Best stock to invest in – KiOR: The Inside Story Of A Company Gone Wrong



Best stock to invest in

Jim Lane

Not long ago, KiOR quietly

re-named itself Inaeris Technologies and launched a
modest website
which discussed the technology and management
in little detail, but focused to an extraordinary extent on a
declaration of values.

Empowerment, honesty, fairness, “lessons learned from our
collective experience” and so on. Warm, kindly Hallmark Card
sentiments, universally popular, admired and vague.

Not the bold, We-Are-Black-Swans, detailed descriptions of
yields, costs, downstream partners, brand-name board members and
timelines to commercial scale that had been the style of the Old
KiOR.

Old KiOR was exciting, dramatic, and fast, and the headlines it
produced between 2008 and 2011 were candy for a renewables-hungry
world.


A Breakthrough in Catalytic Pyrolysis to make
cost-competitive, drop-in renewable fuels. A “Magic Catalyst”.
The backing of a celebrity investor in Vinod Khosla. An
impending venture with Chevron and Weyerhaeuser. A star-studded
board featuring former Secretary of State Condoleezza Rice. A
massive loan from Mississippi. A celebrated IPO. Reports of high
yields. Construction at full-scale. 13 million gallons to start,
multiple projects on the way.

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A slide presented by KiOR in 2013,
prior to the bankruptcy filing.

And then the shortfalls started. KiOR fell further and further
behind on its production goals throughout 2013, and ran out of
cash and tumbled into bankruptcy in 2014. Ultimately, the state of
Mississippi filed a lawsuit alleging that the KiOR technology
hadn’t been ready for scale, its management knew that fact, that
the company had faked technical data, and overstated commercial
progress to lenders to secure financial support.

Scandal erupts

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Paul O’Connor

That there was a turbulent KiOR story to be uncovered was of
little doubt. In late 2014, The Digest published a string
of correspondence from co-founder Paul O’Connor to the KiOR board,
alleging a wide range of scientific mis-steps and warnings
unheeded on the technology’s viability.

In part, O’Connor wrote:

“It is obvious for all of us
today that KiOR is going through some difficult times, and may
even not survive as a company. The reason for this, in my
opinion, is not because of the failure of the technology itself,
but because of several wrong choices made during the development
and commercialization of the technology. Over the years there
have been several warning signals (internal & external), one
of which as I mentioned in the foregoing has been my own
technology audit report in March/April of 2011. Notwithstanding
these warnings KiOR’s MT continued on their set course. In mean
time everyone else hoped for the best.

“The real proof-of-the-pudding
however would be a successful start-up and operation of Columbus
in 2013…[but] it became clear however that the product yields
were in fact much lower than projected [**], while the on-stream
times were also way too low [**]….My observation was that the
low yields and on-stream times at Columbus were reasonably in
line with the results and experience in the DEMO plant in
Houston. This means that the main problems at Columbus are
already discernible in the DEMO operations and are therefore
structural and not “just” operational issues.

“I am of the opinion that KiOR’s
[management team] professionally has not performed in evolving
the KiOR technology to a commercial success; furthermore the MT
in my opinion has not provided the board of directors of KiOR
with the adequate, right and relevant information to do their
job. I therefore am of the opinion that the MT needs to resign
and to be replaced in order to improve the chances of success of
KiOR and/or any other potential new ventures based on KiOR
technology in the future.

The

complete O’Connor resignation letter is here.

And a friend wrote to The Digest during this period,
stating:

There might be more to the Kior
bankruptcy…..seems the equity player/majority shareholder was
stripping the cash, there might have been some issues shall I
say with Mississippi development authority and if I were a
betting man I’d say that both sides are examining the validity
of the reps and warranties in their agreements.

In Fall 2014, I received a note from Paul O’Connor, proposing a
presentation for ABLC 2015 entitled “Biomass conversion: On
learning from past mistakes” (= Is there life after KiOR?)”
.

Was I interested? O’Connor wanted to know. You bet I was. We
discussed it by email and subsequently in person on Key Biscayne
in February 2015. But lawyers intervened and the presentation
never materialized.

By then, O’Connor was traveling with Alex Major, best known for
his “Can We Still Fly Jets & Save the Planet?” presentation
given at a number of industry conferences. Major had a plan to
acquire the on-site assets at Columbus and produce jet fuel and
green power. In mid-February, Major wrote:

The KiOR legal case is a complete bag of worms that
if John Grisham got a hold of it would make a fabulous legal
thriller and an interesting movie!! Regardless of whether Paul
is going to speak or not, I would like to attend the ABLC.
Hopefully we will have a chance to chat over a tea or a glass of
wine at some point so that we can discuss the KiOR lawsuit.

