Where’s the Smart Cleantech Money Coming From? Big Oil and Gas

Chesapeake Energy (CHK) launched a venture capital fund this week that will invest up to $1 billion in technologies that could replace foreign oil with domestically produced natural gas, crude and biofuel products. True, the fund is just a fraction of Chesapeake’s annual budget, and it’s arguable whether natural gas qualifies as “clean energy.” Still, the new fund is a bright spot in an otherwise dismal investment year for the cleantech industry. More to the point, it illustrates a surprising willingness among fossil fuel companies to invest in alternative fuels and technologies.
As I’ve noted before, these investments are tiny compared to an oil major’s annual capital budget. But for startups, the funds can be a lifeline for bringing a particular technology to market or tipping a new product toward widespread adoption. It benefits fossil fuel companies as well. Instead of paying for expensive in-house technology programs, big oil and gas companies can troll the world for the best startups and invest or buy them for a relative bargain.
It’s not a trend… yet
It’s not quite a trend. But more fossil fuel companies are jumping into cleantech and alternative fuels industries. For example:

• Exxon committed up to $600 million in a partnership with Synthetic Genomics to develop next-generation biofuels from photosynthetic algae.
• Oil refiner Valero (VLO) has invested in cellulosic start-up ZeaChem, algae-fuel company Solix Biofuels, green gasoline maker Terrabon and more recently Enerkem, a company that has cleverly found a way to take household garbage, biomass and construction debris and turn it into fuel for your car.
• Meanwhile, French oil company Total agreed this spring to buy up to 60 percent of solar panel maker SunPower for $1.38 billion.

Fossil fuel companies typically take one of three approaches when it comes to corporate investing in alternatives: create alternative energy divisions within the company; invest strategically into start-ups with complimentary tech; or buy a stake in an alternative energy company.
Chesapeake has opted for a VC-inspired approach (essentially a combo of all three strategies) that’s similar to Energy Technology Ventures, a $300 million fund bankrolled by GE, NRG Energy and ConocoPhillips (COP).
Chesapeake’s first two investments
Chesapeake has agreed to invest $150 million into Clean Energy Fuels Corp. (CLNE), a company founded in 1996 by Texas billionaire T. Boone Pickens, to accelerate its build-out of liquified natural gas fueling infrastructure for heavy-duty trucks. The investment will help underwrite about 150 LNG truck fueling stations — a more than tenfold increase — to be located at existing truck stops along U.S. highways and interstates. Chesapeake CEO Aubrey McClendon told CNBC this week that Clean Energy already has a deal with Pilot/Flying J travel centers.
The company also will invest $155 million in a 50 percent ownership stake in Sundrop Fuels, a cellulosic biofuels company. The monies will be used over the next two years to build a nonfood biomass-based “green gasoline” plant capable of producing 40 million gallons of fuel a year.  In short, it will allow Sundrop to scale up and hopefully become commercially viable.
Not so “clean” tech
The third piece of Chesapeake’s strategy — to fund gas-to-liquids technology — hasn’t received much attention. Which is remarkable considering it falls far outside of the “cleantech” circle and is intended to reach an audacious goal that would change our domestic landscape forever.
Chesapeake essentially aims to find technology that will increase domestic onshore oil and natural gas liquids production of eight million barrels a day by as much as 50 percent. That’s an astonishing number. And it plans to do so by accelerating horizontal drilling and hydraulic fracturing — a controversial technique used to access gas trapped in shale — and deploying innovative and scalable processes that can convert natural gas into a transportation fuel.