biofuels commercialization by oil majors-1q12-executive-summary[1]

7/31/2019 Biofuels Commercialization by Oil Majors-1Q12-Executive-Summary[1]

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Mackinnon LawrenceSenior Analyst

Kerry-Ann Adamson, Ph.D.Research Director, Smart Energy

EXECUTIVE SUMMARY:Pike Pulse Report:

Biofuels Commercialization by Oil MajorsAssessment of Scale-up Strategies and Execution of10 Leading International Oil Companies

NOTE: This document is a free excerpt of a larger report.If you are interested in purchasing the full report, please contactPike Research at [email protected].

Published 1Q 2012


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Pike Pulse Report: BiofuelsCommercialization by Oil Majors

2012 Pike Research LLC.All Rights Reserved. This publication may be used only as expressly permitted by license from Pike Research LLC and may not otherwise be accessed or used, without theexpress written permission of Pike Research LLC.

Section 1

The biofuels industry encompasses a broad array of renewable fuels, including ethanol andbiodiesel, as well as a number of advanced biofuels pathways currently at the early stageof commercialization. This Pike Pulse report aims to provide a snapshot of the competitivelandscape of the worlds leading integrated oil and gas companies and their commitment toscaling biofuels production.

A common misconception is that biofuels are generally adverse to Big Oils interest. Yet,the oil industry is acutely aware of the finite nature of crude oil resources, and mostcompanies are currently active investors in biofuels, although investments remain mostlypiecemeal. Significant limitations with respect to the scale, cost, and sustainability ofconventional biofuels have led governments to revise renewable fuel mandates in favor of

next-generation alternatives. These alternatives are derived from non-food feedstockssuch as cellulosic biomass, jatropha, camelina, municipal solid waste (MSW), and algae.The companies profiled in this report all publicly acknowledge that biofuels, and particularlyadvanced pathways, must play a strategic role in the future energy mix. Oil majors andearly-stage ventures within the industry share a symbiotic relationship. Majors will need tocall upon advanced biofuels to protect existing market share and grow future revenue.Meanwhile, early-stage advanced biofuels ventures will require the oil industrys capital toproduce the gallons necessary to meet liquid fuel demand, even if just a fraction thereof.

Currently valued at over $2 trillion, the global transportation fuels market is one of theworlds largest industries. Pike Research projects that total revenue from global biofuelsproduction both the conventional and advanced segments will reach at least $171billion by 2020. Todays biofuels industry accounts for nearly 30 billion gallons ofproduction. Still in its infancy, advanced biofuels production is just a trickle today, but theindustry is expected to play an increasingly important role over the next decade due in partto mandates imposed in at least 31 countries worldwide.

This report complements Pike Researchs previous and broader market analysis, BiofuelsMarkets and Technologies. Whereas the previous report forecasts global investment,production, and demand for biofuels through 2021, with many drill-downs, this Pike Pulsereport evaluates the role the biggest public integrated oil and gas companies will play inscaling biofuels production. Their role in commercializing advanced biofuels is givenparticular scrutiny.


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The criteria on which the oil majors were scored in this Pike Pulse are:

Vision

Production Strategy and Roadmap

Partnerships

Technical Innovation

Feedstock Sustainability

Geographic Reach

Market Share

Investment Portfolio

Distribution Network

Branding and Marketing

Regulatory Compliance

Market Impact

Detailed descriptions of each criterion are provided in Section 9.2.3 of this report.

Table 1.1 shows the overall rankings for all of the majors considered in this report. Thecutoff point for the Leaders category in a Pike Pulse report is 75.0. As shown,Pike Research does not perceive any of the oil majors covered in this report to be industryleaders at this stage.

