Aside from self-limiting mosquitoes being positioned as the best tools available to combat public health crises, the next big platform being eyed by investors of engineered biology conglomerate Intrexon (NASDAQ:PGEN) is aimed at energy markets. Specifically, the company is developing a natural gas-to-fuels technology that will use engineered microbes to convert methane into isobutanol, an alcohol fuel blendstock with major advantages over ethanol.
Intrexon has partnered with Dominion Energy (NYSE:D), which will provide cheap natural gas and build commercial-scale facilities. Before decisions about commercialization are made, however, Intrexon will need to meet "specific development milestones." While the company touts the advantages of isobutanol fuels created from low-cost natural gas, the technology platform faces technical and regulatory hurdles that investors should take the time to understand.
Replacing sugar with methane
The idea is relatively simple: build an industrial biotechnology platform that uses methane as the carbon source. Most industrial biotech companies today instead rely on sugars from corn or sugarcane, so investors can easily see the novelty. Natural gas is currently cheap, abundant, and doesn't interfere with the food supply or agricultural land -- and Intrexon thinks the economic advantages are unparalleled.
Isobutanol for just $37.50 per barrel is difficult to beat. Even if natural gas prices rose from $2.11 per MMBtu in the estimate to $5 per MMBtu, and other factors were held constant, Intrexon's projected manufacturing costs would only increase to $67.20 per barrel of isobutanol. That works out to about $1.60 per gallon -- still competitive with ethanol manufacturing costs.
Whether or not Intrexon can accurately predict the costs of a manufacturing process that doesn't exist yet remains to be seen. (Investors might remember the risks of blindly following pre-commercial whiteboard estimates from TerraVia, Amyris, and others.) But the biggest obstacle isn't theoretical economics; it's thermodynamics.
Thermodynamics always wins
A former professor of mine once explained the four laws of thermodynamics in the following way:
- Zeroth law: You must play the game.
- First law: You cannot win.
- Second law: You cannot break even.
- Third law: You cannot quit the game.
Admittedly, the world is a little depressing when viewed through that lens. But the point is that Intrexon has to play the game, too. And when investors take a look into the specifics of the natural gas-to-fuels platform, it becomes quite clear that the company is choosing a pretty difficult game to play.
The biggest obstacle is the solubility of methane in water, or the amount of methane you can cram into a given volume of water. As it turns out, most gases are incredibly stubborn. Compared to methane, sugar -- the carbon source used by most industrial biotech platforms -- is roughly 88,000 times more soluble in water. That's enough to wreck just about any other advantage that methane may have over more traditional feedstocks.
Consider the following graphic from Intrexon comparing the theoretical benefits of using methane instead of sugar (sucrose) to produce isobutanol.
Here, Intrexon claims that its platform can convert 77% of the methane it touches into a given mass of isobutanol at perfect conversion. More traditional platforms have a much lower theoretical maximum, converting just 41% of the sugar fed to yeast cells into product. There are 128 kilograms of isobutanol in one barrel, so Intrexon's process needs 166 kilograms of methane to make one barrel of isobutanol, compared to 311 kilograms of sugar. Sounds like a slam dunk, but the higher theoretical yield is very misleading, and essentially worthless, mainly due to the solubility of each feedstock.
Consider that, if Intrexon achieved perfect mixing, it would need a 7,300,000-liter bioreactor to dissolve 166 kilograms of methane. The counterexample would need a bioreactor smaller than 200 liters to perfectly dissolve 311 kilograms of sugar. Comparing theoretical yields makes for a great Powerpoint slide, but a higher yield doesn't help gas fermentation at all.
Now, this isn't how a bioprocess using either feedstock actually works -- only an oversimplistic thought experiment to illustrate the challenge presented by the low solubility of methane. In the real world, microbes continuously churn out products, there is no such thing as perfect mixing, natural gas isn't 100% methane, and feedstock is never perfectly converted into product, among other complex factors engineers must consider. Intrexon will need to continuously cycle methane through its bioreactors to reduce overall tank size, but thermodynamics will limit the company to an incredibly inefficient process at best.
Investors can look to similar bioprocesses to see the point illustrated even further. LanzaTech has been developing a gas-to-fuels platform for several years. The company feeds carbon monoxide, a gas with similarly low solubility in water, to engineered microbes to produce ethanol, an alcohol similar to isobutanol. Here's a picture of an operational pilot facility capable of producing 300 metric tons, or 2,400 barrels, of ethanol per year.
That's a pretty big footprint for just 2,400 barrels of product -- and shows just how much steel Intrexon's process will require if it's ever successfully commercialized.
What does it mean for investors?
The theoretical economics presented to investors makes a natural gas-to-fuels platform appear to sport incredible advantages over bioprocesses that use sugar. It seems to get even better when investors see the higher yields from methane compared to sugar.
But that's an apples-to-oranges comparison that is very misleading, and has no bearing on the most important technical hurdles facing the scale-up of Intrexon's lab-scale process. Regardless of what the company says in press releases and presentations, it has to play the game of thermodynamics. And it cannot win.