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Super ethanol is on its way

The next generation of this biomass fuel could be cheaper, more plentiful and arriving sooner than you think.
By Steve Hargreaves, CNNMoney.com staff writer
June 29 2006: 9:00 AM EDT

NEW YORK (CNNMoney.com) -- Cellulosic ethanol, the biofuel that differs from corn-based ethanol in that it can be made from pretty much any organic matter, has made an impression among people who matter.
Alan Greenspan, the revered former chairman of the Federal Reserve with a big distaste for irrational exuberance, recently sang its praises before a Congressional hearing on energy security. Greenspan said cellulosic ethanol is the only alternative energy source that could be produced in enough volume to make a dent in gas usage.
"You'll get an awful lot of investments [into this technology] coming in, especially if the numbers make sense, which I think they do," he said.
And last month Goldman Sachs (Charts), the world's largest investment bank, poured $27 million into Iogen, a Canadian-based biotech specializing in ethanol made from cellulose.
It used to be thought that this fuel, which some argue has the potential to replace more than two thirds of all gasoline used in the U.S., was decades away from commercial viability.
But high gas prices, a touch of technical innovation, and a healthy dose of capital may move that date up.
"There are a lot of people who think the technology is there," and could be competitive even if oil prices return to $30 a barrel, said Greg Bohannon, a managing partner at Greenrock Capital, a California-based private equity fund that focuses on renewable energy. "Why would Goldman Sachs invest in a company that's not going to be commercially viable for 10 years?"
Chances are, they didn't.
Beyond corn
Most ethanol currently produced in the U.S. is made from corn kernels.
Its benefits have been well documented in the press, especially since gasoline prices reached a record average of $3.06 a gallon last September, and haven't fallen much since.
Ethanol is clean burning. It's renewable. And it costs about a dollar a gallon to produce. Existing cars can run on 10 percent ethanol with no modifications, and they'd need only about $100 worth of tinkering to be 85 percent ethanol powered. And, perhaps most importantly, it's domestically produced.
But there are a few major problems with corn-based ethanol.
First, it takes a lot of energy to make it. According to the Department of Energy, most studies put the ratio as low as 1:1.4 - meaning that for every one unit of energy spent, only 1.4 units of ethanol energy are created. Indeed, there are some camps who believe producing corn-based ethanol actually results in a net loss of energy.
Second, an expensive infrastructure would need to be built if people started using mostly ethanol in their vehicles, since ethanol is water soluble and the existing pipelines and filling station equipment for gasoline are not completely water tight.
Third, there's not enough corn available. John Ashworth, a biomass expert at the Department of Energy's National Renewable Energy Laboratory, said corn could only supply about 12 to 18 billion gallons of ethanol a year, or about 10 percent of the nation's 140 billion gallon-a-year gasoline habit.
After that, ethanol would start to run up the price of corn, raising the cost of everything from eggs to Coca Cola. Of course the same problem would emerge with ethanol made with sugarcane or soy or any other food crop.
Wood chips to the rescue
Cellulosic ethanol has all the advantages of corn-based ethanol - there is no difference in the ethanol, only in the way it's produced.
But unlike corn-based ethanol, cellulosic ethanol can be made from a variety of things that might otherwise be considered waste -- sewage sludge, switchgrass, plant stalks, trees, even coal -- virtually anything that contains carbon.
Ashworth said there are an estimated one billion tons of such material available in the U.S. every year, enough for 100 billion gallons of ethanol.
While it's not feasible to actually go out and collect every ounce of that one billion tons, he said it's not unreasonable to expect ethanol to replace 40 billion gallons of gasoline in the near future.
"There's a lot of venture capitol out there that's willing to invest in cellulosic ethanol," he said. "You're likely to see some plants built in the next 12 to 18 months."
Entrepreneurs are in fact pressing ahead with ambitious plans.
"We know the technology is proven," said Jim Stewart, a spokesman for Bioengineering Resources Inc., or BRI, an Arkansas-based biofuel outfit. "It's at the point of commercialization."
Stewart said BRI uses a patented bacterial culture to transform organic matter into ethanol, and can produce a gallon of it at a fourth the retail cost of a gallon of gas.
He said the company plans to have 4 plants operating commercially within the next 16 to 18 months, but some industry-watchers believe it will be at least several years before cellulosic ethanol production will become commerically viable.
Vancouver-based Syntec Biofuel uses a different process to make ethanol. It turns the organic matter into gas and then moves the gas over a metal catalyst, which then turns it into liquid fuel. But the end result is the same.
Syntec hopes to have a full-scale plant up and running in three years, then plans to make most of its money by selling the plant's design to outside producers.
Company spokesman Jeff Eltom touted the efficiency of Syntec's process, saying it plans to get 10 units of energy out of every one unit they put in.
"We're not going to totally replace gasoline," said Eltom. "But we can take a big chunk out of what we import and become more energy efficient."
Temperance
Eltom's comment reflects the conventional wisdom in the alternative energy field: As the shift is made from fossil fuels to other options, it won't be any one single thing that meets the world's energy needs, but rather a mix of sources that will do so.
Still, not everyone believes cellulose ethanol will be part of that mix in the near term.
When the U.S. Energy Information Administration released its long term world energy outlook earlier this week, it projected a surge in U.S. oil consumption over the next 25 years, mostly due to transportation needs.
The agency said it does take new technologies into account when making its predictions, but that it believes cellulose ethanol is still too expensive to compete in the market place with corn ethanol and gasoline.
"It would take a breakthrough in the costs," said Andy Kydes, a forecaster at EIA. "It could happen, and we have hopes for it, but right now it's not on our radar."
Kydes did, however, ask for the names and phone numbers of the companies mentioned in this story, saying the agency would "look into it."
 

