Alternative fuel refinery kicks into production

COLUMBUS — Alternative fuel firm KiOR says it started production in October in Columbus, and plans to make its first commercial shipments before November’s end.

CEO Fred Cannon told analysts on a conference call the technology is working “and producing a high-quality oil. I am extremely pleased with the performance of our technology at Columbus.”

Based in Pasadena, Texas, KiOR built a $220-million-plus refinery in Mississippi to extract the equivalent of light crude oil from wood chips. It refines the oil into gasoline and diesel fuel. It’s supposed to build a second refinery in Natchez.

KiOR uses a chemical process called pyrolysis to convert the chips to crude. Until now, the process has never been used on such a large scale. Cannon said his company is “all about changing that paradigm” by using non-food plants to make biofuel that existing cars and trucks can burn. Most biofuel in the United States is ethanol from corn or biodiesel from soybeans, and using those crops can drive up the cost of food.

Making commercial shipments would be a major milestone, because it would allow the company to start collecting revenue for the first time. Right now, KiOR is spending cash that it raised from borrowing and stock sales. That includes a $75 million low-interest loan that the state of Mississippi made in 2010.

The company reported third-quarter financial results, saying it lost $27 million, or 26 cents per share, during the period. KiOR lost $66.7 million, or 64 cents per share, in 2011′s third quarter. The company didn’t report any revenue during either quarter.

Analysts expected a loss of 26 cents per share, on average.

KiOR said it had $74 million in cash as of Sept. 30, and $113 million in long-term debt.

Cannon said the Columbus plant is 50 times larger than the KiOR’s demonstration plant, but that it has had only routine startup problems so far. The plant could achieve its full output rate by late next year.

Cannon also said company researchers had found ways to improve the amount of fuel that KiOR could extract from a ton of wood. Cannon also said KiOR had found a way to reduce the undesirable byproduct of coke, which would allow it process 25 percent more wood at Natchez and other future facilities without having to spend any more money to expand.

The company expects that the Natchez facility will yield 72 gallons per bone dry ton. The company’s long-term target is 92 gallons per ton, and Cannon said the company believed it has “cleared a path” toward yields above 72 gallons.

KiOR has agreements to sell its fuel to Hunt Refining Co., to a joint venture of Chevron Corp. and Weyerhaeuser Co. and to FedEx Corp. Cannon said the company is still seeking a key Environmental Protection Agency approval for its gasoline sales, which would allow it to get a subsidy, and may store gasoline production from the Columbus facility until it wins the approval.

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