Shell, Cargill Fuel Up Virent With $46M

For biofuels to make a dent in the U.S. fuel supply, big oil will have to get on board. Case in point: This morning biofuel startup Virent Energy Systems announced that it has raised $46.4 million from oil giant Shell (s RDSA) and agriculture company Cargill.

Virent has developed a technology it calls bioforming, which is a thermochemical process that catalyzes sugars into hydrocarbons, creating molecules similar to those produced in oil refineries. The company says their process, developed at the University of Wisconsin-Madison, can use a variety of feedstocks including sugars, starches and cellulose, and the technology can make bio jet fuel, gasoline and diesel, as well as produce hydrogen.

The funding is the company’s third round, and Virent previously raised at least $40 million from Stark Investments, Venture Investors, Cargill Ventures, Honda (s HMC), and Shell. Virent’s former CEO Eric Apfelbach told me a couple years ago that the company would have to raise a significant amount of funding to reach commercial scale over the next several years, and was also looking at fund raising through a possible IPO.

Of course scaling up the technology to produce these fuels on a commercial scale is the tricky part. That’s been the hard part for all of the cellulosic ethanol startups including ZeaChem, which broke ground on its pilot scale plant last week, Range Fuels, and Mascoma, and the algae folks, too, including Solazyme and Sapphire Energy.

But it’s the oil companies that will help these companies eventually reach commercial scale. Solazyme has a development deal with Chevron (s CVX), and Exxon (s XOM) has a partnership and investment in Synthetic Genomics. BP (s BP) has backed algae fuel maker Martek, and Tropical BioEnergia, a Brazilian company that plans to build two ethanol refineries in Brazil.

In March Virent and Shell started up a demonstration plant at its facilities in Madison, Wisconsin, as part of the development deal that Virent and Shell started in 2008.

Virent probably looks particularly attractive to the oil and car incumbents because the startup says it can produce fuels that can be used in current systems, in both vehicles and pipelines, and can be blended with gasoline. That means if Virent’s fuel became the standard, then oil and car companies wouldn’t have to invest in new infrastructure. Yep, they would like that quite a bit.

For more on cleantech financing check out GigaOM Pro (subscription required):

Cleantech Financing Trends, 2010 and Beyond