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Velocys Abandons Shale Gas Feedstock for Now in Favor of Biomass

United Kingdom-based Velocys plc has suspended its venture into the nascent small-scale gas-to-liquids (GTL) space in favor of becoming a renewable fuels company focused on biomass-to-liquids (BTL), electing to put proposed projects that would have used shale gas -- like one in Northeast Ohio -- on hold indefinitely.

At the company's annual general meeting in June, CEO Dave Pummell said Velocys' new strategy is aimed at converting woody biomass to high specification renewable diesel and jet fuel for the U.S. market, according to a transcript of his remarks. The announcement is a sharp deviation from the company's work in recent years to commercialize small-scale GTL technology -- a strategy it once saw as being aided by the U.S. shale gas boom. Velocys was previously considering gas fields across the country, such as those in the Appalachian, Williston and Denver-Julesburg basins, among others, as a proving ground for plants that could have used its technology.

"Increasing pressure from public opinion and legislation to curb greenhouse gas emissions and reduce pollution drives this market," Pummell said of the renewables sector at the annual meeting. "This has led to long term structural incentives for renewable fuels in the form of fuel credits at both the federal and state level, greatly enhancing the revenues from a Velocys plant."

Velocys had planned to build a 5,000 b/d gas-to-liquids plant in Ashtabula, OH, that would utilize Marcellus and Utica shale natural gas to make solvents, lubricants, waxes and transportation fuels. It postponed a final investment decision on the facility last year, citing an inability to raise capital for the project during the commodities downturn and a reassessment of its business strategy.

Velocys’ shift also comes after its former CEO Roy Lipski, who had been bullish about the intersection of shale development and GTL technology, was ousted in 2015 after an investigation into unspecified allegations of misconduct. He was eventually replaced by Pummell, who has decades of experience working in the energy industry, including stints as a chemical engineer with BP plc and in other downstream roles in petrochemical manufacturing.

Velocys Commercial Director Jeff McDaniel told NGI's Shale Dailyon Friday that the company is now instead focused on securing funding for a biorefinery under development somewhere in the Southeast. The company is in the process of applying for a $200 million loan with the Department of Agriculture after it successfully completed the first phase of that application process.

"Given the tight deadlines associated with the loan guarantee process, we will be focusing our resources on that project for the next 12 months," McDaniel said. "We are continuing the product qualification efforts with major wax off-takers, but are otherwise keeping our GTL development activities in a holding position while we focus on this promising biofuel opportunity." The company is also hoping to partner with other companies to secure the woody biomass feedstock, or the limbs and tops of trees that would otherwise be burned or left in the forest.

The company formed a joint venture in 2014 with Waste Management Inc., NRG Energy Inc. and Ventech Engineers International LLC to build the world's first commercial small-scale GTL plant and to pursue the development of GTL plants across the country, in Canada, the UK and China. The first facility located at Waste Management's East Oak Landfill in Oklahoma City is co-fed by landfill gas and natural gas that's piped to the site. It was completed in September 2016, and the sponsors announced on Friday the first finished products that will be sold from the plant.

Velocys develops, licenses and supplies small-scale GTL and BTL technology. Its equipment utilizes Fischer-Tropsch synthesis, a process that can convert coal, natural gas or biomass into a wide-range of products. The process is nearly a century old, but the modernized technology had gained interest in recent years as the spread between high-value petroleum products and low-cost natural gas increased.

Velocys’ smaller equipment also enables modular plants to be deployed more cost-effectively in remote regions that wouldn't otherwise be able to accommodate the handful of multi-billion dollar plants operating on coastlines overseas. It had been focused on developing GTL plants with a  capacity of 1,500-15,000 b/d that would use between 15-150 MMcf/d of natural gas.

At the time of the Oklahoma City plant’s groundbreaking, Waste Management indicated that it was interested in developing other facilities at landfills across the country. McDaniel said he does anticipate more of those facilities, which qualify for renewable fuel credits. But he said that would be a decision for the joint venture partners and not Velocys alone. Other GTL plants have been proposed in the Appalachian Basin, but none have been completed.

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