Table 1.1 Company Overall Scores

Rank Company Total Score1 Shell 74.7

2 BP 74.4

3 Total 66.1

4 Petrobras 66.0

5 Chevron 63.0

6 Statoil 59.8

7 PetroChina 54.6

8 ConocoPhillips 50.9

9 Eni 48.5

10 ExxonMobil 40.4

(Source: Pike Research)

Seven of the profiled companies fall within the Contenders category. These companiesdemonstrate a solid foundation for growth and long-term success, but have not attained asuperior position in the market. Shell and BP attained the top overall scores, a testamentto the leading position that these companies have taken in shaping the biofuels market todate. Since the two companies are not strongly differentiated from one another, their


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overall scores are very similar. Both Shell and BP scored well on a number of metricsused in this Pike Pulse due to their strong partnerships, deep investment portfolios, anddemonstrable scale-up activity in Brazil.

Third ranked Total has charted out a similar strategy to Shell and BP, but its commitment

to building out a delivery supply chain for biofuels, especially in Brazil, has been morerestrained. Also heavily invested in Brazil, its home market, Petrobras ranks a close fourthdue to its focus on near-term ethanol production and its competitive position in the lucrativesugarcane market.

The highest ranked Contenders posted the strongest scores largely due to a combinationof near-term positioning for ethanol production from sugarcane and strong commitments tocommercializing advanced biofuel pathways. Based on Pike Researchs analysis inBiofuels Markets and Technologies, Brazils efficient sugarcane market represents one ofthe most attractive biofuels markets over the next decade, with potential to supply sugar foradvanced conversion technologies producing drop-in fuels as well. As a result of theirstrong positioning in this sugarcane market, the above four companies scored well in thisPike Pulse report.

The last three Contenders Chevron, Statoil, and PetroChina have demonstrated atangible commitment to meeting near-term demand and developing advanced biofuelssupply chains as well. All three have marketed advanced biofuels to varying degrees.Compared to the leading Contenders, however, their investments have been morerestrained.

The remaining three companies are ranked as Challengers. They are fundamentallysound, but have taken a more conservative approach to scaling up biofuels production.ConocoPhillips and Eni have invested in near-term advanced biofuels production, but haveyet to invest at the scale of their competitors. The investment portfolios of both companieslack sufficient density and coherency to reach Contender status. ExxonMobil, ranked last,has made one strategic investment in a potentially breakthrough microalgae opportunity todate. However, the companys long-term focus and lack of leadership in other areas

resulted in lower scores overall in this Pike Pulse. Like all of the companies profiled in thisreport, it is worth noting that ExxonMobil has the level of capitalization available toaccelerate advanced biofuels production if it so chooses due to considerable assets at itsdisposal.


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Chart 1.1 The Pike Pulse Grid

(Source: Pike Research)

BP

ChevronConocoPhillips

Eni

ExxonMobil

Petrobras

PetroChina

Shell

Statoil

Total

Execution

Strategy

FOLLOWERS CHALLENGERS CONTENDERS LEADERS


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Section 7

Section 1 ...................................................................................................................................................... 1Executive Summary .................................................................................................................................... 1

1.1 Introduction .................................................................................................................................... 11.2 Pike Pulse Company Scores ......................................................................................................... 2

Section 2 ...................................................................................................................................................... 5Market Overview .......................................................................................................................................... 5

2.1 Market Definition ........................................................................................................................... 52.2 Key Market Drivers ........................................................................................................................ 6

2.2.1 Diversifying the Fuel Supply Supply Continuity .................................................................... 62.2.2 Rising Demand ........................................................................................................................ 62.2.3 Blending Mandates .................................................................................................................. 72.2.4 Climate Change ....................................................................................................................... 8

2.3 Key Market Trends ........................................................................................................................ 92.3.1 Delayed Advanced Biofuels Commercialization ...................................................................... 92.3.2 Shifting Priorities: End-Product Neutrality ............................................................................. 102.3.3 Race for Cheap Sugars ......................................................................................................... 102.3.4 Rise of Aviation Biofuels ........................................................................................................ 102.3.5 Sustainability ......................................................................................................................... 11

2.4 Summary ..................................................................................................................................... 12Section 3 .................................................................................................................................................... 13The Pike Pulse ........................................................................................................................................... 13

