An engine from an Audi AG A8. The German firm has teamed up with France's  Global Bioenergies to work on biofuel development. Pau Barrena/Bloomberg
An engine from an Audi AG A8. The German firm has teamed up with France's Global Bioenergies to work on biofuel development. Pau Barrena/Bloomberg

Audi and French firm team up to develop bio petrol



A German luxury car maker and a French biotech company have joined forces to solve the two big problems that have been holding back biofuels.

On a windy morning at a track near Paris this month, Audi AG started testing petrol blended with 34 per cent of a biofuel produced from sugar beet waste in one of its classic A4 saloons. Unlike ethanol, which requires special engines when used in large proportions, the new blend can work in any car engine without modification.

As car makers are rushing to develop electric and hybrid vehicles in response to stricter emission rules, biofuel manufacturers are jockeying to find a future in that revolution by touting their crop-based energy as friendlier for the environment than petrol. The big issue is they must prove large-scale biofuel production won’t worsen deforestation, nor use food or animal feeds to avoid criticism that they are jacking up prices and starving the poor.

“We’re using the non-eatable part of the sugar beet,” said Marc Delcourt, chief executive of Global Bioenergies, the French company that made the bio petrol tested by Audi. “No resources must be competing with human food.”

The biofuel that powered the white Audi A4 around the circuit near Paris originated at Global Bioenergies’s demo plant in Leuna, Germany, and was converted by the country’s Fraunhofer Institute into petrol additives. The company has 32 patents to develop bacteria which transforms sugar found in corn, beet, wheat straw and wood chips into isobutene, a hydrocarbon usually derived from oil, which ended up in the Audi engine.

Global Bioenergies is also working with European chemicals makers Clariant and Ineos to extract glucose from wheat straw and convert it into hydrocarbons as it seeks to address the food versus fuel debate that has dogged biofuel makers for years. Clariant’s technology is “mature,” Mr Delcourt said, without giving details of when this petrol mix will be commercially available.

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Car companies including Audi are convinced that electric vehicles won’t be enough to quickly reduce emissions, especially in countries where power will continue to largely be produced by burning fossil fuels. They are therefore doing research on engines powered by alternative fuels such as hydrogen and renewable resources such as agricultural waste.

“If we want to stop climate change, we need renewable fuels,” Hermann Pengg, who oversees Audi’s biofuels research, said at the track near Paris. “Electric vehicles are important to help us cut CO2 emissions, but only if you use green electricity, not if you use coal.”

How clean electric vehicles are depends on where in the world it is being plugged it. A car in China would probably be powered by coal-generated electricity while those in Norway would be greenest since the country uses primarily hydro projects. The US is hooked to natural gas. A 2017 study showed that electric cars overall contribute fewer emissions than a traditional petrol car in much of America.

The advantage biofuels have are tax breaks and regulations. Supported by these, ethanol and others represented almost 7 per cent of the energy used for road transport in the US and France last year, while electricity accounted for less than 0.5 per cent, according to Mr Delcourt, who co-founded Global Bioenergies in 2008. In crop-rich countries like France and the US, biofuels could account for a third of fuels burned by cars and trucks by 2040, with fossil fuels and electricity equally splitting up the rest, he said.

However, biofuels are costly and sustained lower crude oil prices may restrict a desire to blend them into the fuel mix, while electric vehicles may depress demand over the long term, according to James Evans, an analyst at Bloomberg Intelligence. Still, biofuels “could be a useful transition fuel to shift towards a lower-carbon transport system”, he said.

Having built the demo plant in Germany last year, Mr Delcourt and French sugar-maker Cristal Union are hoping to convince investors by the end of the year to build a €115 million (Dh522.6m) commercial plant in France. It would produce 50,000 tonnes of isobutene per year from 2021, enough to cover 1 per cent of the country’s petrol consumption.

“Producing a biofuel is always more expensive than making fossil gasoline,” Mr Delcourt said. “Biofuels are less taxed because they don’t have the same polluting effects. Our goal is that consumers don’t pay too much, and that the regulatory environment absorbs a large part of the extra cost.”

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”