Oil Majors Quietly Investing In Renewable Fuel Sector

In case you have missed it, the oil majors are quietly investing in the renewable fuel sector.

ConocoPhillips (COP) has made the largest foray with its partnership with Tyson Foods (TSN) to produce biodiesel from chicken fat and a recently announced deal with Archer Daniels Midland (ADM) to produce fuel from biomass (farm waste).

Exxon (XOM), while publicly downplaying and almost mocking the role of biofuels for years, is currently funding research at Stanford University

Marathon Oil (MRO) has actually partnered with ethanol maker The Andersons (ANDE) and the two are producing ethanol from corn at a plant they plan to retrofit when additional feedstock are viable.

BP (BP) has pledged $500 million to research at the University of California at Berkeley and its partners, the University of Illinois at Urbana-Champaign and the Lawrence Berkeley National Laboratory and is attempting to make bio-butanol commercially viable.

Royal Dutch Shell PLC has two separate joint ventures, one in Germany and one in Canada, aimed at producing ethanol from noncorn sources.

Now, are the investments huge? No. Did they exist three years ago? No. Biofuels are both politically popular and extremely popular with the consumer. The big takeaway here is that the alternative energy companies are not alone in this effort today. It all but assures a permanent place for biofuels.

The only question that remains to be asked is what the market looks like. Currently it is extremely fragmented and consolidation is inevitable and necessary. It is becoming a global market like oil and the players who are first to begin the global consolidation will prosper. Bunge (BG) is in South America and ADM has made no secret of its desire to acquire large scale Brazilian production and has even made public pronouncements about acquiring additional US facilities.

One thing for sure, it will be exciting to watch..