By John Addison (11/20/07)
Oil prices neared $100 per barrel as hundreds of leading investors converged at the Pacific Growth Equities Clean Technology Conference. A number of exciting companies presented next generation biofuels that promise to reduce the nation’s dependency on foreign oil. Look for a freedom harvest.
Corn ethanol is likely to continue its strong growth in the U.S. from one billion barrels of fuel per year to the current five billion per year. Ethanol can be blended to 10% with gasoline – E10 – without new infrastructure and without modification of engines. More states are starting to mandate E10. Ethanol will continue strong growth based on these mandates and on concerns about dependency on foreign oil.
At the Pacific Growth Conference, Steve McBee delivered a keynote that predicted passage of significant ethanol and clean energy subsidies before the 2008 presidential election. Ethanol will receive billions, most likely in the Farm Bill, possibly in an Energy Bill. Mr. McBee sees high likelihood of a Renewable Fuel Standards (RFS) despite opposition from several food, oil, and environmental groups. Look for all of these to continue:
• 51-cent-a-gallon direct subsidy
• Protectionist tariffs that exclude cheaper ethanol from Brazil sugarcane
• Loophole in the fuel economy standards that allows the automobile manufacturers to claim a fuel economy credit if they build cars that can use E85, even if those cars never drive within 500 miles of a filling station that sells E85.
• More from WRI
The growing use of corn ethanol is creating serious problems. The price of corn is up 40% in only 12 months. Children and families living in poverty suffer globally. If the entire U.S. started switching to E85, there would not be enough land to grow the corn. Ethanol must be trucked not pipelined to oil refineries. Needed is fuel from wood and waste, not food and haste.
Fortunately, next generation ethanol and other biofuels are in development. Next generation biofuels are also likely to benefit from pending legislation being put into law. While corn produces a yield of 300 to 500 gallons per acre, other sources can produce ten times that yield without corn’s water and pesticide requirements.
Presenting at the Conference, cellulosic ethanol developer Verenium (VRNM) presented a positive update. Verenium sees revenues of $42 to $45 million this year. Their 1.4 million gallon per year (MPY) pilot plant in Osaka, Japan, meets the demanding challenge of converting construction wood waste into ethanol. A similar plant is being built in Louisiana that will use sugarcane as feedstock. Look for a 25 to 30 MPY plant in 2010. Sugarcane has been the key source for Brazil’s amazing transition away from petroleum dependency. Sugarcane yields per acre can be 2,500 gallons – five to eight times the yield of corn. Sugarcane has been the key to Cosan (CZZ) tripling revenue and profit in three years. (NOTE: Author owns stock in Cosan.)
Most cars may run on gasoline, but most heavy vehicles run on diesel. The hottest selling cars run on diesel not gasoline. Diesel and biodiesel has about 25% more energy per gallon than gasoline. Ethanol has about 25% less energy than gasoline. Nova Biosource Fuels (NBF) presented at the Pacific Growth Conference. Nova has a joint venture (JV) with ConAgra targeted at taking ConAgra animal waste and producing biodiesel and glycerin. ConAgra has agreed to buy 130 million gallons of biodiesel per year from the JV. If successful, Nova Biosource could buy other players in the fragmented U.S. biodiesel market and solve a significant waste problem for meat and poultry processors. Consensus estimates from analysts is that Nova Biosource will experience explosive growth from $26 million in 2007 to $187 million in 2008, and become profitable in 2008. Reuters Estimates
Private venture-backed Virent presented an exciting alternative to ethanol. It takes biomass and converts it gasoline – biogasoline. Gasoline, after all, is a complex hydrocarbon molecule that can be made from feedstock other than petroleum. Unlike ethanol, biogasoline has the same energy content as gasoline. Unlike cellulosic ethanol alternatives, Virent produces water using a bioforming process, rather than consuming valuable water. Virent has raised $28.5 million of investments from Cargill, Honda (HMC), Venture Investors, Advantage Capital Partners, and Stark Investments. Biogasoline will be its major initial focus. Its technology can also be used to produce biodiesel and bio jet fuel. Virent also has a five-year joint development agreement with Shell to produce hydrogen without CO2 emissions.
All presenters started with safe harbor warnings about future uncertainties. If you are an investor, please use this article only as a starting point for added research. In the transition from petroleum, their will be losers and winners. Some will be big winners.
