Abstract
What I want to focus on is the positive move in the changing expectations of consumers given that 62% of consumers now make informed purchasing decision based on brands they trust and sustainability is a key component of this.
Low oil prices will have a different level of impact dependent on which market segment they are serving. Nexant data shows the relevance of this is: wherever your primary contact is going to be a purchaser, and whenever they are going to talk about leveraging against the prevailing oil price, you're probably going to be losing because the way the oil prices are. Even with the all the myriad of different subsidies around the world, it's going to be challenging for us all. However, if you are discussing the value in use—and that generally is not with the purchasing department—then you have an opportunity for new bio based materials as the prices aren't linked to oil. This is an area of huge importance for us as this is where commercial success for these products will be in the near term.
This article was derived from a Plenary session at the 2016 European Forum on Industrial Biotechnology, October 20, in Glasgow, Scotland.
Focusing back on sustainability: Neilson reports that 66% of all consumers are willing to pay more for something that they believe in, namely sustainable brands. This is clearly to be seen in new product launches within the Personal Care market. In 2004, less than 1% of personal care products were making sustainability claims. Now, over a quarter of all the claims in this category are based on sustainability. Today there is a whole industry keeping us in check, ensuring that we are making good on these claims. This hasn't happened overnight as Proctor and Gamble started in 1999 to report on sustainability targets and all of the major personal care companies followed very quickly.
Croda was an early adopter of sustainability reporting, as a raw material supplier, back in 2008. Customers had started to say, ‘This is what we believe in.’ Setting ever more demanding sustainability targets and reporting openly against them, they've all done amazing things. They've completely challenged their supply chains. And the first place they looked was in what they could control. When you look at the carbon footprint of the personal care market, whilst end of life is important it has the smallest impact on the overall carbon footprint at 2% contribution. Compare that to how we use the product which accounts for 58% of the carbon impact. The brands have been working tirelessly to look at ways in which they can make their products have lower in use carbon impact without affecting the product efficacy. One of the best demonstrations of this is in the home care market, where low water temperature washing quite clearly has made a massive positive impact. Outside of the products themselves these companies have done amazing things in their distribution and their production leaving no stone unturned. Consumers are influencing all of this simply by purchasing brands that have a clear sustainability message.
For years consumer brand companies have challenged their suppliers, us, to do the right thing. Some companies have switched to renewables when price allowed, whilst others have committed to it wholeheartedly. We were very fortunate in so much that it was an easy commitment for us given our heritage of being fundamentally a biobased business; Our business in essence started as a biorefinery processing waste from the textile industry whilst our soaps business was processing waste from the food industry. So we've always been biobased. But we have not rested on our laurels and we continue to challenge ourselves to do more to help the supply chain. One such challenge was how do we address what is our single largest petrochemical derived purchase, that being Ethylene Oxide (EO). For us EO allows us to manufacture a wide range of non-ionic surfactants. We have looked for years for functional alternatives to ethoxylates. But as of yet we have yet to find fully biobased surfactants materials that afford us the flexibility at the right price point to compare with ethoxylate-based non-ionic surfactants.
So we took up that challenge to replace our current, petrochemical-derived EO with a bio-based source, and as we couldn't buy this we committed to manufacture it ourselves. Building our own capability on site also allows us improve our supply chain by limiting the movement of hazardous materials, improving long term availability and giving us a level of protection over price volatility. Looking at this at this one single material—EO—and how much that impacted on how it limited us meeting our biobased targets it became clear that our customers wanted the same solution. Many of our customers were only able to achieve high 80s, low 90% biobased content claims. And so there was a race for people around mid-80s—85, 86% claims—but you as a consumer, if you want to purchase a material, and your purchasing decision is impacted by how much of it is biobased, do you really look at something and differentiate between something that's at 92, 94, 95, 96%? The real step change was when you could go to 100% biobased. For us, we realized that with ethylene oxide, if we could change it to biobased production, it could have a large impact for our customer base.
