Jim Lane
In California, Novvi
unveiled two new 100 percent renewable base oil products, a 100
percent renewable polyalphaolefin (PAO) Group IV and a 100 percent
renewable version of its NovaSpec Group III+ base oil. Both will
be manufactured at the company’s production facility in Houston. Base oils are blended with additives to make the engine oils and
lubricants sold on the market today.
So, here’s the technical scoop. Novvi’s 100 percent renewable PAO
is a clean, direct replacement for conventional Group IV PAO base
oils derived from petroleum and natural gas. Novvi notes that it
is “the first company to commercialize high-performance PAO oil
from renewable materials,” and said that its streamlined supply
chain drastically “reduces capex costs considered standard in the
industry by bypassing upstream processing steps required by
petroleum PAO.”
The global polyalphaolefin market
Try saying that three times real fast. Polly Alfa Hola Fin, Polly
Alfa…oh, never mind. What you need to know, in general, is that it is one of those
“small-volume, high-margin” markets that equity analysts point to
approvingly when they give kudos to advanced biotech companies for
finding a breakout early product. The iPhone comes later, first
comes the Apple I.
Specifically, according to Transparency Market Research, Group IV
& V Lubricants (PAO, PAG and Esters) Market – Global Industry
Analysis, Size, Share, Trends and Forecast, 2012 – 2018,” the
Group IV & V lubricants demand was 624.6 kilo tons in 2011 and
is expected to reach 752.9 kilo tons in 2018, growing at a CAGR of
2.76% from 2013 to 2018. TMR notes that “Group IV & V
lubricants have been growing at a faster pace than mineral-based
lubricants as they are more fuel efficient and can be used in
extreme operating conditions. In addition, there has been positive
regulatory support for the development of Group IV & V
lubricants from various agencies.”
The leap from 50% to 100% blends
There were three main drivers,” Novvi CEO Jeff Brown told The
Digest. “First, there was pull from customers who want to be as
green as possible, and don’t want to be 50 percent, they want to
be 100%. That was a big part of it.
“Also, there are a lot of customers are blending to a renewable
content spec. For example, once you get to 25 percent, you can
have a Biopreferred label, and customers want to hit that point
efficiently, so they prefer to blend on their own. That way, they
have the freedom to hit their targets, and for some it is 50, 70
or 80. So, this gives them blend flexibility, especially
considering that a finished product can be made of a blend of
several base oils.
“The last piece is great for industry, and that is creating value
in the renewable content. There is value in green, and if it more
valuable to be at 100% than 50% because of some of the factors
we’ve discussed, well, that’s something we should create a
structure around.
Market share driver or price premium?
We asked whether the value in green was in driving market share
or whether there were price advantages. “We see both, it depends on the product. If there is a high
renewable requirement or a tight clean spec, then there can be a
price premium.”
Who’s the customer?
We asked Brown if the demand for Novvi oils was primarily being
driven by customer-facing partners in the lubricants business or
primarily with blenders and formulators of ingredients. “We work with customer-facing strategic partners in both, the
base oil business and the finished lubricant side.”
What about the business model – is Novvi manufacturing or is
licensing in the offing? “We’re doing the manufacturing now but we
have a variety of partnership structures with customers, and we
will scale production through strategic industry partnerships.”
Will we see expansion of that manufacturing capacity, given the
new launches? “Yes,” Brown said, “we have expansion plans on the
manufacturing side. First though, we want to move through the
product launch period. But we continue to see the market build,
and we are seeing the product work, and product adoption.
Policy supports
In the rush to support the creation of renewable fuels, sometimes
the afore-mentioned “small-volume, high-margin” products get
overlooked as targets for policy supports — especially critical
for young industries starting with smaller production scales.
What’s on the “policy shopping list” for Novvi, if anything, we
asked Jeff Brown.
“Novvi is not built to rely on policy support; we can compete on
price. But with that said a lot of things can help. To give an
example, one of the single biggest factors is a country’s fuel
economy standard. The higher those are, the higher performing
lubricants are required, so we are an enabler for OEMs and large
global players. Beyond that, an eco-label spec and laws on
toxicity are helpful. Policies that sound minor can be huge game-changers. For
instance, there’s the new Vessel General Permit guidelines – the
VGP.
[Readers, please note:
The EPA oversees the Vessel General Permit,
and new regulations issued in December 2013 affected all
commercial vessels longer than 79 feet in length. The EPA
advises: The 2013 vessel general permit requires the use of an environmentally
acceptable lubricant for all oil to sea interfaces
for vessels unless technically infeasible. The intent of this
new requirement is to reduce the environmental impact of
lubricant discharges on the aquatic ecosystem by increasing the
use of environmentally acceptable lubricants for vessels
operating in waters of the United States…Use of environmentally
acceptable lubricants results in discharges that biodegrade more
quickly and are less toxic than their traditional mineral oil
counterparts. For all applications where lubricants are
likely to enter the sea, environmentally acceptable
lubricant formulations including using vegetable oils,
biodegradable synthetic esters or biodegradable polyalkylene
glycols as oil bases instead of mineral oils can offer
significantly reduced environmental impacts from those
applications.]
The VGP offers a staggering potential in volume, and last week
the Obama Administration issued new regulations on clean water and
protecting streams. Traditional mineral oils can be detrimental to
the water supply, so we are seeing a lot of legislation under
consideration, for example in California. “But we’re not waiting
for anything,” Brown hastened to add.
Comments from industry observers
“Renewable oils offer customization of specs and performance that
differentiate them from conventionally produced oils,” said Pavel
Molchanov, senior vice president and equity research analyst at
Raymond James. “A renewable oil that competes on performance and
price is well positioned for the multibillion dollar lubricant and
base oils market.” “If a company could make the same quality PAO with a different
feedstock, they could dramatically change the market. Customers
would run to them,” said Joe Rousmaniere, director of business
development at Chemlube International.
The Bottom Line
To relate an anecdote that has absolutely nothing directly to do
with Novvi, or lubricants, but illustrates a point, this week some
71 years ago Brig. Gen. Theodore Roosevelt Jr., the senior US
commander was traveling with the first wave of soldiers landing at
Utah Beach on D-Day. With strong tides and seas that day,
Roosevelt’s landing craft arrived a mile away from the
carefully-selected objective. Whoops. After surveying the options,
Roosevelt coolly announced, “We’ll start the war from right here.” Which is to say, the advanced bioeconomy revolution was not
exactly planned around the battle for global market share in base
oils. But it makes a very nice beachhead. Good for Novvi.
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