And then, the Freak Show

For others, the freak flags were flying.

In a Motion filed in the United States Bankruptcy Court for the
District of Delaware on February 12th, Robert C. Dalton, CTO for
ESTEC Technology Works objected to a motion by Mississippi
Development Authority to convert KiOR’s Chapter 11 re-organization
to a Chapter 7 dissolution. ESTEC had made an offer for KiOR’s
assets.

In part, Dalton wrote:

The Grand Wizard of Magic
Catalysts, Robert C. Dalton and his “Magic Kingdom”, ESTEC
Technology Works LLC, are in possession of a collection of
volumes of secret books that contain spells (formulation of
materials and processes) for energy applications, chemical
synthesis, environmental applications, food processing and
biotechnology as well as now [sic] search for Daltonite, a
quasi-mineral, that is in our Solar Systems and most likely is
found throughout the Galaxy.

ESTEC Technology Works, LLC will
soon be announcing the formation of their new “Solar Systems
Exploration Division Incorporated” and ESTEC/Dalton will be
searching areas at, near or around Mars, Neptune and Jupiter to
locate one or more facilities to search for Daltonite and to
develop and launch technology to supply energy, oxygen, habitat
and infrastructure for the expansion of the reach of humans and
their colonization beyond Earth and Low Earth Orbit”.

Now the story can be told

For two years, the KiOR story been one part circus, one part
asset grab, and one part “What the heck happened”? But now the
smoke is clearing.

Looking towards the future, Inaeris Technologies is the emerging
remnant, described by its President Chris Artzer as, in essence, a
Series A venture-backed company, at pilot stage, aiming to
demonstrate the technology it believes will be robust and which it
aims to demonstrate in time. In the case of Inaeris, as Artzer
adds, it has the benefit of being at pilot stage but having
produced a million gallons of in-spec, drop-in renewable fuels.

What of the past? Since last winter, we have visited with
multiple parties intimately familiar with KiOR’s science and
commercial progress dating back to its formation, and we have
reviewed dozens of documents relating to technology development,
yields, and commercial claims from 2007 — that tell the true story
of KiOR.

The pressing question is, exactly how and why did the yields and
costs promised in the IPO, 67 gallons per ton of biomass with an
eventual target of 90 and at a cost of $1.80 per gallon, fail to
be realized in the first commercial plant at Columbus?

The road to the 67 gallons per ton claim

In 2006, renewables were in the air.

In mid-June, VeraSun
Energy
went public selling 18.25 million shares at $23 per,
raising $425 million. Shares of the already-public Pacific Ethanol
(PEIX)
doubled by late spring, despite the company not opening its first
plant until the end of the year. Hawkeye and Aventine went public
at sky-high prices. Congress was planning a vastly expanded
Renewable Fuel Standard.

By late June, Khosla Ventures entered into biofuels in a big way,
forming a venture called Cilion to operate modular 55 million
gallon ethanol plants, aiming to build 8 by 2008, the first three
in California.

Several months prior, in the Netherlands, Paul O’Connor had taken
note of the trends as well. He had been serving as a Business
Development Manager at Albemarle Catalysts after Albemarle bought
the catalyst business from AkzoNobel. This, on top of 20 years at
Akzo, culminating in work as the worldwide development manager for
FCC catalysts.

The key here is the FCC unit — a fluidized catalytic cracker.
It’s a standard unit at more than 400 oil refineries worldwide;
one-third of the world’s crude oil is processed in a FCC reactor.

The use of synthetic zeolites and their modified forms, as FCC
and hydrocracking catalysts, has revolutionized the petroleum
refining business. The use of zeolite-based FCC catalysts has made
possible to achieve substantially higher conversion yields of
gasoline and diesel fuel from each barrel of crude oil refined.

As Wikipedia explains:

Fluid catalytic cracking is widely
used to convert the high-boiling, high-molecular weight
hydrocarbon fractions of petroleum crude oils to more valuable
gasoline, olefinic gases, and other products. Oil refineries use
fluid catalytic cracking to correct the imbalance between the
market demand for gasoline and the excess of heavy, high boiling
range products resulting from the distillation of crude oil.

With the popularity of biomass-related ventures in 2006, the
question had become, as former KiOR process engineer Lorenz Bauer
explained to The Digest, “Could you send [biomass] up real
fast with a catalyst into a FCC reactor?” But he adds, “Anyone who
thinks it’s simple is kidding.”

