A new generation of renewable-chemical startups could soon begin breaking the industrial behemoths' grip on the sector.
Volatile oil prices could allow bio-based chemical-makers like Gevo and Solazyme Inc. to make inroads on their well-established competition, Dow Chemical Co. and DuPont Co. , says John Quealy, analyst with Canaccord Genuity.
“Renewable chemicals can be considered to de-risk the chemical supply chain from persistently high petroleum costs,” he says, in a report on the renewable chemicals industry earlier this year.
In that report, he initiated coverage of both Gevo and Solazyme with “buy” recommendations.
The firm is repurposing an existing ethanol plant in Luverne, Minn., to ramp up production. The plant can produce 18 million gallons of isobutanol annually.
The global chemicals market is massive — worth about $3 trillion annually, according to trade group The American Chemistry Council — and its products are involved in 95 percent of all manufacturing.
Within the U.S. alone, the group says the chemical industry contributes nearly $720 billion annually to the economy.
Most of that production is in petrochemicals, which consume 24 percent of the economy's crude oil, according to the Department of Energy.
But renewable chemicals aren’t simply greener products shoehorned into the petrochemical industry's operational strategy.
Many are “drop-in” replacements for their petroleum counterparts, chemically similar enough to swap in for oil-refined products, with no effect on performance or efficiency for the end user.
Gevo president and COO Chris Ryan says his firm’s green isobutanol has been tested and approved by major car engine manufacturers, like General Motors and small engine firms like Briggs & Stratton.
However, longer-term effects of bio-based chemicals are still unknown, says analyst Thomas Hor of Connective Capital, a hedge fund interested in green-investing themes.