The sugar platform for ethanol and beyond

At ~30 ¢/lb, current sugar market prices are at historic highs. It is hard to fully track the various reasons for a spike in prices, but these are, in general, most likely due to a mix of market fundamentals and speculative behavior. On one hand, some predictive metrics based on supply and demand have been proposed (e.g. the stocks to usage ratio seems to correlate with prices) while, on the other, speculation has been apparent in the past, one example being the commodity boom of mid-2008. Regardless of the validity of each viewpoint, the upward pressure is expected to accentuate in the next few years, for at least two reasons.

First, the changes in weather patterns predicted by climate experts have a strong effect on sugar production and thus on prices, as evidenced in 2009 by droughts in India and prolonged rains in Brazil. Unpredictable supply and the fear of shortages, in turn, will likely foster speculative attitudes towards sugar and other agricultural commodities (it will be interesting to see whether regulations, some which are currently being considered, will have any real impacts on curbing the effect of such attitudes).

Second, even as sugar continues to be used as a foodstuff and in the production of ethanol, other uses are expected to become more widespread, increasing the demand for the commodity. In particular, sugar can be used as a feedstock in the production of drop-in fuels by fermentation or chemical catalysis (deoxygenation), and as a feedstock for the production of renewable biocommodities. These include polyhydroxyalkanoates (PHAs) and lactic acid (for biodegradable plastics), succinic acid (a surfactant and chemical intermediate), 1,3-propanediol (an anti-freeze and additive in cosmetics), and isoprene (for synthetic rubber). Research and development is quickly moving in that direction because the price of the chemicals to be replaced is tightly linked to that of dwindling oil, and bioconversion from sugars offers a clear and renewable alternative. Even in the production of fine chemicals with better margins, inexpensive sugar will invite the attention of new players. One potential example is the pharmaceutical industry, which will need to secure ever-cheaper production processes for various small-molecule APIs as they approach their patent expiry date and competition from generic drug manufacturers sets in.

Sugar assets are therefore bound to appreciate strongly in the years to come (and thus have been a part of the core strategy of GIVE Eco Energy since its inception). New sources of inexpensive sugars are now being deployed (e.g. sweet sorghum), mostly based of their high sugar productivity and their ability to extend the cropping season, while traditional sources (e.g. sugarcane) are used when hedging the investments with crystalline sugar production is important. While ethanol will continue to be a focal point for the biofuel industry, driven by government mandates and high oil prices, the sugar platform will additionally benefit from future technologies and products. Furthermore, the sugars locked in the lignocellulosic structure of bagasse will eventually become available at low enough prices, and co-location of lignocellulosic-based processes with sucrose-based facilities will undoubtedly help de-risking the capital investment. For all these reasons, sugar crops are a sound investment, offering great flexibility and the opportunity to simultaneously capitalize on various renewable energy technologies, from lignocellulosic fuels to higher value products.