There were five basic scientific questions.

1. Could the biomass be sufficiently pretreated, and how, to
become FCC-compatible?

2. Could a catalyst be designed to work with biomass and achieve
similar results to catalysts working on petroleum hydrocarbons?

3. What would the reactor look like?

4. Would any resulting bio-oil contain too much oxygen to be
refined into a fuel using standard refinery equipment?

5. Could all of the above be achieved by a design that was
economical?

What was the goal of the process and the catalysts, anyway?

Simply put, the chosen route was catalytic pyrolysis. In this
approach, the goal is to crack the biomass molecules arriving at
the front end of the reactor (composed of hydrogen, carbon and
oxygen) under the right combination of pressure and temperature.
To give an everyday example, cooking food is a high-temperature,
ambient pressure form of pyrolysis.

Using sufficiently active, selective and robust catalysts, the
hope is to produce at the end of the reaction a high yield of
hydrocarbons that can be upgraded into transportation fuels.

Here’s the good and bad news. Good? Biomass pyrolysis has been
known for a long time to produce gas, coke, char and some bio-oil.
Bad? As of 2007 — however, not enough oil, and of insufficient
quality to be economically upgraded into transport fuel.

The purpose of KiOR’s technology was to shift the balance
radically towards bio-oil and away from gas, coke and char, and to
bring down the levels of oxygen in the bio-oil.

The state of Mississippi summarized the goals in their lawsuit:

Pyrolysis oil retains
approximately the same amount of oxygen content as the biomass
used to create it. This amount is typically in the 40-45% range,
which is far too high to be refined within the existing
infrastructure of today’s oil refineries. The primary and
essential goal of KiOR’s catalytic process was to reduce the
oxygen and acid content of its biocrude to a level that could be
successfully refined by oil companies in their existing
infrastructure, while still maintaining biocrude yields that
were high enough to render the Company profitable.

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The KiOR process, from a industry
presentation in 2013.

The formation of BioECON

To explore the use of biomass in a FCC reactor, among other
concepts, Paul O’Connor founded BIOeCON BV in the Netherlands and
Dutch Antilles. O’Connor was President and Technical Director,
Armand Rosheuvel was Financial Director, Rob van der Meij was
Commercial Development Director, and scientist Dennis Stamires was
retained as Scientific Advisor and Consultant.

It was a world-class team. Stamires had been conducting R&D
work in the area of Heterogeneous Catalysis using natural,
synthetic and modified forms of Clays and Zeolites since 1955. He
was a member of the team working at Linde, a division of Union
Carbide, which in 1960 first announced these mind-bending zeolite
catalysts at the International Congress of Catalysis in Paris. And
O’Connor was already working at AKZO NOBEL’s Catalyst Division on
a project involving the conversion of Biomass to liquid
transportation fuels, using a Hydrothermal process and a synthetic
clay (Hydrotalcite) type catalyst. Stamires and O’Connor had
worked closely together at what had become Albemarle.

Their cooperation resulted in several new inventions; one focused
on new anonic clay catalysts for use in the transformation of
biomass to Bio-oil, as filed with the US Patent Office in April
2005, as “Process for Producing Liquid Hydrocarbons from Biomass”.

In the end, sources told The Digest that Rosheuvel
arranged for the original funds to operate the Company, which were
reported in Harvard Business Review in 2009 to have
totaled €1 million.

A modified FCC reactor design and a catalyst suitable to biomass
— these were the primary needs.

Too much oxygen, too much coke

Here was the good news. Researchers such Dr. Iacovos Vasalos and
Dr. Angelos Lappas at CPERI in Greece had shown that catalytically
inert inorganic materials, such as sand and refractory alumina,
could deliver the amount of heat needed to pyrolyze biomass.

But most catalysts had a biomass flaw, we learned from experts.
The bio-oil they produced was very acidic, corrosive and unstable.
That is, too much oxygen. Hydrocarbon fuels don’t have any Os, and
the presence of excessive oxygen can compromise fuel stability and
engine performance.

Some catalysts could produce bio-oils which contained much less
oxygen. They were in the right range on acid and stability. But
there was too much darn gas and coke, scientists told The
Digest
— when it comes to making fuels, coke is not it.
Coke isn’t worth much, and neither is gas. The solids and gases
had to be minimized.

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So too did the costs. The better catalysts are cost whales. As
much as $6-$8,000 per metric ton for ZSM-5 catalysts. An average
FCC catalyst would cost close to $2,000 to $3,000 per metric ton.

