I mentioned the other day that I think biodiesel could be a great potential investment right now.
I could probably rattle off a dozen or more reasons that I have come across in my research. But here are my top seven:
- The rise in oil prices and drop in soybean prices mean that biodiesel costs less than petroleum-based fuels.
- There also happens to be a tax credit to encourage biodiesel use.
- President Bush visited a biodiesel plant earlier this year.
- Lots of school districts are switching to biodiesel. See: Hazelwood Schools Switch To Biodiesel, FWCS acts to switch its vehicles to biodiesel, Greenville school buses are now more environmentally friendly, Officials look at ways to save on energy costs, and Cleaner School Bus Fuel: ‘Breath of Fresh Air’ for Thousands of Chicago Area Children Thanks to Cook-Illinois Corporation.
- The U.S. military uses it.
- President Clinton has publicly backed biodiesel.
- The world will run out of oil. Eventually.
Disclosure: I hold shares in a publicly traded alternative energy company. Can you blame me?
Update: Effective September 29, all diesel fuel sold in Minnesota must be at least 2% biodiesel.
Popularity: 7% [?]
September 30th, 2005 at 9:30 pm
I’ve been involved in a good discussion on a Biodiesel forum related to investing:
http://forums.biodieselnow.com/topic.asp?TOPIC_ID=7971
December 16th, 2006 at 11:15 pm
I’ve been reading a lot about, and occasionally making and using, (very small scale)biodiesel for 5 years now. I make it from waste oil which otherwise would have been dumped, used to make soap, or used to make biodiesel by a large hauler. Great stuff, great concept, easy to make in a basement or garage, BUT….. it still is not economical to make from soybean or any other raw (new) oil and here’s why- there is still, to my knowledge, a negative efficiency involved which has yet to be overcome. In other words: to grow the soybeans, truck them, process them, etc. on down the line until you have biodiesel takes as much or more fuel than is produced! Why burn a gallon of fuel to make a gallon of fuel??? Makes no sense to me. To use the waste oil, yes. But to grow the oil crop, no. Can anyone correct me on this?
December 19th, 2006 at 11:27 am
Hi Brian,
There was a recent post on Biodiesel and Ethanol Investing that discussed this energy balance issue related to ethanol although I think the discussion is equally relevant to biodiesel:
http://www.biodieselinvesting.com/biodiesel-archives/2006/12/07/msu-professor-clarifys-the-myth-of-ethanol/
An excerpt:
“Dale contends the study is off-base because it measured energy used and produced with British Thermal Units (BTUs) … “It’s an irrelevant measurement,” he said. “We cannot add up different forms of energy on a straight BTU basis any more than we can add up different (monetary) currencies on a straight equivalency basis. ”
I hope that helps.
December 21st, 2006 at 4:27 pm
Hmm….. why can’t btu’s be equivalent when comparing liquid fuels? If gasoline or diesel is used to farm and transport the crop, then ethanol or biodiesel could be substituted gallon for gallon (or the btu equivalent since ethanol is about 30% less efficient). If electricity is used in processing then it gets more complicated, but I have yet to see a conclusive study showing a positive net result using new oil. I played with ethanol in high school, and we actually built a solar still because that was the only way to process it that was net positive. I know technologies are constantly improving, but nothing I’ve seen yet is substantial. I still think it’s nuts to claim to be cleaning up the environment by burning ‘clean fuels’ that require their own equivalent in fossil fuels to produce and transport. I do realize it takes fuel to transport whatever kind of product (petrol or ethanol or bio) so that could be factored out, but if it’s not a ‘backyard’ operation I can’t accept that this is a viable alternative just yet, either from an environmental standpoint or as a replacement for foreign (or domestic) oil.
December 21st, 2006 at 5:00 pm
Hi Brian,
First of all, switching to biofuels is about a lot more than just saving the environment. A large amount of the world’s oil reserves happen to be in dangerous places, and our nation’s military has been put in harm’s way many times in order to protect these strategic oil supplies.
In addition, global oil reserves are dwindling, and the current technologies that we are moving toward, while not perfect, are steps in the right direction in an effort to wean us off oil.
One of the biggest potential sources of ethanol, and the one that produces the most net positive energy fuel, is the production of cellulosic ethanol from sources such as switchgrass. The technology is getting there, but a number of companies are working toward that goal. Other technologies, such as algae, are in the works as well and I recently read about a group in Australia that was developing this technology.
