The future of biofuels is in soap

The future of biofuels is becoming less about biofuels and more about soap.

In particular, it’s in the chemicals and food additives that go into items like soap, rubber, plastics and protein bars. As investor appetite for ethanol startups has soured, biofuels companies are leveraging their technologies to pursue opportunities in chemicals and food.

Why chemicals and not biofuels? For one, biofuels have proven to be expensive and difficult to scale. While biochemicals — chemicals made from renewable sources — aren’t necessarily cheaper to produce, they can sell for a lot more money.

“Fuels are basically cheaper than water,” says Mark Bunger, analyst for Lux Research. Commonly used chemicals like polyethelene and polyvinyl chloride, widely used to create plastics, can be sold at a higher price than ethanol. So biochemical makers could potentially make more money and have higher margins.

Biochemicals are also more in demand now that some of the raw materials for traditionally made chemicals are difficult to get or increasingly expensive, Bunger says. Think of petroleum-derived plastics and rubber, or vanilla, which requires the tending and refining of a crop.

Biofuels startups have moved to make chemicals and food additives part of their business. Solazyme has a joint venture with food ingredient company Roquette and is working to develop renewable oils to for soaps made by Unilever. LS9 has a chemicals partnership with consumer goods titan Procter & Gamble. Gevo, which made a $107 million initial public offering yesterday, is working on producing bio-based isobutanol, an alcohol compound used in rubber and lubricants. Last year, algal biofuels startup Aurora changed its name from Aurora Biofuels to Aurora Algae to reflect a new approach that focused on making food and pharmaceutical ingredients.

Lux Research foresees that biomaterials production will grow faster than biofuels, with 17.7 percent growth each year, driven by big corporations. The company estimated the global bio-based chemicals market to be worth $11.7 billion last year, up 7 percent from 2009. The company expects the market to grow another 7 percent this year to reach $12.6 billion. The Cleantech Group last year noted a rise in venture capital funding deals for biofuels firms that also made biochemicals.

Other companies are focusing on biochemicals from the start. Synthetic Genomics works with Exxon in a chemicals and biofuels alliance centering on algae technology (Exxon mentioned the company in a recent commercial featuring algal biofuels). Genomatica is another startup in this space, and today it announced a deal with major waste services company Waste Management in which it will research chemicals that can be created from synthetic gas, or “syngas”, captured at landfills.

“The plastic in your cell phone to the paint on the wall, fibers in carpets — all of this stuff comes from the chemicals industry. All of these materials, about 95-plus percent of them (are derived) from oil and gas,” said Genomatica CEO Christophe Schilling. “We’re looking to make the same exact chemicals but from renewable feedstocks.”

It’s not just the startups, either. Major petrochemical companies like DuPont, BASF, DSM and Dow have been broadening their reach because there’s more competition in their core businesses and because of the supply strain on raw materials. DuPont recently paid $6.3 billion for Danisco, with which it has a biofuels agreement. Danisco itself makes food ingredients and industrial enzymes using bio-based processes.  And DSM recently paid $1.1 billion for Martek, a food company that specializes in microalgae and fermentation.

And that’s why the future of biofuels is in your food and soap.