[getsmart-l] ETHANOL: The corn bubble has burst. The share prices tell the story. But look to alternatives

John O'Gorman jcogorman at sympatico.ca
Wed Nov 5 10:50:47 EST 2008

>From pond scum to desirable?
  a..  Article 
  b..  Comments (2) 
PHUONG LE The Associated Press November 3, 2008 at 12:46 PM EST

SEATTLE — Could the next green fuel be pea-green pond scum? 

Supporters think algae could some day be turned into cheap fuel for automobiles and airplanes, and they are betting heavily with infusions of venture capital money and intensive research.

About $180-million (U.S.) in venture capital has been raised for algae research, with more than half coming in the third quarter of this year, according to Cleantech, an industry research group.

Some academic institutes have set up dedicated algae research centres, and a handful of start-ups are planning to test algae on larger demonstration projects in coming months.

Internet Links
  a.. Algae Biomass Organization   
  b.. National Renewable Energy Laboratory   
“I'm convinced algae will work, but it'll take a different, out-of-the-box approach,” said Silicon Valley billionaire Vinod Khosla, delivering the keynote address at the Algae Biomass Summit in Seattle last month.

The potential for algae to compete with fossil fuels is there, but it will take scientific breakthroughs to bring down costs and solve climate change, said Mr. Khosla, co-founder of Sun Microsystems whose Khosla Ventures has invested in renewable energy, though not algae.

That has not tempered interest in the field.

The U.S. government is starting to throw money into it as well. The Department of Energy has invested $2.3 million in algae-to-fuel grants so far this year. It invested $2.2-million in algae research in 2006 and 2007, although it was not specific to fuel production.

And the Defence Advanced Research Projects Agency, the research arm of the U.S. Defence Department, is launching a new program to study algal feedstock material, said Jan Walker, an agency spokesman.

About two dozen startups and researchers are developing ways to maximize growth and reduce costs – including growing it in the dark, increasing the amount of sunlight that reaches the organisms and experimenting with oil-rich strains.

Algae offer the promise of a non-food feedstock with extremely high yields per acre. Growing it cheaply on a large scale, however, is one of the biggest challenges facing the industry.

“We can grow algae. It's been demonstrated,” said Al Darzins, a manager at the National Bioenergy Center at the National Renewable Energy Lab in Golden, Colo.

But it costs anywhere from $4.20 to $42.20 a litre ($10 to $100 a gallon) now, and “obviously that's not cost-effective,” he said.

The Colorado lab led a $25-million study of algae from 1978 to 1996, before money dried up and government research shifted to ethanol. The lab is now working with Chevron Corp. on a five-year project to research transportation fuels from algae.

But “people are starting to make the move from small little ponds to thinking about acres,” Mr. Darzins said. “It's starting to scale up.”

Sapphire Energy in San Diego is planning to build a demonstration station in Las Cruces, N.M. The startup has raised more than $100-million from investors, including Bill Gates's Cascade Investments LLC firm and ARCH Venture Partners.

Solazyme, in South San Francisco, said it produced thousands of litres of fuel from algae that was tested to meet strict ASTM international standards for jet fuel.

“We are far beyond proof of concept,” said Harrison Dillon, co-founder of Solazyme, which grows algae in the dark by feeding it biomass such as woodchips. “The test at hand is to bring the manufacturing cost down.”

Mr. Dillon said the company is about 24 to 36 months away from hitting its target manufacturing cost of 52.7 U.S. cents to 79 cents a litre, or about $40 to $80 a barrel.

In Virginia, Old Dominion University has teamed up with a contractor to grow algae in a one-acre farm.

And GreenFuel Technologies in Cambridge, Mass., announced plans last month to build greenhouses in Spain to produce 25,000 tons of algae biomass a year with partner Aurantia SA.

In the Seattle area, startup Bionavitas is testing a process to bring light deeper below the surface, solving the problem of algae shading out growth below the initial top layer.

“If this can be done, the payoff will be large,” said Bionavitas's chief executive officer Michael Weaver.

PetroAlgae, based in Melbourne, Fla., plans to complete a 20-acre demonstration farm early next year, said Fred Tennant, the company's executive vice president of business development.

The company was acquired in August by PetroTech Holdings Corp., a joint venture of a group of investors managed by New York based Valens Capital Management.

“The cost has to be low, the product has to be valuable,” Mr. Tennant said. “Nobody needs another feedstock that is not economically sustainable.”


