War Story: “Go figure it out”
by Brian Conroy
When Stillwater Associate Brian Conroy worked for BP in 2006 as Global Sales and Market Development Manager of Specialty Chemicals, he was offered an opportunity to try something new. With a background in chemicals, beginning in research and progressing to various roles in business, he was ready for the change. BP’s CEO had mandated the launch of the company’s new global biofuels business, tasking the most capable and enthusiastic BP employees available with crafting the company’s global energy strategy. Everyone on the newly created team quickly looked at each other and said, “now what”? The answer: “Go figure it out.”
Questions swirled around the group beginning with where and how to start – (China, EU, Africa, US, Brazil, India? Corn, wheat, sorghum, veg oils, fats, sugar, cassava, jatropha, municipal waste, or grasses? Taxes, policy, land access, infrastructure, logistics, engine performance, conversion technology, ethanol, butanol, esters, hydrocarbons, biology, thermochemical?) Each time, the answer was: “Go figure it out.”
The team decided they needed to get started even without all the answers. Troubleshooting and brainstorming led to an array of starts and stops filled with “let’s try this” and “whoops, maybe not the best idea.” As they plugged along, more questions began to arise. They quickly realized some locations might be too challenging to do business and had to move on to other location options. BP’s business management team inundated Brian and his team with questions throughout the project – Why has public sentiment so quickly gone sour on biofuels, and why do people in the EU, U.S., and Brazil view biofuels so differently from one another? Are biofuels good or bad, and what can we do about the public perception dilemma? What is indirect land use? What is the Renewable Fuel Standard (RFS) and how does it affect fuels demand and prices? Who are the policy experts? What will politicians do next? What is the Low Carbon Fuel Standard (LCFS)? How do the LCFS and RFS work together? Commiserating with aching heads, the questions kept coming – Is the world going to run out of agricultural land? What do you mean the U.S. has excess agricultural land? And Brazil has how much unused land after subtracting the rainforest?!! How can that be true if biofuels are supposed to cause food shortages? All of these claims just don’t add up. And each time a question arose, the answer was that someone needs to “Go figure it out.”
They decided to focus on the basics, like looking at the markets already in place. Not surprisingly, this approach presented its own Pandora’s box of questions – Which markets have the biggest potential volume for consumption of biofuels? Who is turning a profit in the biofuels industry today, and how are they doing it? How are successful biofuels companies sustaining any competitive advantage? What business models work in different regions? Who has price forecasts for corn and sugar? Are there any agriculture experts on the team? (No? Well, someone needs to become one and “Go figure it out.”) After realizing that corn ethanol was not a good business option for BP because it offered no competitive advantage, more questions arose while they tried to land on a viable alternative – What about cellulosic ethanol from energy grasses for the U.S. market? What is the price of energy grass? Where does that grass grow? How do we get access to land? If the yield is too low, how do we achieve higher yields? Someone, “Go figure it out.” What do you mean these high yield feedstocks are not approved by the EPA? How do we get approval? Can someone “Go figure it out”?
Then came the issue of conversion technology, and more questions swirled around the team – What about thermochemical conversion? (We have that.) What do you mean the ag supply logistics don’t match with the necessary scale of thermochemical conversion? (OK, biological conversion.) What company can we partner with or buy to get biological conversion technology? How else could we acquire such technology? “Go figure it out.”
Second guessing themselves became a habit for Brian and his team, and they wondered if they jumped over biodiesel too quickly; perhaps they needed to consider hydrogenated vegetable oils and bioJet as options as well.
Besides the U.S., the team decided to focus on Brazil and Europe. Brazil was appealing because it was a large, established market with 50% ethanol penetration and consumers who like ethanol and drive cars that can use any amount of said ethanol. Just as expected, more questions came up – Why is maximum ethanol concentration different for cars in the U.S.? No battles with Petrobras? Ethanol pipelines? Biopower? How fast can we move into Brazil? What do you mean the manufacturing plants don’t run all year round? Questions arose about community and labor relations, taxes, price swings, cerrado, and safety. Why are those issues, and how do we manage them?
Europe was next, and with its acceptance of biofuels, seemed like a good location to invest in. BUT … Not those biofuels. You can’t use that land. You can’t use genetically modified organisms. What about electric cars? What about hydrogen and LNG? What should we do in Europe? And like a broken record playing their least favorite song, the answer Brian and his team always came back with was: “Go figure it out.”
At Stillwater Associates we pride ourselves on helping you figure it out. Whether you’re facing new business questions in the ever-evolving fuels and energy markets, or needing help with a merger and acquisition, contact Stillwater Associates to help you figure it out. We are comprised of a team who, like Brian, have had to roll up their sleeves and got their hands dirty in order to figure it out. We offer practical inputs from people who have years of experience being asked to “Go figure it out,” and doing just that.