But there was an opportunity. Why not use the same anionic Clays
(known as HTCs) which are effective in removing Sulphur containing
molecules from gaseous streams and liquid Hydrocarbons? They might
be also effective in removing oxygen from the bio-oils.

The fatal flaw would only turn up later. Experts told The
Digest
that combining de-oxygenation and pyrolysis in the
same reactor just doesn’t work well enough. They would need to be
done separately to eliminate the oxygen without producing too much
gas and coke. But that would not be uncovered until 2010.

ITQ is retained

One of the new ideas to be explored involved bringing a catalyst
or simple chemicals like an acid, base or a salt into close
contact, or inserting such chemicals inside the biomass particles,
for the purpose of lowering the liquefaction temperature and
increasing catalytic activity/selectivity.

To explore that concept, the Instituto de Technologia Quimica
(ITQ) of Univesidad Politecnica de Valencia in Spain was
contracted to conduct experimental work.

Khosla Ventures enters the picture

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Vinod Khosla

BIOeCON needed additional funds to operate and to support the
outside contractual R&D work, and was also looking to find
investors. Alex Stamires, who was working with Khosla Ventures on
an unrelated project and whose father was consulting for BIOeCON,
contacted Khosla executive assistant Cyndi Jung in the first week
of October 2006. Jung managed the “catch-all” email inbox for
venture ideas and was a logical first stopping point for making an
introduction. Calls followed, and a write-up summary of BIOeCON‘s
background and business interests, a telephone pitch, an in-person
meeting, and several months of due diligence.

“The due diligence was no small thing,” O’Connor told Harvard
Business Review
. “They hired four specialists to look at our
technology, and this went on in a very intensive way for three or
four months. In the end, their conclusion was that it was very
interesting but at an early stage. We needed to do a pilot.”

Khosla Ventures offered a term sheet in the second half of 2007;
an agreement was reached to form a joint venture, KiOR, which was
incorporated in Delaware on Nov. 1, 2007. It received a Series A
investment which totaled $1.436M on November 15, 2007 and $2.916M
on July 14, 2008. A Series A-1 investment of $9.999 million was
also made in July 2008. All investments were made by Khosla
Ventures II, LP.

Rob van der Meij was appointed President and CEO, and Paul
O’Connor became CTO and was a KiOR Board member.

The end of the honeymoon, and a change of CEO

The honeymoon ended almost immediately. It was clear that the
newly-minted KiOR would be moving to America. Khosla’s request to
the company was to hire talented, highly experienced and creative
technical personnel, and the US bench was the deepest. But, where?

Strong disagreements ensued. At first, the company set up shop
temporarily in Houston. The company consisted of Rob van der Meij
(President and CEO), Paul O’Connor (CTO and KiOR Board member),
Jacques De Deken (Director), Hans Heinerman (Director), Robert
Bartek (Applications Manager), Steve Yanik and Mike Brady. Dennis
Stamires was appointed Senior Fellow Scientist, on a consulting
contract.

Denver and Houston were the Headquarters finalists. The
pro-Denver contingent preferred to be close to the National
Renewable Energy Laboratory in Golden, the University of Colorado
and the Colorado School of Mines. It was an area, where, as one
member of the team put it, “a lot of highly educated persons were
living. R&D work was going on at NREL on renewable fuels and
the NREL management had expressed interest in collaborating with
KiOR.” Papers putting the case for Denver were circulated amongst
management on March 19, 2008 and June 1, 2008.

So, why was Houston chosen?

Ultimately, three factors came into play. One, the company was
already there. Second, Houston afforded access to expertise in
catalysts and in FCC unit development and operation.

The third Houston advantage was more problematic but ultimately
decisive. By April 2008, in the April/May 2008 period, arguments
and disagreements emerged between Rob Van der Meij and Paul
O’Connor. The issue regarded, as one person familiar with the
problems remembered it,“ primarily, Van der Meij’s style of
management and the direction KiOR was going.” Not long afterwards,
Samir Kaul, representing Khosla Ventures on the KiOR board, was
called in, and ultimately Rob van der Meij departed in May.

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Fred Cannon

Among the candidates to replace van der Meij was Fred Cannon, an
executive formerly the head of AkzoNobel’s (and later Albemarle’s)
catalyst business. He had worked with O’Connor in the past. As the
Harvard Business Review outlined:

O’Connor had a hunch that the still-nascent technology to convert
Biomass into Liquid Fuels (BTL) would make significant advances
over the next decade. “In 2004, BTL was still virgin territory in
terms of patents and processes,” recalled O’Connor. “I believed
that if we went into this now, we would be leaders.” O’Connor took
his idea to Fred Cannon, then Houston-based vice president for
Albemarle’s Alternative Fuels division. Cannon was excited by this
idea, and the two presented it to the president of Albemarle.
However, the president declined to invest in BTL.