I think there are too many factors to argue either way about the BTU comparisons but I do believe that since these industries are still in their infancy there are sure to be many technological advances that can contribute to production efficiencies in the future. But I did find an article that suggests ethanol causes a net gain of energy:
http://www.jsonline.com/story/index.aspx?id=545590
My point in writing this article is really to say that regardless of what popular opinion happens to be, the trend I am seeing from government and industry is that we are moving toward a biofuel economy. Many states have passed renewable fuel standards, the EPA switched from MBTE to Ethanol earlier this year, and many other companies, including America’s “big three” auto manufacturers, have embraced ethanol and biodiesel. Not to mention everything that is happening in Europe, Asia, Canada, Australia, etc.
As an investor, that’s why I believe the global biofuel industry has so much growth potential.
December 27th, 2006 at 2:58 am
Thanks for your thoughts! The switchgrass and algae angles are very promising, as is wood fiber (waste from mills or sustainable-harvest ‘brush’). Weaning off oil is good, but again, if it takes a gallon of ethanol/biodiesel to make a gallon, what have we acomplished?
The article (study) you referenced does not show a net gain in energy (fuel)specifically, but in profit from selling byproducts of distillation. That works for ethanol but probably not for biodiesel. Even a 10% net fuel gain, which no one has yet documented, would barely scratch the surface of this country’s demanding consumption (a whole new subject). I am not trying to be negative, as I believe in vigorously researching and pursuing alternative energy sources. As a firsthand observer of the 1974 alleged oil crisis, I’ve been experimenting with and learning all I can about this stuff for many years now. I’ve run vehicles on both fuels, and heated with waste veg oil. But the more I learn, the more I realistically become skeptical. We are still way too far behind the technology curve. Just because it’s currently trendy (not to mention essential) to be pro-alternative fuels doesn’t make it automatically successful. Getting back to the investment angle, I would, at this point, be inclined more toward companies that create/sell the technology than those selling the production. There is one other issue which often seems to fall by the wayside in these discussions, and that is water use. Water is a far more valuable commodity than oil, and the production of both ethanol and biodiesel uses a great deal of water. This is a major issue that needs to be addressed, and a price (if we can determine one) factored in for the value of water as a resource. Once again, the proper technology can likely address this issue in (hopefully) a positive way, but that has not yet happened. Your conclusion is absolutely correct, the global biofuel industry has incredible growth potential. I’m just not sure if it’s still too early to pick the winners.
December 27th, 2006 at 6:46 am
Hi Brian,
Thank you for your comments. I agree that water is an important resource that isn’t really being talked about a lot when it comes to biofuel production. Based on my understanding of the processes, I believe that ethanol production uses significantly more water than biodiesel production because for biodiesel the water is used mainly to “wash” the biodiesel and rid it of impurities (since the use of methanol separates the vegetable oil into glycerine and biodiesel in the process of transesterification).
Ethanol plants use approximately 5 gallons of water for every 1 gallon of ethanol produced, according to this:
“Consumptive water use by ethanol plants largely comes from evaporation during cooling and wastewater discharge. Ethanol plants are designed to recycle water within the plant. The quality of the cooling water is key because of the need for high quality water in the boiler system. As a rule of thumb, water utilization is 10 gallons per minute for each 1 million gallons of yearly ethanol production. Thus a typical 50 million gallons per year ethanol plant would need 500 gallons per minute of water. Modern ethanol plants have sophisticated water treatment techniques to enable recycling of water to boilers. These treatment techniques should also enable the plants to use lower quality water such as sewage treatment plant effluents and possibly
even water recycled from animal feedlots. … There are no publicly available records on water use by ethanol plants for the U.S. In a review of ethanol states, only the Minnesota Department of Natural Resources apparently has records on water use by specific plants in reference to the amount of ethanol produced. Minnesota ethanol plants report a wide range of water use, with most plants in a range from 3.5 to 6.0 gallons of water consumed per gallon of ethanol produced. Average water use has declined from 5.8:1 in 1998 to 4.2:1 in 2005, indicating that the plants are achieving greater efficiency over time.”
Source: http://www.agobservatory.org/library.cfm?refid=89449
(it is a PDF document)
With regards to biofuel stocks, yes, it probably is too early to pick certain winners. I have found that most biodiesel stocks tend to be pretty speculative although several are actively producing either the biofuels themselves or the technology for biofuel plants, or both. A lot of them don’t have great numbers but some have had very good returns so far which has made them all the more tempting as investments.