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With a New Acquisition, does BP = Biofuels Player?

Leon Kaye | Monday July 19th, 2010 | 0 Comments

That festering well in the Gulf of Mexico may or may not be capped for now, but the wisecracks over those initials, BP,  will never end—though of course snide remarks are the least of BP’s problems.  Lawsuits, a steep decline in market capitalization, and a muddied image are among many factors that have BP in a deep hole.  Now the oil firm has acquired a company that will either prove to be a stepping stone to increased investment in clean energy—or is a token move to quiet critics and undermine potential competition to its oil and gas business?

Late last week BP Biofuels agreed to buy Verenium Corporation, a producer of high-performance enzymes for use in industrial processes, including cellulosic biofuel production.   The transaction, valued at US$98.3 million, gives BP control of Verenium’s biofuels facilities in southwest Louisiana and San Diego, and in turn provides Verenium with cash to grow its commercial enzyme business.  According to BP Biofuel’s CEO, the Verenium transaction bolsters BP’s position as a leader in the biofuels market with an integrated end-to-end capability, from the initial research and development to distribution and blending.  The timing is crucial for Verenium, which lost over US$56 million last year.

The deal is a drop in the bucket when measuring BP’s investments in biofuels, which have totaled US$3 billion since 2005.  Since the Deepwater Horizon fiasco began in April, the costs to BP have reached a minimum of US$3 billion.  Those liabilities will only grow, and meanwhile, the scrutiny and criticism will hardly fade in the coming months and years—so BP really does not have much choice other than to ramp up its investment in clean fuels.

Or does it?  Some would argue that this deal is just another chapter in big oil sabotaging technologies that could potentially compete with fossil fuels.  A few minutes in a search engine will generate many stories about how BP and competing firms have done all they could to ensure that hydrocarbons are the only fuel source available on the market.  Some of these stories are urban legends; others reveal shameless sabotage.

Nevertheless, BP’s latest purchase could be a harbinger of the future of biofuels:  an industry would need the financial investment and infrastructure that only big oil can provide. New energy technologies require massive scale and an extensive distribution network if they become part of our future energy mix.  Start-up firms like Vernenium do not have the resources or cash:  but the giants like BP, Shell, and Chevron have plenty.  And as oil becomes more difficult to extract and countries reevaluate whether they want to pursue dangerous offshore oil extraction, we may well see more deals similar to the ones that BP made to purchase Vernenium.


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