Energy and Infrastructure Investment Banking and Business Development

Bio jet fuels…"The only way to fly."

Bio jet fuels, which in essence come from the same biodiesel producing value chain, are hitting it big with investors and developers as they scramble to capture a chunk of this huge high growth market. The growth is sparked by two major forces, government regulations that are setting objectives for replacing fossil fuel based kerosene and major airlines that are anxious to look green to their customers.

Commercial flight pollution

Aviation and the environment are on a collision course. The number of airline flights worldwide is growing and expected to skyrocket over the coming decades. Aircraft emissions pollute the air and threaten by 2050 to become one of the largest contributors to global warming, British scientists have concluded.

The aviation sector is a major source of the world’s carbon pollution – accounting for more emissions than the entire United Kingdom.  And left unregulated, aviation emissions are on pace to quadruple by 2050 (see figure).  The EU program requires a 3% emissions reduction (compared to a 2004-2006 baseline) by 2013, and a 5% reduction by 2020.  Aviation's growing contribution to climate change if left uncheckedGiven the needed pollution reductions to address global warming this is a very modest cut in pollution.  It also provides airlines with several avenues to meet their targets.

Much remains unknown about climate change and the role aviation plays, though climate scientists express particular concern about jet emissions in the upper atmosphere, where the warming effect from some pollutants is amplified.

According to a recent USA Today article “With the projected explosion in worldwide travel, air pollution from aviation is a growing concern among scientists, and it's drawing increased scrutiny from governments, particularly in Europe. ‘It's an issue that has to be addressed,’ says Brenda Ekwurzel, a climate scientist for the Union of Concerned Scientists, an environmental advocacy group.”

David Travis, a climate science professor at the University of Wisconsin-Whitewater, says aircraft emissions "are currently one of the fastest-growing contributors to global warming."

Private initiatives

Biodiesel

The report 'Global Bio fuel Market Analysis' by RNCOS estimates that Brazil and the US accounted for 87% of global bio fuel production in 2008, driven by government support.

The RNCOS report forecasts that biodiesel production will grow at a Compound Annual Growth Rate (CAGR) of 6% from 2009 to 2018, with bio ethanol production increasing at 5% CAGR over the same period. The report also predicts significant growth potential for bio fuels in India and China.

This prediction is reinforced by the OECD (Organization for Economic Co-operation and Development) and UN FAO food agency, which projected that global ethanol production would double between 2007-2017 reaching 125 billion liters. Biodiesel is predicted to increase from 11 billion liters to 24 billion liters over the same period (these forecasts assumed that there would not be major changes in US or EU policies supporting the production and use of bio fuels through tax incentives and blending targets).

Bio Jet Fuel

Both the European Union and the United States have enacted strict objectives and compliances to be met by 2020 on the amount of bio jet fuels that each commercial airliner needs to be burning. In fact the percentage of bio fuels being used in commercial aviation increases with the passage of years. This pressure is driven by two major factors; the reduction of emissions and the dependence on foreign supplies of fossil oils.

Sustainable Aviation Fuels Northwest (SAFN) is the USA’s first regional stakeholder effort to explore the opportunities and challenges surrounding the production of sustainable aviation fuels.

The initiative was launched in July 2010 by Boeing, Alaska Airlines, the operators of the region’s three largest airports – Port of Seattle, Port of Portland and Spokane International Airport – and Washington State University, a center for advanced bio fuels research. Climate Solutions, a Northwest clean-energy nonprofit, was retained to manage a stakeholder process that included more than 40 organizations ranging across aviation, bio fuels production, environmental advocacy, agriculture, forestry, federal and state government agencies, academic research and technical consultancies.

While the development of alternative jet fuels is a global challenge, SAFN focuses on sustainable biomass grown in the US Northwest. The findings were conclusive.

Technologies and opportunities

Hydroprocessing

The long established oil refinery technology of hydroprocessing has now been demonstrated for jet fuel production from lipids, which are natural oils produced from crops and animals. A regional hydroprocessing facility could become the center of a supply chain that first employs oilseed crops such as bamboo, camelina and canola, along with animal fats, and then incorporates algal oils as algae cultivation matures.

