Bio based chemicals gaining ground to reduce carbon footprint

Traditionally, bio based chemicals have been used for niche applications such as personal care and food additives. However, various new applications of bio based chemicals such as bio-lubricants, biopolymers, and bio-surfactants are emerging as replacements of petroleum based products creating exciting growth opportunities.
 
Chemical companies focusing on lubricants, polymers, and surfactants can explore diversifying their product portfolio based on bio based products. The biggest advantage with such diversification is that companies not only continue to serve their core businesses but also significantly lower their portfolio risk and their carbon footprint.
 
Bio-lubricants
Petroleum based lubricants have been leading the industry since decades. However, these do not readily degrade and, therefore, pose an environmental hazard. Once used, their disposal becomes a challenge, the cost of properly disposing such material is high and improper disposal can create several health and environmental hazards. This presents a strong incentive to produce lubricants which are bio-degradable.
 
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Bio-lubricants are produced from natural oils and fats. Currently, lubricants market is estimated at 38 million tonne (mt) out of which biolubricants account for approximately 3% share (1.2 mt). Conservative estimates reveal that the global lubricant market is expected to reach approximately 45 mt by 2020 out of which bio-lubricant will account for about 9% (4 mt) of the market. Some companies have already spotted this opportunity and working towards building a bio-lubricant based product portfolio, for example Cargill has developed an electrical insulation fluid based fully on soybean oil.
 
Biopolymers
Like bio-lubricants, biopolymers are substituting traditional petrochemicals based polymers due to their better bio-degradability. The market for bio-polymers is in its infancy and estimated at approximately 1.3 mt globally in 2012 as compared to the global polymer demand of 180 mt. It is expected to grow at a rate of 40% annually to reach about 20 mt by 2020 accounting for 7% of the global polymer market.
 
This rapid penetration of biopolymers offers growth opportunity for companies. MNC’s such as BASF, Solvay, DuPont, DSM and Lanxess as well as few small companies like EarthSoul and Harita have spotted this opportunity and are working towards building polymers based on vegetable oils or various cellulosic materials.
 
New age surfactants
Methyl ether sulfonate (MES) is a bio chemical based substitute for linear alkyl benzene sulfonate (LABS). Till now, the development of MES has been hindered by the lack of installed production capacity but interest in this space is becoming more intense due to benefits of MES, which scores better than LABS on multiple counts. MES has excellent characteristics such as high purity and active level, and is devoid of any volatile organic compound (VOC). It is also gentle on the skin, has low percent of di-salt, is white/near white in colour, and is suitable for both liquid and powder detergents.
 
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In 2011, Jiangsu Haiqing Biotechnology setup a 100,000 tonnes per year MES plant in China which is the largest plant of MES to go on stream. Going ahead, such activities are further expected to drive growth of MES and it will potentially start replacing LABS at a rapid pace. The current LABS global market is estimated at about 3 mt and MES constitutes less than 1% of the same. It is expected that by 2020 MES will replace one third of LABS demand to reach 1.2 mt.
 
Solving the green puzzle

Companies can take following steps to meet the challenges: 

• Shift to biodiesel: Biodiesel (methyl esters of various chain lengths) is one of the uses of bio based chemicals. Any change in government regulations and blending norms for biodiesel can significantly impact economics of bio based products. Increased requirement from biodiesel could push prices of oils higher thereby making them less attractive vis-à-vis petroleum feedstocks. However, this risk is largely mitigated due to a significant shift worldwide towards shale gas as the new and economically viable energy source. 
• Feedstock availability: Continuous availability of feedstocks is a concern which remains at the top of the mind of companies operating in bio based chemicals. Historically, about 12% to 14% of the world’s vegetable oil production has been used for bio based chemicals production. The emerging applications discussed above would require an additional approximately 8 mt of vegetable oil by 2020. Estimates show that this can be met with the increasing global vegetable oil production which is projected to increase from 150 mt in 2012 to 185 mt by 2020.

 
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Besides the above, companies are fast realising that there are other geographies around the world which offer climatic conditions suitable for palm oil plantations. Sierra Leone and Liberia form a major part of what is called the new frontier for palm oil production in West Africa. For example, Golden Veroleum plans to invest up to $1.6 billion in Sierra Leone and is eyeing over half a million hectares of land for palm plantations.
 
Way ahead
Bio based chemicals offer a significant diversification opportunity for chemical companies. Asia is the preferred geography with a growing market and availability of feedstock. To capitalise on this opportunity, companies can explore partnerships/mergers with other companies which are integrated in related feedstocks or think about integrating forward/backward themselves. Going further, companies can also plan to establish their footprint in new geographies which could provide them a first mover advantage and position them as a strong integrated player.
 
Industries such as lubricants, polymers and surfactants are likely to be impacted with replacement products based on bio based chemicals and companies which capture major portion of the value chain or spot trends early could benefit significantly in the long run.
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Manish Panchal is the Practice Head – Chemicals, Energy and Supply Chain at Tata Strategic Management Group (TSMG), a management consulting firm
Charu Kapoor is the Engagement Manager – Chemicals in TSMG
Binay Agrawal is the Project Leader – Chemicals at TSMG