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Energy Concepts Renewable Energy • Biofuels • Carbon Trading • Cellulosic ethanol • China's Water Scarcity • China's Coal Power Pollution • Clean Coal • Coal Power • Corn Prices • Oil Prices |
It’s hard to open a newspaper without finding a story about biofuels, and in particular, ethanol. Most cars in Brazil can run on 100% ethanol. Ethanol, if blended with gasoline, can be used to power our current (2007) fleet of cars and trucks. About six million cars and trucks in the U.S. (as of 2006) are "flexfuel vehicles", which can run on either ethanol or gasoline.
Ethanol is also a form of renewable energy, which means that it is not derived from finite fossil fuels. The vast majority of ethanol produced today -- "grain ethanol" -- comes from sugar from corn, sugar cane, or sugar beets.
Cellulosic ethanol is produced from more widely available plant-based materials, such as wood and grass, and can even be made from urban and animal waste.
While the end result -- ethanol -- is the same whether it is produced from grain or from cellulose, producing ethanol from cellulose has several advantages over producing ethanol from grain. Since it is produced from non-edible parts of plants, cellulosic ethanol does not compete with the production of food, competition that can cause significant price volatility. It can also be produced with the aid of chemical catalysts, making it potentially more efficient to produce than grain-based ethanol, if the right technologies are in place[citation needed]. The production of cellulosic ethanol is also more energy efficient than the production of grain-based ethanol (which requires natural gas), resulting in greater decreases in the greenhouse gas emissions which many claim contribute to climate change.
[edit] Companies that benefit
The early entrants into cellulosic ethanol refining and marketing will benefit from the growth in the cellulosic ethanol industry. Companies who have begun production of cellulosic ethanol include Logen Corporation, the first to sell cellulosic ethanol and in whom Chevron has taken an equity stake, SunOpta, who built the first cellulosic ethanol plant, and Abengoa Bioenergy (AMB-MCE), which is currently building out a commercial-scale cellulosic ethanol plant in Spain. Dupont should benefit from a growth in cellulosic ethanol as well, as it is piloting several new technologies for cellulosic ethanol refining.
Chemical companies that might supply the catalysts required to produce cellulosic ethanol will benefit from the growth in the cellulosic ethanol industry. Such early-stage companies as Genencor and Novozymes (NZYM B-CPH), both of which have received U.S. Department of Energy funding for research into this area, would stand to benefit. Diversa (DVSA) is another major enzyme producer.
Timber companies, with access to significant resources of wasted wood, and waste management companies who control access to cellulosic waste will benefit from growth in the industry as well as rising timber prices. As suppliers to cellulosic ethanol plants, they may be able to monetize previously worthless assets (such as wood shavings, or unprocessed waste). Plum Creek Timber Company and Rayonier Inc. REIT (RYN) represent such companies.
Companies who purchase large amounts of corn will also benefit from the rise of cellulosic ethanol, as this will relieve the pressure on corn prices which has been increasing their raw materials costs. Companies that use significant amounts of corn syrup (e.g., Coca Cola, PepsiCo) and corn-based oils (e.g., makers of heavily processed foods, such as Kraft Foods) are the most likely beneficiaries. Additionally, companies that specialize in cattle, meats, animal feed, and packaged food will benefit from decreases in grain prices.
[edit] Companies that lose
Companies committed to corn-based ethanol will find themselves hurt by the rise of cellulosic ethanol. These will include design and construction firms committed to existing ethanol refining technologies, but will also include such food conglomerates as Archer Daniels Midland, who have benefited significantly from the run-up in corn prices (though ADM is currently conducting research into using corn waste as a feedstock for cellulosic ethanol, which could mitigate the negative impact). Companies tied to corn farmers, such as Deere & Company (DE), a major suppler of equipment to the farming industry, may suffer, if they are unable to tailor their product offerings to the producers of cellulose ethanol feedstocks.
Oil companies with extensive retail distribution networks, such as Royal Dutch Shell or Exxon Mobil, may suffer as a result of the required investment in developing new pumps and especially storage facilities for cellulosic ethanol, which has different chemical properties than traditional gasoline.
Vehicle manufacturers either unable or unwilling to design and build out Flexfuel cars will also suffer, as customer demand for Flexfuel cars increases along with the rapid growth in cellulosic ethanol. Companies with capital constraints (e.g., General Motors, which is near bankruptcy) and those with hefty investments in existing technologies (e.g., Ford Motor) will find this conversion a particular challenge.
[edit] Drivers of the Cellulosic Ethanol Industry
[edit] Price of oil
The price of ethanol is closely tied to the price of oil. Ethanol comprises a tiny fraction of total fuel consumption, and as an alternative to oil, it must therefore be sold at a price that competes with oil. As the price of oil rises, the price at which ethanol producers can sell their ethanol also rises.
[edit] Government support
Still in its nascency, cellulosic ethanol depends heavily on government support, including broad support for ethanol as embodied by President Bush’s mandate to increase ethanol production to 35 billion gallons per year by the end of the decade, as well as funding for cellulosic ethanol plants and research. When the government announces new initiatives to support renewable energy, ethanol, or cellulosic ethanol, stocks in the sector tend to benefit.
[edit] Development of infrastructure and a distribution system to support ethanol
The cellulosic ethanol industry suffers from a “chicken-and-egg” problem. Oil companies and car manufacturers don’t want to invest in new technologies to distribute and utilize ethanol until there is widespread supply, but ethanol producers don’t want to invest in more production until they are sure it is feasible for use by vehicles on the road and the gas stations that fuel them. Cellulosic ethanol in particular, which requires investment in R&D before it can achieve cost-parity with grain-based ethanol, will be supported by the widespread adoption of new distribution systems and automotive technologies.
[edit] Economic Feasibility
Cellulosic ethanol is not yet commercially mass-produced. The production process, which involves extracting cellulose from plant biomass, breaking the cellulose down with enzymes, and fermenting the sugar into alcohol, remains in the development stages. The U.S. Department of Agriculture conducted a study showing that the U.S. agricultural sector could produce 150 billion gallons of cellulosic ethanol from 1.3 billion dry tons of plant biomass while keeping forestry lands sustainable.[1] Production of 150 billion gallons of cellulosic ethanol, the energy equivalent of 100 billion gallons of gasoline, could decrease oil imports by 80%.[1] In 2008, cellulosic ethanol could be produced on a small scale for $1.50-$2.50 per gallon.[2]
The U.S. Environmental Protection Agency, under the Energy Independence and Security Act of 2007, is responsible for ensuring that gasoline sold in the United States contains a minimum volume of renewable fuel. The Renewable Fuel Standard Program will increase the volume of renewable fuel required to be blended into gasoline from 9 billion gallons in 2008 to 36 billion gallons in 2022.[3]
[edit] References
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