Recently, European Union antitrust regulators have approved the joint acquisition of U.S.-based company Biobutanol LLC by chemical giant DuPont (DD) and U.K-based oil major British Petroleum (BP).
Biobutanol is a specialized form of butanol (butyl alcohol) that is like typical corn-based ethanol made from fermenting biomass. It has greater potential than ethanol to replace gasoline due to more favorable physical properties, economics and safety.
However, biobutanol has been difficult to produce commercially on a big scale due to higher costs. This led DuPont to start attempting its commercialization of biobutanol through its Applied Biosciences division to leverage its huge market potential. The worldwide market for biobutanol is about 350 million gallons per year, with the U.S. market alone accounting for about 220 million gallons per year.
DuPont and BP had formed a partnership in 2006 to develop, produce and market the next generation of biofuels to help meet increasing global demand for renewable transport fuels. The companies are leveraging DuPont’s world-class biotechnology and bio-manufacturing capabilities with BP’s fuels technology expertise and market know-how.
On of the first products the partnership aimed to market was biobutanol. The partnership promises to deliver a superior biobutanol manufacturing process with economics equivalent to ethanol by 2010. Since the production of biobutanol is similar to ethanol and uses similar feedstocks, the existing ethanol capacity needs to be retooled to produce biobutanol.
We continue to recommend DD as Hold with a target price of $25.00.
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