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KiOR: The Inside True Story of a Company Gone Wrong. Part 4, the Year of Living Disingenuously

Submitted by on September 19, 2016 – 11:58 amNo Comment

by Jim Lane (Biofuels Digest)  … But so far, the company and its celebrity investors and directors such as former Secretary of State Condoleezza Rice and famed venture capitalist Vinod Khosla had escaped close scrutiny.

The methods for keeping the truth bottled up were not pretty. According to our sources for this story, dissenters had been fired, data had been faked, and opportunities to address the impending debacle with improved technology were ignored, underfunded or shelved. Meanwhile, the Board was misled either proactively or through lack of guidance on key performance indicators. Trouble that had been looming in 2010 had boiled into outright crisis in 2011.

Some progress had been made on technology, but not enough, Not nearly enough. The critical success factor, the bio-oil yields, had been increased from “the low 30s to the low 40s,” one staffer recalled.

And, worse, the production cost was “several dollars per gallon” according to those familiar with the state of technology development. The progress achieved had stemmed from changing the Technology from the original BCC reactor design and using a new ZSM Zeolite catalyst

Fatally, the progress on yields had been made at a catastrophic increase in the catalyst cost. One source close to the technology at that time recalled, “it was too far away from a production cost necessary to sustain an economically feasible business without government subsidies.”

The Spreading Fear

The result? Fear inside the company’s management team.

Chevron would only take a finished fuel.

KiOR projected it could acquire its feedstock, Southern yellow pine, at an average cost of $66 per ton. Even at 40 gallons per ton, that would equate to $1.65 in cost. Before paying for the conversion technology. Or the building of the plant. Or the operating of it. Or anything to pay the workers. Much less pay back the investors. Or lenders like Mississippi.

Today, on a wholesale basis, finished gasoline blendstock sells for $1.40 per gallon. A financial debacle of immense proportions loomed, unless something could be done.

By July (2012), three groups had access to the Demo data and analyzed it. Loezos and Chen, Charlie Zhang and Dennis Stamires, and Professor Vasalos from CPERI. All three teams came to the same conclusion: the yields were far below the 67 gallons per ton that management was claiming in the IPO documentation.

Meanwhile, on April 30th, Paul O’Connor reported again to the Board, in a memo entitled “Towards a prosperous future for KiOR.” For the first time, the fast-dropping KiOR stock price was invoked.

But there was more. Catalyst costs were far above predictions, trashing the expected profit margins. Problems in bringing the Columbus plant on-line were noted. The tone of O’Connor’s note moved from deep concerns in some areas, to a general sense of alarm about a connected series of shortfalls that could have a ruinous impact, if unchecked.

The concern at the time (Fall 2012), was not just about shareholder backlash, but competition. The report contended in its opening that “KiOR was not able to compete with Ensyn/UOP, who were said to producing Bio oil with yields of 80+ gallons per dry ton of Biomass, at a cost of less than $2 per gallon.” In short, the very yields that KiOR hoped to achieve.

To be perfectly frank, so long as oil is being produced with less than 15% oxygen content, virtually any pyrolysis oil can be upgraded successfully to cellulosic gasoline and diesel, so long as an appropriate technology is used, so long as cost is not a consideration. The statement by (Fred) Cannon astutely avoids any discussion of catalyst cost, regeneration, coking and poisoning — factors which routinely frustrated efforts to upgrade bio-oil at an affordable cost, as the Pacific Northwest National Lab noted here.

Was the catalyst being regenerated while retaining activity? Was the process able to run for significant lengths of time on a single catalyst charge? Was the water/oil problem solved so that significant amounts of oil were not leaving the plant via the effluent stream? The Cannon statement sidesteps the issues with a bland statement of confidence that KiOR could produce an in-spec fuel. Something that has been done for decades, successfully. KiOR’s technology wasn’t about making cellulosic fuels. It was about making them cost-effectively.

2013 would be the year in which the multiple streams of fiction and non-fiction would merge into a river of raw data that would make the truth clear. The company had reached scale, but was still in the slow process of commissioning, so there was still room for doubt, or hope.  READ MORE

Related artcles:

KiOR: The Inside True Story of a Company Gone Wrong– Parts 1 and 2

KiOR: The Inside True Story of a Company Gone Wrong. Part 3, “You’ve Cooked the Books”

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