3.1 Introduction .................................................................................................................................. 133.2 Pike Pulse Grid............................................................................................................................ 133.3 Company Rankings ..................................................................................................................... 15

3.3.1 Contenders ............................................................................................................................ 153.3.1.1 Shell .............................................................................................................................. 153.3.1.2 BP ................................................................................................................................. 163.3.1.3 Total .............................................................................................................................. 183.3.1.4 Petrobras ...................................................................................................................... 193.3.1.5 Chevron ........................................................................................................................ 203.3.1.6 Statoil ............................................................................................................................ 213.3.1.7 PetroChina .................................................................................................................... 22

3.3.2 Challengers ........................................................................................................................... 243.3.2.1 ConocoPhillips .............................................................................................................. 243.3.2.2 Eni ................................................................................................................................. 253.3.2.3 ExxonMobil ................................................................................................................... 26

Section 4 .................................................................................................................................................... 28Company Profiles ...................................................................................................................................... 28

4.1 Leaders ....................................................................................................................................... 284.2

Contenders .................................................................................................................................. 28

4.2.1 Shell ....................................................................................................................................... 284.2.2 BP .......................................................................................................................................... 294.2.3 Total ....................................................................................................................................... 294.2.4 Petrobras ............................................................................................................................... 304.2.5 Chevron ................................................................................................................................. 304.2.6 Statoil ..................................................................................................................................... 314.2.7 PetroChina ............................................................................................................................. 31


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4.3 Challengers ................................................................................................................................. 324.3.1 ConocoPhillips ....................................................................................................................... 324.3.2 Eni ......................................................................................................................................... 324.3.3 ExxonMobil ............................................................................................................................ 33

4.4 Followers ..................................................................................................................................... 33Section 5 .................................................................................................................................................... 34Company Directory ................................................................................................................................... 34Section 6 .................................................................................................................................................... 35Acronym and Abbreviation List ............................................................................................................... 35Section 7 .................................................................................................................................................... 37Table of Contents ...................................................................................................................................... 37Section 8 .................................................................................................................................................... 39Table of Charts and Figures..................................................................................................................... 39Section 9 .................................................................................................................................................... 40Scope of Study .......................................................................................................................................... 40

9.1 Scope of Study ............................................................................................................................ 409.2 Sources and Methodology .......................................................................................................... 40

9.2.1 Company Selection ............................................................................................................... 419.2.2 Ratings Scale ........................................................................................................................ 419.2.2.1 Score Calculations ........................................................................................................ 419.2.3 Criteria Definitions ................................................................................................................. 41

9.2.3.1 Strategy ........................................................................................................................ 419.2.3.2 Execution ...................................................................................................................... 42


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Section 8

Chart 1.1 The Pike Pulse Grid ................................................................................................................ 4Chart 2.1 Liquid Fuels Consumption by Region, World Markets: 1990-2035 ......................................... 7Chart 2.2 Projected Biofuels Demand by Region, World Markets: 2011-2021 ....................................... 8Chart 2.3 Projected Biofuels Production by Region, World Markets: 2011-2021 ................................... 9Chart 3.1 The Pike Pulse Grid .............................................................................................................. 14Chart 3.2 Shell Strategy & Execution Scores........................................................................................ 16Chart 3.3 BP Strategy & Execution Scores ........................................................................................... 17Chart 3.4 Total Strategy & Execution Scores........................................................................................ 19Chart 3.5 Petrobras Strategy & Execution Scores ................................................................................ 20Chart 3.6 Chevron Strategy & Execution Scores .................................................................................. 21Chart 3.7 Statoil Strategy & Execution Scores ..................................................................................... 22Chart 3.8 PetroChina Strategy & Execution Scores ............................................................................. 23Chart 3.9 ConocoPhillips Strategy & Execution Scores ........................................................................ 25Chart 3.10 Eni Strategy & Execution Scores .......................................................................................... 26Chart 3.11 ExxonMobil Strategy & Execution Scores ............................................................................. 27Table 1.1 Company Overall Scores ........................................................................................................ 2Table 2.1 Commercial Flights Using Advanced Biofuels, World Markets: 2011 ................................... 11Table 3.1 Company Overall Scores ...................................................................................................... 15