Cannon had a successful interview with Khosla and was hired as
the new President of KiOR in June 2008. Management then decided to
locate the KiOR lab and office facilities in Houston where Cannon
was living.

KiOR consultant Dennis Stamires remembered:

“By locating in Houston, there
was a very limited number of qualified technical personnel with
the type of expertise needed by KiOR available to be hired, or
willing to move to Houston to work for KiOR. Therefore, a lot
personnel was hired who had no experience in the area of KiOR’s
business or qualified for the job. Some were friends or
ex-colleagues to Cannon and O’Connor.”

“Not even close to what other people had done”

Just as the company was experiencing its spring 2008 management
crisis, the results began to come in from the lab work in
Valencia. The results were disappointing.

The pyrolysis testing results of the pretreated biomass samples
were based on what has been described as “expensive catalyst (an
inorganic synthetic material, and a proprietary to BIOeCON).”

Among the problems? ITQ’s data showed excessive amounts of water,
coke, gas and char and a relatively small amount of bio-oil that
had a low acidity. But there was more. KiOR technical personnel
began to voice concerns about scaling up the process, and extra
costs in removing the impregnated metals on the biomass, and
associated environmental problems/costs to dispose waste
byproducts, and contaminated water.

ITQ Valencia was reporting:

51% liquids — in all, 21.8% water and 29% organic liquids — 21%
gas and 27% coke and char.

Results at this level are discouraging, scientists told The
Digest
, because of the high char, the high coke levels.
Also, the oil content was low. The water content was described as
“very high”, and in all, the results did not indicate “an economic
process, and not even close to what other people had done.”
Moreover, the organic liquids were expected to contain high oxygen
levels, so that the actual fuel content would be much lower.

“A Recipe for Technical Failure”

In the summer of 2008, Dr. Jacques De Deken, a Technology
Director, who had flagged the problem of the bad ITQ results to
key scientific team members, raised a red flag to management. He
indicated his view that the KiOR BCC Technology was not on track
to produce at commercially viable qualities or yields, and that
KiOR must make a drastic change both of the process and the
catalyst.

According to sources familiar with the company’s activities at
the time, Cannon and O’Connor agreed to discount De Deken’s
findings, and reject his recommendation to change the process and
the catalyst.

There are two versions of De Deken’s departure from KiOR. In the
state of Mississippi’s lawsuit against KiOR, the state contends
that De Deken was a KiOR consultant, who resigned from the Company
in September 2008. The state contends that “Vinod Khosla discussed
with De Deken the reasons for his departure and requested that De
Deken provide a written memorandum…Khosla forwarded DeDeken’s
critique to Cannon on October 13, 2008.”

However, the letter of resignation has subsequently come to
light. In fact, De Deken was a KiOR employee rather than a
consultant, and his last day in the office was August 11, 2008. On
that day, De Deken provided directly to O’Connor and Cannon a
detail of his objections. In part, scientific. But in another
aspect, cultural.

“I was hired by KiOR as its Director of Technology,” De Deken
wrote, “with the understanding of being responsible for all of
KiOR’s process development and engineering activities.” De Deken
protested that after 5 months of employment, “KiOR is in breach of
our agreement”.

He stated that “the strategy in rushing towards demonstrating the
BCC technology at a multi-barrel-per-day scale without
corroborating experimental data, under the pretense of
self-deception of ‘creating value’, is a recipe for technical
failure. Indeed, I do not believe that we currently have the
experimental results, catalyst(s) or science base to justify the
rush and expense of an LPBCC unit or demonstration in the Ivanhoe
facility at this time.”

Culture Clash

But De Deken was not finished. He aimed his next comment squarely
at the management culture of KiOR.

“What is even more worrisome is
that genuine efforts to establish a dialog about relevant
technical issues have been met with systematic attempts to
downplay or dismiss virtually every issue as soon as it is
brought up. Clearly, the creation of lasting value is not
possible without also developing credible, sound and robust
technology. KiOR’s obvious lack of commitment to building a
strong and much-needed R&D effort to make this possible is a
further indication that KiOR is not really serious about
developing successful technology.”

Sources familiar with the company’s operations and internal
communications have confirmed to The Digest that although
the company did not disclose internally the reasons for De Deken’s
resignation, “most persons involved knew the real reasons, since
Jacques was also strongly objecting the plans under discussion at
that time, to use the same BCC Technology as described in the ITQ
report, at the FCC Pilot Plant of KBR Corporation in Houston, as
he was expecting it to be a waste of monies and valuable time of
KiOR.”

