With Partnership, Tesoro To Help Virent Develop Plant-Based Biofuels

In 2015, a year that saw gasoline stay relatively cheap across much of the country, vehicle sales were especially brisk in one category. Light-duty trucks, which include many pickup and SUV models, accounted for 56 percent of vehicles sold in the U.S. last year, that segment’s highest market share since 2004, according to research from Autodata Corp.

While the plunging price of oil has pleased many American consumers, it’s presented challenges for the energy industry. For large petroleum refiners such as Irving, TX-based Exxon Mobil (NYSE: XOM) and San Antonio-based Tesoro (NYSE: TSO), lower fuel prices of course translate into lower profits. And cleantech companies like Madison, WI-based Virent, which is developing biofuels that it says can replace crude oil, are no longer able to point to the high cost of gas when making the case for renewables.

A long-term lens may be the more appropriate one through which to view a partnership between Tesoro and Virent, announced Monday. Under the terms of the deal, Tesoro will provide funding to help further develop—and, eventually, commercialize—bio-based fuels and chemicals made using Virent’s technology, Virent said in a news release.

Reached by phone Tuesday, Virent CEO Lee Edwards declined to share the length of the agreement, or any of its financial terms. However, he did say that the relationship will likely resemble one Virent already has with another energy giant, Royal Dutch Shell.

“Our intention with Shell was that they would license our technology for a project and bring us revenue from the licensing,” Edwards says. “The expectation with Tesoro is similar. They will likely have the opportunity to implement and invest in larger-scale manufacturing, with royalty income coming to Virent.”

If it chooses, Tesoro will have the option “to provide broader support and involvement in Virent’s deployment effort,” Virent said in the release.

Virent’s technology involves producing fuel from beet sugars and other plant matter, Edwards says. Unlike ethanol fuel—which itself is largely based on corn—Virent’s low-carbon biofuel can be processed alongside crude oil in existing refineries, he says.

“Ethanol is comprised of a liquid that’s a single molecule,” Edwards says. “Part of that molecular structure has oxygen attached to it. It’s the oxygen that creates some challenge in refining. We can blend at a much higher rate than ethanol. We’re making products not just for gasoline—which is the only home for ethanol right now—[but also] for jet engines and diesel trucks and trains.”

The tie-up doesn’t come as a complete surprise. Last month, Tesoro said in a news release that it was working to form a “strategic relationship” with Virent. Tesoro has also partnered with Pleasanton, CA-based Fulcrum BioEnergy and Wilmington, DE-based Ensyn Corp. to develop “renewable biocrude,” Tesoro said in the release.

Tesoro won’t have to alter its current blend of raw materials in order to start making fuel using Virent’s technology, Tesoro spokesman Brendan Smith says in an e-mail.

“No modifications will be required to begin using Virent’s biocrude in our feedstock mix,” Smith says.

Two of the six refineries Tesoro operates are located in California, which Edwards says “is on the forefront of setting public opinion” on regulating carbon output. Instead of simply setting a limit on emissions and penalizing those who exceed it, the state has developed a sliding scale that rewards people for emitting fewer greenhouse gases. State and federal rules could help spur the adoption of biofuels, even if the price of oil remains at its current level, though Edwards says he doubts that will happen.

Global production of biofuels was expected to grow at an annual rate of nearly 10 percent from 2013 to 2019, according to a report published last year by Transparency Market Research. Maybe it’s not time to trade in that Prius for a Hummer, after all.

Jeff Buchanan is the editor of Xconomy Wisconsin. Email: jbuchanan@xconomy.com Follow @_jeffbuchanan

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