Making EO from renewable feedstocks is not the cleverest thing. It's not revolutionary technology. And it's not the most cost-effective way to do it. You take bioethanol, dehydrate it to ethylene, but its right for us and for a significant portion of our customers. And as such we are committed to it. Earlier this year we announced that we are spending $170 million to put this plant in North America. Next year, we will be commissioning the plant and delivering materials, made with renewable energy, plant-derived, 100% renewable products. This is the part that is interesting: these are not single products, these are full product ranges. The ability for us to offer so many solutions just by changing one material so that we can maximize the impact for our customers' supply chain, and help our customers deliver on their sustainability commitments, has allowed us to unlock the value of this proposition. We believe it makes it worthwhile.
The economics of a drop-in doesn't come close—it is expensive compared to manufacturing ethylene oxide from fossil fuels. But understanding the value that it provides to the supply chain makes it commercially viable.
We are making natural products. We start with lignocellulosic biomass, and our focus is on cellulosic waste. So we recover wood from furniture producers and wood-based panel producers but also end of life furniture. Our technology converts C6 sugars to levulinic acid and formic acid; C5 sugars into furfural; and the lignin into biochar. The biochar can be used as an energy source for our process, which allows us to have a very favorable life cycle assessment. Furthermore, earlier this year we acquired Segetis, which has developed the downstream market for levulinic acid with a focus on ketals and esters. So there the input is levulinic acid, and it is converted with the Segetis technology into levulinic esters and ketals. And ketals are used for biosolvents and also biopesticides and biopolyols. These markets are under development.
So what is so special about levulinic acid? First of all, the molecule is nonsymmetrical. This means that it has one functional group that is an acid and another functional group that is a ketone. That makes this molecule have the highest number of derivatives possible—much higher than other molecules that are symmetrical. Another special feature of levulinic acid is that it can be made directly from biomass. So it is not necessary to go to an intermediate of purified sugar, since our technology is based on chemical catalysis, and not on fermentation. That contributes to the sustainability and also by using biomass waste contributes to the circular economy. Our products are used in a large number of segments offering sustainability and performance. That is important when talking about competing in an era of low oil prices.
Also, because of our feedstocks, we can produce levulinic acid at lower prices than it is produced today. So we can also offer it to the market at affordable prices. There are also new product market combinations, where we replace oil-based molecules with levulinic acid derivatives due to additional functionality and performance. Examples are given below. There are also drop-ins for levulinic acid. You can make nylon intermediates, biodiesel, and jet fuel. These are markets to pursue when oil prices are not as low as they are today, or when the economy of scale for levulinic acid has been achieved. The viability of our drop-ins are obviously much more sensitive to the price of oil.
So having said that, we see three basic drivers for levulinic acid. First, is of course sustainability and a low carbon footprint. That is something we can achieve because we are using biomass waste, our catalyst is recyclable, and we use our own char as an energy source for our process. Second, is the added functionality and performance. It can not only fulfill unmet market needs but also unknown market needs. Sometimes customers do not know yet that they have a need. Last, but not least and always important is price. Price needs to be competitive or in line with the functionality and performance being offered to the customers. In our case, we can choose between different feedstock depending on the market prices of the feedstock. We also have low energy prices because we are using our own char as an energy source, and, of course, our process is based on chemical catalysis and thus is scalable. The scalability economics are much more favorable when compared to processes like fermentation.
So let me give you some examples of new products where we provide additional functionality and performance. One of them is levulinic ketals, which are used as biosolvents. What's special about this is that these solvents are mixable with polar solvents, like water, and nonpolar solvents like gasoline. They are also biodegradable, and, because of their biopolar behavior, they have very high solvency and dispersal power—this is important in personal care. So much more active ingredients can be dissolved in, for instance, skin care products. Also, because of the same principle, there are additional performance benefits in household and industrial cleaners. Because of the solvency power, it is a superior grease and soil remover. It is also a natural product and causes very low skin irritation. Also in the same area, it can easily replace D-limonene, which has a very low supply at the moment due to citrus fruit disease.
