Best stock to invest in – American Refining Group Joins Amyris And Cosan In Renewable Base Oil JV



Best stock to invest in

Jim Lane
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IIn California, American Refining Group has committed to a 33.3%
equity investment into Novvi , a joint venture of Amyris (AMRS)
and Cosan (CZZ).
Both Amyris and Cosan will continue to hold share ownership stakes
in Novvi, together with ARG.

It’s not a tiny market by any means.

The global markets for base oils and lubricants, are expected to
reach $42 billion and $70 billion in size, respectively, by 2020,
according to Amyris.

For ARG: Why Novvi, why now?

Think novel performance. It goes in two directions. First,
there’s low-carbon performance — customers want sustainable
solutions. Then, there’s product performance — customers are
looking for increased durability in high-performance base stocks
and lubricants. The new partners said that “a novel,
performance-based, technology platform that couples
segment-specific, top-tier performance with sustainable, bio-based
feedstocks delivers against the needs of the industry today and in
the future.”

For Amyris: why ARG, why now?

“This agreement is the first of several we expect this year where
we are divesting from non-core marketing activity,” said Amyris
CEO John Melo, “while remaining key technology developers and
producers of high performance chemistry.”

Getting off a high-carbon product lifestyle

Those who follow consumer brand trends or discussions thereof, of
who have run the Paris Climate Agreement numbers on a hand
calculator, can tell you that carbon transition may be slow, it
may be incremental, but it is coming and there is no turning back.
The questions in low-carbon transition, today, are of speed,
method, and which sectors go first.


Two options, generally. One is a mandate-led transition, like
light bulbs, power and road fuels. The other is a brand-led
transition, as happens with plastics, jet fuels and clothing.
Amyris’ No Compromise branding encourage transitions not yet
subject to mandates for high-margin, smaller-volume markets like
flavors, fragrances nd lubricants.

Why No Compromise, instead of Less Carbon? Take, for example, a
transition many are familiar with from the health space, reducing
sugars out of a diet. Doesn’t change the need for finished foods
for which sugar is a key ingredient. We might try the low-caloric
sugars, such as Splenda or Equal. Generally, performance is
incredibly important to us, and we’d like to get the same
performance at the same price. But sweet must be sweet. Which is
to say, the first step is performance.

It would be very intriguing to see branding that communicates hard
targets on carbon transition — as well as they communicate
performance targets through messaging like “No Compormise”. In the
fuels sector, we’ve seen the emergence of the below50
brand, that communicates a hard target of 50 percent carbon
reduction.

These are branding strategies that will drive faster transition
and better results for the companies in the nearer term. If
consumers opt for “higher carbon reduction numbers” like they opt
for higher-performance sunscreen (see our chart below, on how
higher SPF sunscreens are growing much faster than the low-SPFs) —
why, that intensifies the speed of the carbon transition.

What does ARG do?

American Refining Group converts hydrocarbon feedstocks into
high-quality waxes, lubricant base oils, gasoline and fuels, and
specialty products.ARG’s Bradford, Pennsylvania refinery, founded
in 1881, is the oldest continuously operating refinery in North
America.  Base oils are blended with additives to make the
engine oils and lubricants sold on the market today.

More on ARG here.

Reaction from the partners

“Our launch of Novvi’s synthetic base oils has been embraced by
manufacturers in a range of top-tier lubricant segments, across
both automotive and industrial applications,” stated Jeff Brown,
Novvi LLC’s CEO. “Our partnership with American Refining Group
will help accelerate our growth by providing the necessary
resources to ensure manufacturing, supply, and delivery
capabilities to scale our business for volume and to meet customer
expectations.”

“ARG’s Bradford refinery was built on innovation and market
leadership in 1881, and this is an opportunity for ARG to lead the
market once again — this time with a renewable product,” stated
ARG CEO Tim Brown.  “The potential benefits cut across our
base oil, finished lubricants, solvents, and drilling fluids
businesses.”

Comments from industry observers

“Renewable oils offer customization of specs and performance that
differentiate them from conventionally produced oils,” said Pavel
Molchanov, senior vice president and equity research analyst at
Raymond James. “A renewable oil that competes on performance and
price is well positioned for the multibillion dollar lubricant and
base oils market.”

“If a company could make the same quality PAO with a different
feedstock, they could dramatically change the market. Customers
would run to them,” said Joe Rousmaniere, director of business
development at Chemlube International.

The Novvi backstory

Last summer we reported that Novvi
unveiled two new 100 percent renewable base oil products, a
100 percent renewable polyalphaolefin (PAO) Group IV and a 100
percent renewable version of its NovaSpec Group III+ base oil.
Both will be manufactured at the company’s production facility in
Houston. Specifically, according to Transparency Market Research,
Group IV & V Lubricants (PAO, PAG and Esters) Market – Global
Industry Analysis, Size, Share, Trends and Forecast, 2012 – 2018,”
the Group IV & V lubricants demand was 624.6 kilo tons in 2011
and is expected to reach 752.9 kilo tons in 2018, growing at a
CAGR of 2.76% from 2013 to 2018.

Novvi’s 100 percent renewable PAO is a clean, direct replacement
for conventional Group IV PAO base oils derived from petroleum and
natural gas.

Who’s the customer?

“We work with customer-facing strategic partners in both, the
base oil business and the finished lubricant side,” Novvi CEO Jeff
Brown told The DIgest. “We’re doing the manufacturing now but we
have a variety of partnership structures with customers, and we
will scale production through strategic industry partnerships.”

More about Novvi

The Digest’s 8-Slide Guide to Novvi is here.

Jim Lane is editor and
publisher  of 
Biofuels Digest where this
article

was originally published.
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