BP drops plans for U.S. cellulosic ethanol plant

WASHINGTON Fri Oct 26, 2012 6:12am BST

BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012. REUTERS/Alexander Demianchuk

BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012.

Credit: Reuters/Alexander Demianchuk

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WASHINGTON (Reuters) - BP Plc (BP.L) on Thursday said it cancelled plans to build a plant in Florida to turn tough grasses such as sorghum and cane into cellulosic biofuel, the second oil major this year to back out of plans to produce "next generation" ethanol from non-food crops.

Once seen as a promising alternative to the use of corn and other crops to make fuel, cellulosic biofuel has become a political football as companies struggle to produce commercial quantities, despite a government mandate.

The U.S. Congress originally mandated that by 2012, five hundred million gallons of cellulosic ethanol be blended into fuel by refineries. But because very little of the fuel is produced, the Environmental Protection Agency lowered the mandate to 8.65 million gallons for 2012.

The U.S. oil industry's lobby group has sued the government over the mandate, and Republicans in Congress have said the law should be changed.

BP said it now plans to focus on research and development as well as licensing of its biofuels technology, instead of building the 36 million-gallon plant, the value of which was not disclosed.

"Given the large and growing portfolio of investment opportunities available to BP globally, we believe it is in the best interest of our shareholders to redeploy the considerable capital required to build this facility into other more attractive projects," Geoff Morrell, the company's vice president of communications, said in a statement.

In April, Royal Dutch Shell Plc (RDSa.L) and privately held Iogen Corp scrapped plans for a commercial-scale plant in Canada to make ethanol from straw and plant waste.

OTHER PRODUCERS SAY FULL SPEED AHEAD

U.S. biofuels producers have launched a major lobbying campaign aimed at preserving the mandate for their fuel, and reacted strongly to BP's announcement in a joint statement, noting other plants are going full speed ahead.

Dupont (DD.N) has invested more than $200 million (124 million pounds) in an Iowa plant to turn corn waste into 28 million gallons of ethanol a year, and will break ground this year, said James Collins, president of Dupont Industrial Biosciences.

Spain-based Abengoa (ABG.MC) plans to begin commercial production at a Kansas plant at the end of 2013, Chief Executive Manuel Sanchez Ortega said.

"Every industry faces challenges at times, and the need to reallocate resources is a routine occurrence in the business world," said Adam Monroe, president of Novozymes North America (NZYMb.CO).

Privately held Poet, one of the largest U.S. ethanol makers, broke ground on a $250 million cellulosic plant earlier this year and hopes to start producing commercial fuel after completing the plant in 2013.

The project has received financing from Royal DSM (DSMN.AS), a Dutch life-sciences company.

BP said it will continue to run a biofuels research centre in California and a demonstration plant in Louisiana.

(Additional reporting by Timothy Gardner; Editing by John Wallace and Steve Orlofsky)

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