ALTERNATIVE FUELS: Ethanol producers' unworthy heyday finally over

 ERIC REGULY ereguly at globeandmail.com November 3, 2008
  a.. E-mail Eric Reguly 
ROME -- Cheer up. The market crunch has produced some good news too. Here's one: The ethanol producers' lush, green fields are turning into Death Valley. An industry that should never have thrived is getting its comeuppance.

The scientific, environmental and fuel-security arguments made by the ethanol industry were always, at best, dubious, at worst, wildly and dangerously exaggerated. 

But Big Ethanol had one thing going for it - a torrent of cash from taxpayers and investors that proved irresistible to Bill Gates and other high-profile investors and funds.

The economics were simple. As long as fuel prices were high and corn prices low, ethanol at least made financial sense (for the investors, if not the taxpayer). 

Initial public offerings abounded. The government loot kept coming. Detroit rolled out cars that could run on ethanol-gasoline blends. Far cheaper Brazilian sugarcane ethanol was shut out of the import market. Corn farmers beamed, which helped to capture the rural vote in the United States, Canada and parts of Europe.

Inevitably ethanol went from fringe employer to mainstream corn-belt industry to bubble. 

That bubble has burst. The share prices tell the story. 

In mid-2006 (in retrospect, the peak of the ethanol market) VeraSun Energy listed in New York at $23 (U.S.) a share. The shares this year have gone from a high of $17.75 a share to 40 cents and last traded at about 50 cents.

Pacific Ethanol is a disaster of similar proportions. In late 2005, Mr. Gates's Cascade Investments paid $84-million for 27 per cent of Pacific. At the time, the shares traded at about $9. They went to a high of $42 and are now a little less than a buck. Cascade had lost tens of millions of dollars on the investment, which it began to unload last spring. While it may have been pocket change for the Microsoft billionaire, it showed that even the savviest investors got taken in by the ethanol industry's hype.

What went wrong? At its most basic level, the corn-oil bet that underpinned the industry's economics went horribly askew. Corn prices went through the barn roof in 2007 and early 2008, in good part because of the ethanol industry's voracious demand for corn; about one-third of the American crop went to biofuels.

In the first half of this year, corn futures went from a bit more than $4 a bushel to $7.50. Fearing the price would go even higher, many ethanol producers bought corn at the high price. The futures price is now $4. Meanwhile, oil prices have plunged, pushing down ethanol prices and destroying ethanol-refinery margins. Ethanol economics no longer work.

The industry is also losing the political and moral battle. After years of dithering, the United Nations Food and Agriculture Organization (FAO) this year admitted the obvious. "Rapidly growing demand for biofuel feedstocks has contributed to higher food prices, threatening the food security of poor net food buyers in both urban and rural areas," it said in a recent report. Meanwhile, lower oil prices have taken the edge off the "fuel security" argument cherished by the OPEC haters.

The environmental case began to turn against corn-based ethanol some time ago. The industry claimed that burning ethanol was better for the planet than burning oil, because ethanol's carbon output was lower. The research of some independent scientists could support no such claim when full-cycle accounting - from seed planting to refined product delivery - was employed. And mowing down green space to make room for more corn fields was clearly an un-green exercise.

While the stock market collapse of ethanol companies like VeraSun seems to signal the end of the ethanol industry, its death, like that of an opera singer's, could be long and agonizing. The first-generation ethanol plants, the ones built before the bubble years, have already paid for themselves and should be able to endure low ethanol prices for a while. The U.S. Energy Policy Act of 2005, which requires refiners to blend certain amounts of ethanol with gasoline, is still on the books. John McCain is not in favour of ethanol subsidies, which amount to $3.5-billion a year, but the poll leader, Barack Obama, is.

The ethanol industry's most powerful weapon, its slick lobbying machine, has never met an obstacle it couldn't flatten. It should come as no surprise that it has persuaded the U.S. Department of Agriculture to include ethanol makers in the rural businesses eligible for $25-million loan guarantees. The government finds it hard to say no to any beggar in the new era of bailouts for everyone, from banks to car companies, no matter how severe their past sins.

The good news is that no amount of subsidies can disguise the fact ethanol is the wrong fuel at the wrong time. There may be good biofuels; corn-based ethanol is not one of them. Some clean fuels and technologies are worthy of taxpayer funding, but not the one that raises food prices and has no proven environmental advantage. Investors have fled the ethanol industry. It's time governments around the world did the same so ethanol can go quietly to the grave.
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