Customer feedback has been very positive. We've been told our levulinic acid samples are more pure than anything they have tested, with no sulfur content. Last, but not least a large coating and adhesives maker has said that it we could price this product at a certain price they could “sell the hell out of it.”
We started thinking about sustainability in terms of Responsible Care several years ago. But then again, when you look at Responsible Care, it is more about the end of the gate. We understood that but had to look at the product leaving the gate as well. We wanted to look at the footprint of products, and that made us think more and more about the products themselves and the way they are produced. We wanted to look at opportunities around sustainable products. So we understood that we needed to look at the value chains as well because you need to consider where you sell your products, and sometimes even beyond that to what your customers sell to their customers. We were trying to create part of the value chain as well—create in the sense that we were worried about what was going on upstream. We worked to influence that too because it determines to a large extent our footprint as well. In the end, sustainability should be a business driver in general. And in biobased products, you are essentially redesigning value chains, since moving from fossil to renewable raw materials. The value chains become more and more complex for biobased products —at least more complex than any oil-derived products, so you really have to engage in these value chains.
One example of where we are doing this is our Decovery product. It has won product awards—and it is just paint. But a special one, obviously. We provide some of the ingredients that go into it.
I'd like to talk a little bit about the philosophy behind Decovery. As I said, we as a company are, where necessary, working to redesign value chains. Now, what does that mean? It means you look at the NGOs [non-governmental organizations], for instance, and you look at government. They can determine how the market will be moving, especially when it comes to paint. Increasingly they are calling to get rid of VOCs [volatile organic compounds] in paint. So that means that you need to go to waterborne paints. NGOs sometimes criticize you, but when you are looking at sustainable products, they might be your best advocates. Once in a while, you have exactly the same objective: to offer more sustainable products. Sometimes these products are comparatively expensive, especially when the oil price is low. In this case, they can be the right allies. And they promote your kind of products—sustainable products.
But, ultimately, the consumer obviously needs to buy it. So if there is no consumer benefit it does not work. Sustainability by itself does not sell. Biobased? Consumers don't even understand what the word means sometimes. You have to explain that over and over again. A bit extra for sustainable products is not a problem, but too much extra and they will not sell.
Why am I telling you this, since DSM is an intermediates supplier? Because we care about what the consumer thinks. You have to be aware of what is going on downstream. Otherwise there's the risk that you come up with a product that will not sell because you did not understand the dynamics at the consumer level. In the end we all want to go green, and consumers say they are willing to pay, but when they do make their choice it does need to be affordable. Consumers want sustainability, but they are still conscious of cost.
So this is what we did with Decovery; redesigning an established value chain for a more sustainable one: Acrylic acid and acrylic ester with novel bio-based acrylic alternatives. And we realized we needed to better understand what was going on in the laboratories we were sourcing that material from. In the end, we knew that we needed to understand more about the whole process of converting waste into high performance paint. We already could produce—and source—biobased acid, and we turned it into a family of biobased esters at the end we can use as building blocks in our resins and paint formulations. That sounds all very logical to begin with, but since we do not yet have a product on the market, and these would cost tens of millions of Euros to set up an infrastructure or a plant, it is still a major decision whether or not to invest in this. It's not cheap. But when you're convinced that something is going to work, in the end you will probably invest in it at the large scale.
So we make the resin and in the past would sell this to our customers and without paying much attention to it further down the value chain. But we did interact in this case with the Dutch do-it-your-self-chain Praxis, because they were going to market this product and they understood that this product needed a bit of explanation to consumers who needed more market knowledge on sustainable products. We learned a lot from them about consumer behavior when it comes to paints. They more or less told us what we needed to know about consumer trends in sustainable paints. And that consumers are sensitive to a green message and willing to pay a bit more for that product. The launch was successful, but now we are going to the next phase by trying to convince more of these DIY chains that this is a product that will sell.
