Gevo Inc., has announced that it has signed a commercial supply agreement with HCS Holding GmbH (HCS) in Germany to supply renewable isooctane. The deal "represents the "first definitive purchase agreement for long-term supply".
Gevo, Inc., a US-based renewable technology, biochemical- and biofuels products company has announced that it has that it has entered into a supply agreement with HCS Holding GmbH (HCS) to supply renewable isooctane under a five-year offtake agreement.
Based in Germany, HCS is a global manufacturer and supplier of specialty products and solutions in the hydrocarbons sector. Haltermann Carless, a subsidiary of HCS and one of the oldest companies in the world of chemistry, is expected to be the direct customer with Gevo under the supply agreement, which affirms the Letter of Intent (LoI) with HCS that Gevo announced in February this year.
– We are very pleased to work with Gevo to further develop the renewable isooctane market. Sustainability is a key element of our business strategy. With Gevo we have found the ideal partner to further expand our advanced ecological-sound portfolio for our customers. Gevo has created a unique product with very large potential that fits well into our long-term strategy. As our relationship with Gevo builds, we look forward to marketing other bio-based materials, said Henrik Krüpper, HCS Chief Commercial Officer and Member of HCS Executive Committee in a statement.
According to Gevo, the supply agreement has two phases:
- In the first phase, HCS will purchase isooctane produced at Gevo’s demonstration hydrocarbon plant located in Silsbee, Texas. This first phase commences in May 2017 and would continue until completion of Gevo’s first large-scale commercial hydrocarbon plant. Gevo estimates that this could generate up to US$2-3 million of gross revenue per annum.
- In the second phase, HCS has agreed to purchase 300 000 US gallons (≈1.13 million litres) of isooctane per annum with an option to purchase an additional 100 000 US gallons (≈ 378 000 litres) of isooctane per annum, under a five-year offtake agreement.
Enable capacity expansion
The supply agreement contains a selling price that is expected to allow for an appropriate level of return on the capital required to build out Gevo’s existing production facility in Luverne, Minnesota. Gevo would supply this isooctane from its first commercial hydrocarbon facility, which is expected to be built at Gevo’s existing isobutanol production facility located in Luverne, Minnesota.
Based on Gevo’s current estimates, the deal would represent approximately 10-15 percent of the isooctane production from the expanded Luverne plant.
– The agreement with HCS is a key milestone for Gevo and represents our first definitive purchase agreement for long-term supply from our first commercial scale hydrocarbon site. As we communicated during our last conference call, one of our critical strategic objectives is to secure binding supply contracts for a combination of isobutanol and related hydrocarbon products representing at least 50 percent of the capacity at the expanded Luverne plant. This is exactly the type of deal I was referencing and we are excited to get the first one on the books, said Dr. Patrick Gruber, Gevo’s Chief Executive Officer.
Gevo’s primary market development target in 2017 is to enter into binding supply contracts for its renewable isobutanol, isooctane, and alcohol-to-jet fuel (ATJ) that represents the majority of the production volume to be produced at its expanded Luverne facility.
Gevo believes that such contracts would underpin the economics of the expansion, which should facilitate the raising of the capital necessary to finance its Luverne plant capacity expansion, potentially at a lower cost of capital than what it has historically achieved through the issuance of common stock and warrants in underwritten public offerings.
– I believe the combination of our restructured balance sheet and the agreement with HCS bodes well for our ability to pursue additional agreements going forward. We are reaching a critical commercial inflection point and excited to work with marque customers like HCS. We are making good progress towards the goals we set out at the beginning of the year and are actively pursuing additional agreements, said Gruber who will be speaking at the upcoming Advanced Biofuels Conference in Gothenburg, Sweden later this month.
It continues to be the intent of Gevo and HCS to establish further offtake arrangements for other products such as ATJ and isobutanol.