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Section 9

Pike Research has prepared this Pike Pulse report to provide participants at all levels ofthe biofuels market with an analysis of the landscape for Big Oil investment in scaling upbiofuels, with a particular focus on advanced biofuels. The report only covers publicly listedoil majors; that is, companies that have the greatest potential and capitalization to makethe biggest impact in expanding biofuels production over the next decade. Note that thisPike Pulse does not cover national oil companies or smaller independent oil producers orrefiners, even if those companies have actively engaged in the commercialization ofadvanced biofuels.

The major objective of the study is to provide a timely overview of the companies involvedin developing the biofuels market. While advanced biofuels are still being produced in

limited volumes, emerging global mandates call for ramping up production over the comingdecade. Oil companies, as both customers and investors, are expected to be key playersin commercializing breakthrough technologies.

Pike Research assesses companies in terms of their strategy and execution in developingthis market. The ratings capture the companies standing at the time of the report and arenot a retrospective of past accomplishments or an indication of future success. Theseratings are likely to change as the biofuels industry matures over the next several years.

Pike Researchs industry analysts utilize a variety of research sources in preparingResearch Reports. The key component of Pike Researchs analysis is primary researchgained from phone and in-person interviews with industry leaders including executives,

engineers, and marketing professionals. Analysts are diligent in ensuring that they speakwith representatives from every part of the value chain, including but not limited totechnology companies, integrated oil and gas companies, industry associations,government agencies, and the investment community.

Additional analysis includes secondary research conducted by Pike Researchs analystsand the firms staff of research assistants. Where applicable, all secondary researchsources are appropriately cited within this report.

These primary and secondary research sources, combined with the analysts industryexpertise, are synthesized into the qualitative and quantitative analysis presented inPike Research reports. Great care is taken in making sure that all analysis is wellsupported by facts, but where the facts are unknown and assumptions must be made,analysts document their assumptions and are prepared to explain their methodology, both

within the body of a report and in direct conversations with clients.

Pike Research is an independent market research firm whose goal is to present anobjective, unbiased view of market opportunities within its coverage areas. The firm is notbeholden to any special interests and is thus able to offer clear, actionable advice to helpclients succeed in the industry, unfettered by technology hype, political agendas, oremotional factors that are inherent in cleantech markets.


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9.2.1 Company Selection

As mentioned previously, this Pike Pulse report only looks at publicly traded integrated oiland gas majors; specifically, six supermajors and four international submajors. Thecompanies profiled generally have the highest market capitalization within the oil and gas

industry (in excess of $85 billion each). In an effort to focus the study across similarlypositioned industry stakeholders, this report excludes national oil companies and smalleroil and gas companies. While there are many companies contributing to the developmentof biofuels and next generation biofuels in particular, most lack the capitalization to movethe industry forward in a meaningful way on their own. By contrast, the majors profiled inthis report each have the potential to independently dictate the commercialization trajectoryof the industry over the near term.

9.2.2 Ratings Scale

Companies are rated relative to each other using the following point system. The ratingsare a snapshot in time, showing the current state of the company. These scores are likelyto be fluid as the market matures, new competitors enter the space, existing companiestune their strategies, and, in the case of advanced biofuels, production volumes increase.

Very Strong 91 - 100

Strong 76 - 90

Strong Moderate 56 - 75

Moderate 36 - 55

Weak Moderate 21 - 36

Weak 11 - 20

Very Weak 1 - 10

The scores for Strategy and Execution are weighted averages based on the subcategories.The Overall score is calculated based on the root mean square of the Strategy andExecution scores.

