🏭 Just a near term pivot

Good morning! Today we’re talking about Origin Materials for two reasons: 1) their demonstration scale site in Sarnia, Ontario is officially up and running, and 2) they announced a near-term pivot during their last investor presentation.

First, a little Origin 101:
Origin’s core process technology converts lignocellulosic biomass into a few different molecules, but chloromethyl furfural (CMF) is the key platform molecule of interest. That’s because CMF can be used to make paraxylene, which is what we oxidize to make terephthalic acid (PTA), which is typically esterified with ethylene glycol (MEG) prior to polycondensation into polyethylene terephthalate (PET). Alternatively, CMF could be used to make FDCA—and, like PTA, FDCA can also be esterified with MEG—the following polycondensation just makes polyethylene furanoate (PEF) instead of PET.

Why it’s a big deal:
PET accounts for 20% of the world’s plastic production and is mostly used to make plastic bottles and polyester clothing. We normally make PET via 100% petroleum feedstocks, which is exactly what Origin is looking to change. It’s notable because most of the startups in the chemical space are biotech-based and looking to produce specialty chemicals (by some greener means). We rarely see biotech startups enter the commodity chemicals space, largely because of biotech scaling limitations—limitations that Origin’s chemical processes are not subject to.

Okay, so Origin started up a new site?
Origin bought land in Sarnia from Arlanxeo in 2018 with the two-pronged goal of a) reducing technological risk before building a full-scale site, and b) producing enough material for Origin’s customers, so that their customers can validate it for their applications. They broke ground in 2020, started piecing together modules at the end of 2021, completed construction a year later, initiated start up in June, and is now fully operational.

What is that near term pivot?
Up until their last investor presentation, Origin was planning to produce CMF, PTA, and PET at their first full-scale site (which they plan on building in Geismar, Louisiana) as early as 2025. Now they want to build that full-scale site in two phases: first they want to hold out on making CMF, and then when they start making CMF later they plan on converting it into FDCA and PEF (instead of PTA and PET).

Why the changes?
It seems like the key drivers here are a) higher fixed costs for equipment, b) higher costs associated with financing, and c) potential subsidies from making bio-based fuels. It’s not a pivot from their long term strategy, it’s just a cheaper and lower risk way of getting there. And if Origin is going to make it in the long run, minimizing capital cost and risk far outweighs the potential gain from hurrying to produce a commodity polymer via an alternate route.

P.S. If you’re looking for the “more headlines” section, I’ll be putting together an extended one and sending it out later this week.