Using catalysts and heat, hydroprocessing removes oxygen, adds hydrogen and rearranges carbon molecules to create a drop-in petroleum substitute that requires no engine modifications in a 50 percent blend. Hydroprocessing produces renewable diesel, and can produce 50-70 percent jet fuel with an additional cracking step.62 The remaining product would be mostly renewable diesel, with fractions as propane and Naphtha, a feedstock for plastics and chemicals.

Lignocellulosic Biomass Processing

Lignocellulosic biomass is composed of three materials – cellulose, hemicellulose and lignin. The latter two bind and protect the cellulose. Technologies must break down the material in order to process biomass into bioenergy and bioproducts. These technologies have long been available but the fundamental challenge is to make the processes economical. The two major biomass processing technologies employed are separation of biomass into chemical components, which are then separately converted to fuels and products (example: biomass to sugar to fuel) and conversion of whole biomass to fuels or chemicals through thermal and chemical routes. They are extensively detailed in other literature, so this article provides only a brief summary.

• Catalytic – A combination of heat and catalysts rebuild molecules into longer chains required for
  fuels. The Fisher-Tropsch (FT) process provides a prominent example, as it was developed by the Germans in the 1920s and used to a limited extent in World War II, and by the South Africans for the last 20-plus years to make jet fuel. Today a number of companies seek to commercialize FT for biomass-based fuels but capital costs present a challenge. Other catalytic technologies are in development.
• Biological – Syngas is fed to microbes that ferment into alcohols and acetic acid, which can then be upgraded to other fuels and chemicals.

A large number of startups are developing innovative technologies and are poised for commercial deployment with highly efficient and high return applications but are lacking the proper funding to go to market, even with good projects shovel ready and substantial well developed pipelines. Large ventures are relying on the more tried true technologies although they are finding that meeting IATA specifications are harder and less cost effective with older technologies.

Interested developers with funding requirements click here

Interested investors in technologies or project opportunities click here

Energy – renewable and traditional, infrastructure, retail, minerals, commodities, aviation...Brazil sets record on the record of mergers.

There can only be one leader

Energy – renewable and traditional, retail, minerals, commodities, aviation...Brazil sets record on the record of mergers. These are companies with the Highlander syndrome, wanting to cut off competitors’ heads or gobble them up. No sector is safe and this includes new and emerging areas in this emerging giant, including renewable, cleantech and it, as everyone scrambles for scale to become the leader and get the higher margins and security that come with it.

THERE CAN ONLY BE ONE! "Cries the warrior Victor Kruger (Clancy Brown) to attack Connor Macleod  (Christopher Lambert), the film Highlander, the warrior immortal, 1986. The two form part of a race of immortals, which for some mysterious reason feel an irrepressible desire to seek, attack and destroy each other. The only way is decapitating the opponent. And the game (and movie) is only over when there was only one left.

The merger and acquisitions fervor in Brazil and some of the latest friendly and hostile takeover attempts paint a very similar scenario.

Companies also do not die of natural causes. In the Brazil of today, it seems that in the majority of occasions, when a rival approaches and after an uphill battle, strikes a blow to rival separating the head from the body. Like in the movie, the winner of the battle comes out stronger, more able and willing for the next fight. The only difference is that the Highlander corporation goes around with one head but commanding two, three, sometimes several bodies. Ah, yes, and the severed head usually survives richer than before, no longer having to meet the needs of that foreign body. (In some cases, however, a double body remains with two heads for some time.)

The sun that the Spanish want to bring

The board of Isolux, a Spanish company in the area of infrastructure and concessions, has decided to invest R$ 6 billion in Brazil later this year, much of which will be through joint ventures and acquisitions. The amount represents 40% of all that the company intends to spend in the world. This investment will be applied to the construction and development transmission lines and photovoltaic power plants. The company generated revenues of € 3.2 billion and is present in 30 countries.

Infrastructure, minerals, IT and other sectors.