The move to the KBR pilot plant for testing

One reason why De Deken’s resignation came at a difficult moment
was that he was closely involved in negotiating and making all the
technical arrangements to test the BCC Technology at pilot scale,
and the company had expected to start the testing in mid-September
2008. As the state of Mississippi summarized in its lawsuit:

The first technical step to
commercializing the technology would be to develop a pilot
project, for which KiOR needed a suitable laboratory space. The
pilot scale unit would produce several liters of biocrude a day,
less than a barrel. A second step, which would need to follow
quickly on the first, was the development of a smaller,
laboratory-scale unit, producing in one employee’s words “a few
cubic centimeters per run, with many runs a day that will allow
us to look at a lot of variables” in terms of feedstocks,
catalysts, and pretreatment techniques. This unit would
pre-screen catalysts and feedstocks before these entered the
pilot lab in larger quantities. Once the pilot unit was up and
running, KiOR would move toward the development of a
demonstration project, producing between 10 and 100 barrels of
biocrude per day.

KBR, a major oil refining engineering concern, maintained a FCC
pilot unit that was located very close to KiOR’s offices in
Houston, and their unit was selected for KiOR process and catalyst
testing, scheduled for September 2008.

A crisis of design

By this stage, and independent of any testing that would take
place with the KBR-designed pilot unit, a quiet war of ideas had
erupted within KiOR regarding the design of KiOR’s reactor.
Specifically, hope was fading among technical staff and
consultants that a “one-pot reactor” would work as originally
hoped.

A fundamental concept that Paul O’Connor and Dennis Stamires
formed was combining the two reactions of pyrolysis and catalysis
in one reactor, occurring simultaneously. Consolidated
bioprocessing had been described as “the Holy Grail of biofuels”
by Dartmouth’s Lee Lynd, and “one-pot reactors” were very much in
vogue at the time.

On the fermentation side, companies like Mascoma and Qteros were
developing bugs that could accomplish extract sugars from
cellulose and ferment them, simultaneously.

It was rare but not unheard of. Combining pyrolysis and catalysis
had been explored as early as 1998 by a research team led by
Vasalos and reported in the Journal of Applied Catalysis,
where a typical FCC Pilot Plant and a commercial FCC catalyst was
used.

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Proving the soundness of the
technology was critical to KiOR’s pathway to success.

Needed: a new catalyst and heat-transfer material

The BIOeCON concept, which became the proposed KiOR reactor
technology, was to employ a new (non-FCC Catalyst), a synthetic
inorganic clay-like material, which exhibited certain
deoxygenating activity for producing low oxygen-containing
Bio-oils. The regular FCC Catalyst used by Vasalos was used widely
in oil refineries to crack petroleum feedstocks to light
hydrocarbons and make gasoline. But the regular FCC catalyst would
leave too much oxygen in the bio-oil, making it unsuitable for
upgrading.

The material in question? Hydrotalcite, or HTC.

It was an anionic synthetic clay of the mineral class of
double-layered hydroxides. Both O’Connor and Stamires had, and in
many cases, together with Prof. William Jones from Cambridge
University in UK, and with many others at AKZO NOBEL and
subsequently at Albemarle, done extensive R&D work using LDHs
as catalysts or sorbents in several types of oils upgrading and
conversion, and commercial oil refining and upgrading
applications.

Here was the weakness of the concept, which would turn up in
testing.

“By combining in one-pot reactor these two distinctly different
reactions,” Stamires would later recall, “the thermolysis (a heat
transfer/physical reaction) with the deoxygenation/decarboxylation
(a chemical reaction), the efficiencies and selectivities of both
reactions would be highly compromised and distorted. It produced
more water, gases, coke and char.”

As Stamires would tell The Digest:

“To achieve a high efficiency
liquefaction of biomass, these small particles must receive a
high heat flux in a short time, following with a quick efficient
quenching of the Bio-oil vapors. To accomplish this, we needed
to use a material which has a high heat capacity and also high
heat transferring properties, a good heat conductor. As was
ascertained later on, the anionic type of clays, such as the
Hydrotalcite, has a very low heat capacity and heat conducting
properties. That’s because of its highly porous crystal
structure, and low bulk density.”

From the start, then, hydrotalcite was the wrong material to use,
The Digest was told.

