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News Analysis: “Think Sustainable, Not Renewable” is the way forward for biofuels in 2008

December 28, 2007

We have been trained to think about fuels in terms of fossil fuels and renewable fuels. For a long time, fossil fuels were dirty and dirt cheap; renewable fuels were clean, and could clean you out buying them.

A lot of things have changed. Today, biofuels are generally cost-competitive with $100 oil, and will be a lot cheaper than $300 oil.

So why isn’t there a stampede to the ethanol pump? Why are there less than 1500 E85 pumps nationwide and yet the entire industry opens pumps slower than Starbucks opens coffee stores?

The answer is that the conversion to biofuels is not a one-night-only event, but a marathon staged like American Idol, and at this point a number of renewable fuels have been “voted off the show”.

The public has discovered some things we don’t like about renewable fuels, and more and more policy officials are getting behind the concept of sustainable fuels.

These are the fuels that will receive incentives, protection, and consumer support. As an investor, find sustainable fuels that can be made at a commercially viable price and scaled to mass production, and bet on them. They have what it takes to be a long-term winner in the emerging new energy market.

1. Cellulosic ethanol. Cellulosic is popular in the US, where researchers have been seeking commercially viable production costs for the process of converting the woody biomass into sugars before fermenting the sugars into ethanol. Because the process uses waste material, rather than the edible biomass, it does not compete with the food markets and is not only sustainable but has a stable price horizon. R&D companies like Verenium (VRNM) are well worth a look, but Royal Dutch Shell (RDS), Chevron (CVX) and BP (BP) all have a hand in this game.

2. Brazilian ethanol. Of all the processes used to make biofuels on a mass-scale, such as soy- or palm-based biodiesel, or corn-based ethanol, Brazilian ethanol is repeatedly singled out as the most sustainable of biofuels. The market leader among public stocks is Cosan (CZZ) . The risk? Cosan is increasingly beset by competition from the Brazilian state-oil giant Petrobras.

3. Algae-based biodiesel. Of all the biodiesel feedstocks, algae has the most promise in the laboratory for the highest yield. Compared to 400 gallons of fuel per acre for corn, algae can produce up to 10,000 gallons per acre according to some promoters. More, algae requires only sunlight, CO2 and some nutrients to bloom at high speed. Small companies are active in this market. Green Star Products (GSPI) is one of those closest to a commercial solution. The Risk? A viable process for extracting oil will not be found soon.

4. Jatropha-based biodiesel. Jatropha doesn’t have the yield potential of algae, but it has more immediate viability, for the plant has been a proven high-yield oilseed source for a long time. Yields of 600 gallons to 1000 gallons per acre are talked about by promoters. Jatropha flourishes in marginal land, and is considered a “feedstock of interest” for that reason. BP (BP) and D1 Oil (DOO) are among the public stocks most heavily invested in jatropha. The risk? Jatropha must be hand-harvested, and there’s a risk that a viable way to produce oil on a mass scale will not be found until harvest can be mechanized.

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    Written by Jim Lane · Filed Under News & Financial Analysis 

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