“Government’s ‘2022’ Biofuel Timetable Mandates +15,900% Growth”

by Travis Johnson, Stock Gumshoe | June 2, 2009 10:43 am

That’s the promise from the new Government-Driven Investing newsletter edited by Andy Obermueller … who I’ve never heard of, though I give him some credit for sporting a snazzy bowtie in his picture. He can’t quite carry it off as well as the Gumshoe, of course, but we can’t all be matinee idols.

Kidding.

This newsletter is all about profiting from the gummint, which I know makes some people squirm — benefitting from bailouts, riding government prirorities as they develop and change, etc. I don’t know if it will be enough to sustain a newsletter, but I suspect he’ll have plenty to write about for at least the next year or so.

And he’s starting with a great government boondoggle: Ethanol. This teaser is all about how the government’s biofuels mandates can bring profits for one little company that’s working on cellulosic ethanol.

“There’s only ONE publicly traded company that can capture that growth … and you can pick up over 6,000 shares of that stock today for only $10k!”

(I think a copywriter goofed on the math — you can actually buy about 15,000 shares of this stock for $10,000 … but you could buy 10,000 shares for about $6,000, so we’ll let that slide.)

So yes, I do know the secret stock — and I’ll share it with you after we get through the clues. Patience, please!

Here’s what we learn:

“The Energy Policy Act of 2005 established a national renewable fuels standard that requires the United States use 7.5 billion gallons of ethanol a year. But the current law, which went into effect on January 1st, requires the country to use 36 billion gallons of biofuel by 2022…

“Only 15 billion gallons of this 36 billion gallons can come from the corn-based ethanol we now produce. Now, that still means the industry is likely to expand in the next decade, but corn-based ethanol hits a ceiling in 2015. That’s not a projection. That’s not my best guess. That’s what Congress has written into federal law.

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“The lion’s share of the 36 billion gallons the nation must consume by 2022 — some 21 billion gallons, or 58% — must be “advanced” biofuels. These are new formulas that are 50% cleaner than gasoline. Of that 21 billion gallons of advanced biofuel, most of it — 16 billion gallons — must come from cellulosic biofuel.”

And then we get into the specific company teaser …

“The U.S. is going to watch the biofuel industry go from producing basically zero gallons of cellulosic ethanol to production of 16 billion gallons, and in short order. That’s a +15,900% increase in only a dozen years.

“How do you think that’s going to translate to a company’s earnings? Let me spell it out: The investors who get in on these companies are going to be putting cellulosic ethanol fuel into their Ferraris. Their chauffeurs will gas up their Rolls-Royces.

“Currently, there is only one publicly traded company in this space. It’s the industry leader, and its stock has the potential to grow in concert with cellulosic ethanol quotas. That means upside of +15,900% during the next dozen years.

“In 1995, this company was granted an exclusive license to commercialize proprietary cellulosic ethanol technology that had been developed at the University of Florida and other academic institutions. It’s now a leader in R&D and has two demonstration plants in Louisiana, one of which was the nation’s first.

“The future is bright for this company. A couple of billion gallons of cellulosic ethanol produced using their technology will do nice things for the bottom line. In a few years we’ll be thanking Obama for making us rich. In a dozen years we’ll thank him for making us wildly rich.”

So what are we dealing with here? Let me just toss all that info into the good ‘ol Thinkolator 4000, and the answer come spitting out …

Verenium (VRNM)

This is indeed a leading startup in the cellulosic ethanol space, though I think it’s a stretch to say it’s the only one that’s publicly traded … there are a few others, like BlueFire Ethanol, SunOpta, and Cleantech Biofuels — some of those are a bit hairy, but they exist — and many chemical and energy companies have joint ventures with other startups, or divisions working on cellulosic ethanol that may well be just as interesting, though they aren’t “pure plays.” And if you include suppliers like the enzyme companies, you can also look at a firm like Novozymes, which I wrote about almost exactly two years ago following an Elliott Gue teaser[1] (I think it’s down about 30% from that point).

Verenium does have two plants in Louisiana, a pilot plant and a demonstration plant, and their technology in this area does include a proprietary University of Florida patent license. Their first commercial plant is planned for Florida, too, though that seems to be a ways off and require some additional funding (their major partner at this point is BP) — but there is also a plant in Japan that uses their technology under license, so it seems like it actually must work. I have no idea whether it will be a cost-effective long-term solution, but they do at least have some operating plants.

And of course, the fact that they’re one of the few “pure play” public companies in cellulosic ethanol doesn’t mean that they’ll be the only ones to profit as (if?) government biomass/cellulosic ethanol mandates are enforced in future years … theirs is not the only process, technology or technique that can work to create biofuels, and there are dozens of startups and major corporations all working on this science and developing new technology everyday, this is still very early days for cellulosic ethanol.

If you’re interested in reading up on this, the Biofuels Digest provides some interesting details about many of the companies involved (they even have a “hottest 50 companies” in biofuels list[2] — a cellulosic ethanol startup that is not public, Coskata, is number 1, Verenium is number 36). One of the many clean energy blogs also ran a summary of what they considered the major cellulosic ethanol companies[3] last Summer, which includes useful summaries and a few updates.

So what do you think? The federal guidelines for biofuels are real, and the mandates for cellulosic ethanol were pretty widely supported by both parties. And at least when you use switchgrass or wood chips, the chances are less that you’ll be helping to force up food prices in the quixotic quest for transportation fuel independence. If you’re a fan or foe of cellulosic ethanol, or have any thoughts about Verenium please let us know with a comment below.

And I assume that this Government-Driven Investing newsletter hasn’t been around long enough for folks to form an opinion, but if you’ve subscribed to this or any of the other StreetAuthority newsletters, please click here to let us know what you think[4].


Endnotes:
  1. Novozymes, which I wrote about almost exactly two years ago following an Elliott Gue teaser: http://www.stockgumshoe.com/2007/05/new-super-fuel-cellolosic-ethanol.html
  2. “hottest 50 companies” in biofuels list: http://biofuelsdigest.com/blog2/2008/12/22/the-hottest-50-companies-in-bioenergy/
  3. clean energy blogs also ran a summary of what they considered the major cellulosic ethanol companies: http://earth2tech.com/2008/06/03/12-companies-racing-to-build-cellulosic-ethanol-plants-in-the-us/
  4. if you’ve subscribed to this or any of the other StreetAuthority newsletters, please click here to let us know what you think: http://www.stockgumshoe.com/reviews/tag/streetauthority/

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