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A Special Investigation into the World of Alternative Fuels and Investing Opportunities, Part 3 - What Happened to Ethanol?

The Oxen Report: A Special Investigation into the World of Alternative Fuels and Investing Opportunities, Part 3 - What Happened to Ethanol?

By David at Phil's Stock World 

Thus far in the alternative fuel segments we have covered whiskey, water, fuel cells, and now ethanol. Ethanol…oh ethanol. It was supposed to be the key to all of our gasoline problems, but it has done very little to solve any problems whatsoever. The fuel produced by our abundant excess of our little yellow friend, corn, has been a disaster and failure. But why did ethanol fail and why was it ever thought to be an alternative to our fuel problems.

At its basis, ethanol is biofuel. It is created by the fermentation of corn, combined with gasoline, and used in a standard combustion engine. The product cannot, on its own, move a car, but it is able to be blended with gasoline to produce an efficient alternative to straight gasoline. Back at the end of the Bush campaign, when the talks of global warming and "green" energy became sexy and centerfold, ethanol appeared to be an answer with mixed reports.

At its current levels, the E85 (85% ethanol, 15% gasoline) has had mixed reviews. Overall, the consensus was that E85 produced no better results for ozone pollution or energy saved other than a reduction of oil used for car gasoline. The issue, however, was with the production of ethanol, which actually was proved to use more oil to produce energy to make ethanol than was saved at reduction at the pump. If alternative energy could be used to power the production of ethanol then E85 much like PEVs will have a very significant impact on our need for oil. 

Dr. Dan Kammen, at UC Berkeley is in the camp that ethanol has positives. According to a Science Dailyarticle covering an extensive UC Berkeley study, "Once these changes (adjustment for problems with other experiments) were made in the six studies, each yielded the same conclusion about energy: Producing ethanol from corn uses much less petroleum than producing gasoline. However, the UC Berkeley researchers point out that there is still great uncertainty about greenhouse gas emissions and that other environmental effects like soil erosion are not yet quantified. ’It is better to use various inputs to grow corn and make ethanol and use that in your cars than it is to use the gasoline and fossil fuels directly,’ said Kammen, who is co-director of the Berkeley Institute of the Environment and UC Berkeley’s Class of 1935 Distinguished Chair of Energy."

(the left is inputs into producing corn for ethanol)

President Obama has continued work with the biofuel. Whether it is a poltiical move to gain support from an extensive corn grower voting bloc is in question, but the President believes that the industry has potential but needs a lot of changes. 

Yet, the problems with ethanol are surmountable, according to some. For one, ethanol is highly flammable and explosive. Inside a car, you are flying around very flammable liquid. In an accident, the risk of explosions is higher. Ethanol is much more solvent than gasoline, so it can carry impurities and do greater damage to car parts over time. One of the biggest knocks on the ethanol industry is that is just inefficient. It takes more ethanol to go the same distance than gasoline. That means more ethanol needs to be produced. If it is not any more efficient, that means we are wasting energy. According to a report on Biofuels Watch, using E85 actually raises fueling a car by 33%. 

One of the biggest issues with ethanol and any alternative fuel is that there is so much information out there that goes both ways. Some tests show one thing, while another test shows something else. The UC Berkeley test was a test of tests, and I found to be the most accurate. It has positive results, but much work is still needed to be done.

If you like ethanol, there are a few investment opportunities. Directly, there are ethanol investments available in The Andersons Inc. (NASDAQ:ANDE), Green Plains Renewable (NASDAQ:GPRE), Pacific Ethanol (NASDAQ:PEIX), and Xethanol (XNL). Indirectly, you can look at a company like Archer Daniels Midland (NYSE:ADM), Bunge Ltd. (BGE), or Corn Products Intl (CPO), which are all corn producers.

Like all the rest…the verdict is still out.