LONDON (Alliance News) - Velocys' Envia project will act as a commercial reference plant for the company and assist in future adoption of its technology, but the company's short-term finances remain uncertain based on its current orders and contracts, said Numis analyst Sanjeev Bahl.
Gas-to-liquids technology company Velocys said the manufacturing of the Fischer-Tropsch reactors at the Envia Energy Oklahoma City GTL project has been completed alongside the catalyst charge reactor for the plant.
Envia Energy is a joint venture between Velocys, Waste Management Inc, NRG Energy Inc and Ventech Engineers International LLC. The companies are aiming to produce renewables fuels and chemicals from biogas and natural gas using gas-to-liquid technology.
"The Envia plant will act as a commercial reference plant for Velocys technology and successful operation should assist with the pace of future adoption [of Fischer-Tropsch]," said Bahl.
The Fischer Tropsch reactors convert syngas, a mixture of carbon monoxide and hydrogen, into paraffinic hydrocarbons, or petrochemicals, over an iron or cobalt catalyst, and Velocys says the process is "at the heart" of gas-to-liquid and biomass-to-liquid processes.
"Whilst uncertainty remains on the timing of contract orders, we expect 2015 to be a year of significant progress for Velocys with the company's first commercial plant moving through construction and towards start-up in 2016," the Numis analyst said.
Bahl said Velocys is "reliant" on the timing of a small number of large contracts but that the Envia plant will improve orders as customers will have an operational history to refer back to.
Velocys has a number of key projects in the pipeline, including a 4,800 barrel per day capacity gas-to-liquid project at Ashtabulain in Ohio in the US, which will reach a final investment decision toward the end of 2015 or early 2016, and the Red Rock biofuels project which received USD70 million of government funding back in 2014.
"Management believe the unlevered internal rate of return for Astabula remains in the mid-teens based on the current commodity price deck," said Bahl.
Bahl said the company sees opportunities for Fischer Tropsch within the speciality product and niche markets where Fischer Tropsch can produce waxes and base oils, whose prices have diverged from the oil price.
"Niche applications are a smaller market opportunity but are well suited to the high-quality paraffinic hydrocarbons produced by the Velocys Fischer Tropsch. Additional high margin opportunities exist for stranded gas/associated gas applications and remote locations where the disconnect between oil and gas prices remains wide," said Bahl.
Numis reiterates its Buy rating with a 304.0 pence target price. It acts as a broker to Velocys.
Velocys shares were trading flat at 88.0 pence per share on Wednesday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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