment On June 27, 2014, at 9:51 PM, RogerKnights wrote:

    If Dupont has sense it will make a buyout bid for Solazyme within the year, before the stock price really takes off.

  • Report this Comment On June 30, 2014, at 8:25 AM, Jahuel wrote:

    I'd also like to add that Solazyme is not a bio-fuel company - although the company can make it with its extra capacity. Solazyme makes OILS, but that does not mean fuel - there are a huge range of oils, and Solazyme is focusing on a bunch of different high-margin varieties. But bio-fuels? Nope - that's low-margin. Please do some research and then correct this article.

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Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

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