The retail market has recently had several struggles. The warrior Ricardo Eletro cut the head off of Insinuante, forming a body called Sales Machine. The warrior Magazine Luiza seized in June Lojas de Baú – and came out stronger than Ricardo, getting ready for the battle with the duo-Casas Bahia – Ponto Frio (under the command of another merger guerilla, the Pao de Açucar). But behold, Ricardo beheaded Shopping Eletro in July, and returned to leap frog the warrior Luiza.

 
In the aviation market, TAM and Gol emulate Kruger and the likes of Macleod. TAM battles (amicably) with Trip, and Gol in turn beheads Webjet this past month. In food sector, Perdigao digested Sadia, JBS wormed into Bertin. These are only some of the examples of a phenomenon that affects numerous companies in countless industries in Brazil. Everyone thinks he is Highlander.

To understand why there are so many battles taking place now, we must go back to another war. It was In the middle of the 1940’s, in the first moments after the Second World War when television began to work again, after years of interruption due to the conflict. It was the trigger for a period of expansion of communications, which culminated in the advent of the Internet in the 1980’s, and its constant development to today’s current omnipresence.

This is a time characterized by the flow of information with almost no barriers. "In these years, there was a dramatic fall costs of information, "says Claudio Felisoni of Angelo, economist, chairman of the Provar, the core of a group specializing in retail distribution founded by professors of the prestigious USP, and Ibevar, the institute of executives of same market. With so much information circulating free, products and services were very easier to be copied. That is why many have no competitive differences and are now so alike. This means that one cannot charge too much for any given product or service. Increase the price a little, and then comes someone willing to sell at your old price. Keep your old price, and soon someone will come by selling less.


Innovate or Acquire, Grow or Die

There are only two exits to seek higher profits: the first is to innovate. Create something that no one else knows or can do, or improve the process to have more efficiency. The problem is that innovations are also quickly copied. And that is why so many businesses are calling for second way out – acquire, gain scale, get the biggest market share quickly, a position where margins are higher. Nobody is safe from this phenomenon and even new sectors like renewable energies and cleantech are not safe. In the first semester of the year, the number of mergers and acquisitions reached 379 in Brazil, a record, according to KPMG. And the report only counted only businesses of large size, which were recorded in the media.

Brazil has an extra reason for this galloping of mergers: the proliferation of the Internet has coincided with the effects of the Real Plan. Accounting for inflation, it was possible to "see the real value" of the products as Felisoni says, "and establish relative prices." The increased consumption and helps you understand the need for higher turnover, which feeds the wheel of mergers and acquisitions.

In trade, the phenomenon is even more radical. The e-commerce brings instantly price of anything for the consumer. Therefore, the profit margin in retail is the lowest of the economic activities. According to The Valor 1000, the net margin (profit Net on net) of retail was 2.3 in 2009 - the lowest among 26 activities analyzed, except for the sugar industry and alcohol, which that year had an unusual period large losses.

Civil aviation has also margins especially low. Likewise, access to information gave visibility to certain practices. Gol, for example, the tropicalized model low cost successful in other countries and TAM led to review the strategy, as recalled by André Castellini consultant, Bain & Company. In aviation, and this model, you need volume to negotiate the price of fuel, aircraft and Spare parts, especially with few suppliers, although the advent of bio-jet fuels threatens to fragment the market in the short term. Aside from historical and structural factors, there those term to explain the large number purchase of companies in Brazil. "The country offers less risk, more predictable and allows for long-term vision, "said Luis Augusto Dead, KPMG partner in charge of mergers and acquisitions. The force of the business in 2011 becomes discounted even more significant if the effects of international crisis in the comparison with 2010 and the rest of the global economy.

"In 2009, business plummeted by cause of the crisis, "says Dead. In 2010, many operations were shelved. Already, the numbers of 2011 do not carry this compensation on businesses, he said, reflecting the confidence in the economy Brazil. Both the participation of foreigners was decisive in purchases to get the record the first half. The number of operations acquisition of Brazilian companies by foreign grew 23% in relation to the same period 2010. On the other hand, fell 16% the number of Foreign purchases by Brazil. And to Brazilian purchases by Brazil increased 9%. A sign that life in Brazil is better, of course, assuming no one gets a shot at our heads.