But testing would turn up another problem. Hydrotalcite is a very
active catalyst, used primarily for promoting oil gasification
type reactions; the surface gets quickly coated with heavy tar
like carbonaceous materials, which further reduce its heat
conducting properties when present in a one-pot biomass
liquefaction reactor.

But that wasn’t all.

Hydrotalcite was found to have a very high gasification catalytic
activity and very efficiently converted most of the biomass oxygen
and carbon to carbon monoxide and carbon dioxide gases, and water.
Leaving only a small portion of the biomass carbon and hydrogen to
form liquid hydrocarbon bio-oils. So, yields with HTC were doomed
to be low — in addition to the tarring problem and the heat
conduction issue.

A new material is developed

The KiOR R&D team, though stymied by the troubles with HTC,
developed a novel theory that the HTC material might be modified
to address these shortcomings.

Stamires, working with KiOR R&D manager Mike Brady, a
catalyst technology expert, asked CPERI chief Dr. Lappas to
calcine (or heat treat) to at high temperature a sample of HTC,
for sufficient time to completely destroy the crystalline
structure and porosity.

Stamires recalls:

“This high temperature treatment
transformed the original crystalline Hydrotalcite to a new
material of the Spinel class, which exhibited very low pore
volume and surface area, high bulk density, and low catalytic
activity, and it was a totally different material to the
original Hydrotalcite. When tested in the KCR Pilot Plant, as a
heat transfer medium and also as a catalyst for biomass
liquefaction to produce Bio-oil, this new material having the
Spinel crystal structure, produced much more Bio-oil, with a
reasonable low oxygen content, than it’s precursor Hydrotalcite.

“This material, with Spinel–like
structure, exhibiting bi-functional properties, specifically, as
a heat conductor and as a catalyst that proved to be a useful
material for use by itself or in combinations with other
materials in biomass thermo-liquefaction process.”

The switch to a two-pot reactor that didn’t happen

The R&D team were beginning to see a fatal problem emerging
with the one-pot design, in test results obtained at the ITQ
Valencia Lab, as well as later on by the tests done at KBR’s Pilot
Plant in Houston and subsequently at KiOR’s own KCR Pilot Plant.

The two distinct reactions taking place at the same time (i.e.,
the physical/Thermolysis and the
chemical/decarboxylation/cracking), as it turns out, require
individual customized process variables optimizations, and are
different for each reaction. So, there’s what one source familiar
with KiOR’s process described as “a gross compromise of the
individual efficiencies of these two different processes,
resulting in a very poor liquefaction and Bio-oil and Bio-oil
yield, while a substantial amount of carbon and hydrogen are
converted to carbon oxides and water.”

An inflection point

At this stage, these are lab discoveries. Certain results had
been disappointing. And, there was disappointment in the efficacy
of a single reactor to conduct both reactions simultaneously. It’s
not surprising given the novelty of running biomass through a FCC
reactor, modified or otherwise. Complicated physical and chemical
reactions are taking place simultaneously, with side and cross
reactions. It’s the nature of science to explore these puzzles and
solve problems.

It was a bleak but not fatal outlook. Better results were
obtained with a modified HTC. A new “Two-pot” system, having
individual reactors for thermolysis and for cracking, could have
been pursued aggressively at this inflection point. In fact,
Brady, Cordle, Stamires and Loezos filed a patent application on
such a KiOR technology, which was granted in 2012. More

on that here.

Prior to the IPO, these steps were not taken in a systematic way,
The Digest was told.

Starting up at the KBR Pilot Plant

A dispute erupted within the KiOR community in September 2008
over the testing program for the FCC Pilot Plant at the KBR
facility in Houston. Issues included the biomass feed, which
included the pretreated biomass feeds, catalysts and process
conditions.

Some emphatically stated that before any new materials be tested
under different process conditions, and with other process
variables, a systematic calibration of the equipment and
processing scheme should be first done to establish a reference
base-line.

“Especially since this FCC Pilot Plant had not be used before for
pyrolyzing biomass in the presence of a catalyst,” as one KiOR
staffer would recall later.

It was not a difficult test series to mount. Well known process
parameters were available from many similar tests and equipment
used before, and there was research papers published regarding
optimum process conditions for maximizing bio-oil yields, using
sand as a heat carrier, in the absence of a catalyst. Ensyn, for
example, had been using sand for years as a heat carrier in a
pyrolysis reaction.

The purpose? An equipment check and standardization test,
including the duplication of published similar test results, would
have given information to confirm that the equipment was working
as intended, and given a baseline of performance for this FCC
pilot unit, compared to pyrolyzing biomass in different reactor
designs, under same process conditions and with the same heat
transferring medium. In short, setting a starting point where the
impact of a new KiOR reactor design and a new catalyst could be
measured.

