Alternative Fuels Investment Outlook

Well that question seems to be answered by the users of alternative fuels with an unqualified yes. In Echo, Oregon a local farmer has looked at the price of diesel and the cost of building his own biodiesel plant and opted to spend the $250,000 dollars to build his own plant. While Mid West plants tend to focus on soy biodiesel, Kent Madison in Echo will process the Canola he grows on his own farm. (Lies, Mitch, Capitol Press, June 2006).

There are actually 65 biodiesel plants currently producing fuel in the U.S. with another 50 plants under construction, not counting Madison's plant. That plant is projected to be completed by the fall of 2006 and will produce more than Madison will use on his farm. He will sell the excess, probably around 250,000 gallons annually, to Sequential Biofuels for distribution to the public.

Production of biodiesel nationwide tripled in 2005 and is continuing to grow in 2006. The production in 2005 was 75 million gallons. One indication of how well accepted it has become are the prestigious consumers….The Department of Defense, Naval Station Great Lakes, Illinois uses biodiesel for base support transportation. The Department of Energy, Green Fleet Team, uses biodiesel at three of its major facilities, and the U.S. Postal Service has increased its use of biodiesel as well.

Perhaps the real question is not whether the stuff works or not….(the answer seems to be that it does)…..but will there be funding, a market, investors, and public support. I have been looking at the biodiesel industry but the ethanol producers are right in there with alternative fuels of their own and a look at both of these products show some interesting trends.

The Morristown Indiana biofuel plant is said to produce 10 million gallons of soy biodiesel annually, VeraSun Energy Corporation produces ethanol and is the second biggest U.S. ethanol producer with Archer Daniels Midland being the largest. Earth Biofuels, Inc makes and distributes alternative fuels, mostly biodiesel. It actually makes a pure form of biodiesel [B100] but sells a petroleum/biodiesel blend at a B20 or 20% biodiesel to 80% petroleum mix.

VeraSun Energy Corporation shows a recent 30% jump in share prices and Archer Daniels Midland shows a beautiful 85% jump. VeraSun and Archer Daniels Midland may be leading the ethanol production pack but other companies with ethanol related businesses are looking good to investors as well. The California based producer and distributor, Pacific Ethanol, saw its shares increased by 9.5%, According to John O'Doherty in an article in The Financial Times there are 101 U.S. Ethanol production plants with the capability of producing 4.8 billion gallons of ethanol per year. He cites the Renewable Fuels Association, a lobbying group based in Washington. I looked up that group and found some interesting statistics.
• Ethanol is blended into a third of the nations gasoline
• 10% Ethanol can be used in all cars on the road today
• Ethanol powers the Indy 500 (but of course all you race fans knew that)
• Worldwide, ethanol production exceeded 12 billion gallons in 2005
(retrieved from http://www.ethanolrfa.org/objects/documents/573/state_of_the_industry_2006.pdf)
So to revisit the question "Can fossil fuels be replaced?" some industry experts note that we produce 275,000 barrels of ethanol per day. To replace all or most of the foreign fossil fuels we import the production would have to be four times that. That is almost immediately foreseeable. While ethanol is the fuel of choice for many, there are the heavy equipment and long haul truck industries to consider who look for diesel alternatives.

Because a biodiesel plant that produces upwards of 300,000 gallons of biodiesel from soy or canola is a relatively cheap investment (estimated to be around $ 250,000 ) that returns glycerin and biodiesel with no pollutants it becomes possible for an independent producer like Kent Madison to make sweeping changes in his farming financials and improve the immediate environment at the same time.

New Holland makes much of the farming equipment used in the wheat, corn, canola, and other feed and seed crop agri-industries. They have recently certified the use of a B20 biodiesel blend as safe in their equipment as have many other OEMs (Original Equipment Manufacturers). Some trucking fleets have begun to use biodiesel and report increased miles per gallon due to the cleaner burn they get with the biodiesel. Many school districts are going to biodiesel buses to reduce pollution and increase fuel efficiency.

The Alternative Fuels Data Center contains an extensive collection of valuable facts and information about alternative fuels and the vehicles that use them. The fuels described are defined by the Energy Policy Act of 1992, and include biodiesel, and ethanol (among others). This internet site has more than 3,000 documents in its database, an interactive fuel station mapping system, current listings of available alternative fuel vehicles, and a great collection of alternative fuels information and related links. (Retrieved from http://www.eere.energy.gov/afdc/)

While looking for that investment opportunity of a lifetime don't overlook the biofuel industry. I predict it is the future for investors, environmental advocates and consumers alike.