9.2.3 Criteria Definitions

Vision: Measures the companys commitment to efforts that signal a departure frompetroleum-based fuels and long-term positioning in support of biofuels. Clear andcompelling visions for advanced biofuels that are effectively communicated to theindustry result in higher scores.

Production Strategy and Roadmap: Evaluates the long-term competitiveness of the

companys current biofuels production activities, including the upstream support ofadvanced feedstock development as well as the downstream refining of renewable oilsand blending capacity with the petroleum supply chain. Lower scores are given tocompanies deemed to be taking a wait-and-see approach to advanced biofuels industryscale-up or showing an ongoing commitment to conventional biofuels.

Partnerships: Evaluates the companys active investments in multiple partnerships thatdemonstrate an integrated commercialization strategy across feedstocks or conversiontechnologies (or both). Higher scores are given if partnerships include early-stage


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venture companies with strong technology portfolios and clearly defined pathways tocommercialization. Lower scores are given to companies with narrow or scattershotinvestments lacking commercialization coherency.

Technical Innovation: Gives higher scores to companies with a strong commitment to

R&D, technology development, and innovative advanced biofuels conversionopportunities. Lower scores are given to companies that have recently retracted fundingor are not heavily invested in R&D efforts or university- and institution-led research.

Feedstock Sustainability: Measures the companys commitment to advanced second-and third-generation feedstocks that do not materially affect food or feed production.Lower scores are given to companies with a heavy focus on first-generation (commoditybased) feedstocks.

Geographic Reach: Gives higher scores to companies with a strong commitment tobiofuels production via partnerships or facilities in multiple regions and national markets.Scores are lower if the company's activities are restricted to a specific region, location, orfacility.

Market Share: Measures the company's current share of existing production capacity,including key projects that are likely to come online over the next year. Also assessesthe relative position of companies with respect to refining capacity and commercializingadvanced biofuels production.

Investment Portfolio: Evaluates the company's overall investment in the biofuels industryas a proportion of revenue. Higher ratios result in higher scores. Higher scores arealso given to companies that are investing more frequently or in financing rounds ofadvanced biofuels startup companies.

Distribution Network: Evaluates the companys efforts at establishing or plugging into aviable upstream to downstream distribution network to bring volume to market. Higherscores are given to companies that are actively investing in advanced biofuelsdistribution infrastructure.

Branding and Marketing: Gives higher scores to those companies demonstrating anaccurate representation of their near-term commitment to biofuels production. Higherscores are given to those companies that have been recognized for a prioritizedcommitment to sustainability (i.e., listed on the Dow Jones Sustainability Index) andhave established specific advanced biofuels product lines. Scores are lower ifmarketing efforts are mere greenwashing or lack demonstrable activity to supportcompany representations.

Regulatory Compliance: Evaluates whether the company has met regulatoryrequirements across various jurisdictions in which it operates, such as renewable fuelblending mandates and sustainability performance targets. Lower scores are given tocompanies that fail to comply or meet regulatory requirements or have shown resistanceto emerging obligations.

Market Impact: Assesses whether the company has made sufficient capital available todeliver the expected volumes based on short-term market growth projections.

Also analyzes whether the company has tied up capital in production assets andother infrastructure-related projects that signal a commitment to bringing advancedbiofuels to market.


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Published 1Q 2012

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Boulder, CO 80302 USATel: +1 303.997.7609

http://www.pikeresearch.com

This publication is provided by Pike Research LLC (Pike). This publication may be used only asexpressly permitted by license from Pike and may not otherwise be reproduced, recorded, photocopied,distributed, displayed, modified, extracted, accessed or used without the express written permission ofPike. Notwithstanding the foregoing, Pike makes no claim to any Government data and other dataobtained from public sources found in this publication (whether or not the owners of such data are notedin this publication). If you do not have a license from Pike covering this publication, please refrain fromaccessing or using this publication. Please contact Pike to obtain a license to this publication.

biofuels commercialization by oil majors-1q12-executive-summary[1]

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