In a memo to staff dated September 18, 2008 and addressed to all
KiOR personnel, entitled ‘KBR Plan’, CTO Paul O’Connor objected
doing any calibration to establish a baseline, and the use of sand
in the KBR FCC Pilot Plant equipment, and requested to take out
from the 2008-09 Experimental plan the use of sand and equipment
calibration. The reasoning is not clear. Possibly the costs and
the timelines, based on KiOR’s timelines to scale and available
cash. Perhaps other factors.

For sure, by the first week of October 2008, the FCC Pilot Plant
at the KBR facility was ready to start testing KiOR’s BCC Process
and Technology. The pretreated biomass feed and the catalyst were
the same ones that were used in the tests performed at ITQ in
Valencia earlier that year. The same set-up that hd led to the
discouraging results were reported to KiOR the previous spring by
ITQ.

Funds run low

By Q4 2008, a staffer recalls that “available funds to operate
KiOR were practically depleted, and a considerable amount of the
available funds were consumed in R&D funding of the four Labs
conducting projects for KiOR’s business mission and objectives,
and this difficult situation became a serious concern and
aggravation to certain KiOR Managers.”

By this time, work was underway at ITQ (Valencia, Spain); Twenty
Universit (The Netherlands); CPERI (Greece); and KiOR’s own lab in
Houston.

And, the BCC one-pot reactor and the previous catalyst were not
discarded, either — work proceeded exclusively on these systems
“for over one more year,” according to one staffer, “while
delaying KiOR for another year in starting to develop a new
feasible Technology.”

An Internal War Rages

In October 2008, KiOR’s VP for Strategy, Andre Ditsch, “who also
was looking to raise funds urgently needed for KiOR to operate,”
as one observer put it, issued an internal challenge to the cost
and results associated with the work with the outside labs. Cost
was one issue, but usable information was another.

“Ditsch concluded that KiOR was not getting any useable and
valuable information from these four KiOR sponsored R&D
projects. Also it was holding back the KiOR R&D work from
being able to develop new technology that could have been able to
meet the KiOR business objective,” recalled Dennis Stamires.

In October 14th and October 18th emails to CEO Fred Cannon and
CTO Paul O’Connor, Ditsch questioned the value of sponsoring such
outside R&D work, and proposed to terminate all the three
outside contracts. As an alternative, he proposed to use the funds
to hire qualified technical personnel to do the work at KIOR’s own
laboratory facilities.

The result? In the short-term, discord and friction between
Ditsch and O’Connor, which staffers described as becoming more
serious and disruptive to KiOR’s business in the following months.

But Ditsch was far from alone in questioning the value of the
work. More than one year later, Robert Bartek, writing on Nov. 30,
2009, said “From my point of view, the value of the work done at
Valencia is essentially useless“. With the departure of Jacques De
Deken, Bartek had assumed the direct responsibility of Catalyst
Development and Pilot Plant testing work, reporting to the CTO.

However, the work was not stopped or fundamentally re-scoped, as
the timing of Bartek’s email outburst confirms. The reasons are
unclear.

Disastrous results from the FCC pilot test

With De Deken gone, the Pilot Plant testing work at KBR was
supervised by Peter Loezos and Robert Bartek, and testing started
the first week of October. The results of the tests were reported
on Nov. 20, 2008 by Peter Loezos in an email entitled ‘KBR Mass
Balances’.

“Overall, the oil yields in the KBR results were much lower than
those reported in the ITQ Report from the Valencia R&D group,”
a staffer recalled, “where they used in their tests the same
biomass and pretreated biomass, as well as the same catalyst.”

An analysis and report of the tests at KBR was issued on Nov. 20,
2008 by KiOR Science Director Dr. Conrad Zhang confirmed the low
yields in a report entitled ‘Summary of analytical results from
test results reported on November 3rd, 11th, and 14th. The yields
have been described as “never above 30 gallons per bone dry ton of
biomass” in terms of gallons per ton by those familiar with the
results.

The story continues

We’ll explore what happened with KiOR and those “never above 30
gallons’ yields, in the next part of our story, tomorrow.

Further reading

The

O’Connor resignation letter

The

March 15 2012 O’Connor email memo

The

March 22 2012 O’Connor technology assessment

The

April 21 2012 O’Connor technology assessment

The

April 30 2012 O’Connor memo

The

Spring 2013 O’Connor note

Jim Lane is editor and
publisher  of 
Biofuels Digest where this

article

was originally published.
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