To wrap it up, we all know that there is a growing demand for low-carbon products and lower environmental footprints. But I think we as an industry need to tell the story. Especially the companies that we sell to that aren't directly the product consumers. In the end, the consumer needs to understand what he or she is buying. In general, consumers do not know what their products are made of. They do not know that a plastic sneaker is made of oil. We need to explain that. We need to create that demand a bit more for sustainable products by stories like this.
Communication is important to achieving this, and retailers are champions in communication. We know that when it comes to paint we need to go for solvent-free or waterborne bio-based paints. In the end that will mean that we need to invest more and more in these biobased products. In the long-run, we believe that this is the way to do this, but there is a long way to go because demand is so far limited and economies of scale have not been achieved. So the pace of investment will determine how fast we enter this market.
So how did we build a specialty chemicals company? By starting from scratch really. For us it's been about partnerships and collaborations and being differentiated. Customers are already making purchasing decisions, and in many cases they're not really looking for something new. I think it's important to start with something that people really want but also build a portfolio of products that protect margins—and we're going to have a little bit of a debate here on this panel about how we capture margins in this sector and how to build up production and product portfolios.
Green Biologics has built up IP ranging from microbial fermentation through product development. That's key to protecting our margins in a difficult world as competition increases.
So just to talk a little bit about our markets; we are focused on specialty chemicals, which is a big and quite diverse sector. n-butanol can be used in everything from adhesives to flavors and fragrances to plastics, cosmetics, and cleaning products. It's a wide range of applications but we are looking at all of them. Our first discussion with a potential customer is: Can you actually sell products which deliver higher value to customers and so justify a higher price versus existing alternatives? Because if they can't, it is unlikely to be a productive discussion, limiting the chance to switch to renewable n-butanol or acetone. If the answer is yes, the conversation becomes: let's talk about how we're going to do it, and how we are going to add value to all parties. Some people say, “If you can come in cheaper than petrochemical producers, then fine. But that's the only way we're going to buy it.” Clearly these would not be the right customers for the product, even though we can be cost-competitive. So it's all about finding applications where we can bring specific value to the customers.
We are getting into the market through new formulations. We heard a little bit about how DSM is changing the face of paints and coatings. And at Green Biologics, we are working with them on how they can do that. Consumer fuels is an interesting opportunity. In America, they do a lot of barbecuing. One way to get the barbecue going is to spray kerosene based products onto the grill. It's smelly and can make the meat taste unpleasant. So a butanol-based alternative that's cleaner and natural can fill an unmet need. It's a little bit more expensive though, reflecting this better performance. We've got a patent and we're working to get it onto the shelves in America next year.
There are existing applications for n-butanol, but I wouldn't necessarily call them drop-ins. For example, Acme-Hardesty is taking our butanol, esterifying it, and putting it into cosmetics market so that people can have 100% renewable products by replacing petroleum-based esters. We're working with Jungbunzlauer on a plasticizer, again with a high renewable content by using our products. That's of interest to people who want renewable plastics. We are also collaborating with RPM, who can see a market advantage by having a renewable wood finish by switching from petroleum-based butanol.
Our market strategy is to work with really good companies to find new applications, and to find existing applications where renewable products can give a competitive market advantage to our customers. And we have many other partners I can't disclose because they don't want their competitors to know what they're doing.
One thing that is interesting about the personal care market opportunity is that the benefit is not just the natural aspect of the product. Our butanol has zero water content, and it has no aldehydes or isobutanol. These are things that the chemists at cosmetics companies quite like because it makes their processes or products better. We can also make acetone that is benzene-free, so we can make a carcinogen-free nail polish remove product. I could go on and on about you can actually make better products and make money in this space.
I think getting up and running is important. But it's also important to maintain decent margins. There are a few ways we are doing that; first by building up IP, secondly finding value-added applications, and thirdly working with trusted partners—all of these give a more sustainable advantage.
So now that introductions are done, it is time to open up the floor for audience questions and hopefully some debate.