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Discussion Starter #2
Here's a related article:

Ethanol war brewing
Grain alcohol is seen as the new gasoline. But which recipe is the one for investors to bet on?

By Chris Taylor, Business 2.0 Magazine senior editor
June 27 2006: 10:15 AM EDT
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SAN FRANCISCO (Business 2.0 Magazine) -- Everywhere you look these days, tech and business world luminaries - like Richard Branson, Paul Allen, Steve Case, Vinod Khosla, John Doerr, and Bill Gates - are laying down big bets on ethanol, a substitute for gasoline that's already finding its way into pumps.
The price of the stuff has shot up 65 percent since May from $2.65 a gallon to $4.50, largely thanks to the oil companies who have started to put small quantities of it in our gas as a clean-air additive (most cars can handle a blend of up to 10 percent ethanol in their tanks).

That means the fuel for our cars is now about 60 cents a gallon more expensive than it would be if it were just gas, according to analysts at JPMorgan. As drivers, ethanol is lightening our wallets; as investors, though, it could well fatten them.
But before you jump on the ethanol bandwagon, consider this: There is an ethanol format war looming that will make the Blu-Ray vs. HD-DVD tussle look like a schoolyard spat. If you're making an investment for the long term, you have to ask yourself whether the future's dominant fuel is going to come from corn, sugar, rape seed, or switchgrass - or if it's going to be synthesized from scratch.

The winner is going to be whoever can make ethanol in mass quantities for as little money per gallon as possible - a tall order, no matter how you go about it.

Prices as high as an elephant's eye

First of all, consider corn - which, thanks to the farm lobby and the importance of Iowa in presidential politics, is the source of nearly all the ethanol in the US. It has the most government subsidies, and is the form of the fuel that Richard Branson says he will invest in, and market, to the tune of $400 million. Last month, Kleiner Perkins -- the VC firm where Doerr and Khosla are partners, and which brought us Amazon.com (Charts) and Google (Charts) - invested in Altra, a Los Angeles-based corn ethanol company.

Corn has the advantage of being planted in the ground now. But it has one vast economical disadvantage: Corn, according to a much-cited Cornell study, takes more energy to grow, harvest, transport and refine than you get out of it at the pump. The Department of Energy is more generous, putting the ratio of energy in to energy out at 1 to 1.4. Whatever the exact numbers, the costs grow considerably for those of us living in coastal states, so far away from the amber waves of grain in the heartland.

Sweet alternatives

There is already a sweeter alternative. "Ethanol from sugar cane is far more efficient," says Steven Schneider, CEO of Santa Rosa, Calif.-based Zap, an alternative transportation outfit. That's why ethanol-fueled cars are all the rage in Brazil, where 70 percent of new cars are equipped to run on the stuff. Zap has started importing a particularly popular Brazilian model of "tribrid," a gas-electric hybrid car that can also run on ethanol.

In theory, sugar cane is the cheapest substance you can make ethanol out of - unless you live in the U.S., that is, where import tariffs make it prohibitively costly. (Blame the corn lobby, which doesn't want a competitor to high-fructose corn syrup, and domestic sugar interests.)

So where is the better corn alternative? Step forward, cellulosic ethanol. This is the kind of ethanol that's produced from any part of a plant that you don't eat - straw, stalks, corn husks. All of that waste is rich in cellulose, which, in theory, can be converted into sugar, and then ethanol.

Cellulosic ethanol has more than its fair share of eager investors. Last month Goldman Sachs (Charts) put $27 million into a Canadian company called Iogen, which wants to produce ethanol from switchgrass, a perennial grass that's cheap to grow. Iogen is building the world's first cellulose-to-ethanol factory.
Microsoft (Charts) co-founder Paul Allen is investing in a Seattle firm that wants to use canola oil, which comes from rapeseed, to create ethanol. And Vinod Khosla, the Kleiner Perkins partner and Sun Microsystems (Charts) co-founder, has investments in two cellulosic ethanol companies.

The advantage of cellulosic ethanol is its potential efficiency. It can use wild-growing plants that we wouldn't have to cultivate - and it promises to reduce greenhouse gas emissions by up to 80 percent.

The problem: Making it involves a complicated process that breaks down plant material into sugars using enzymes that aren't yet commercially available. The most promising methods, like one at the University of California at Berkeley to use an enzyme derived from a cotton-eating fungus, are still at the laboratory stage, and the first commercial enzymes aren't expected until 2009 at the earliest, according to some experts.

Brewing ethanol from scratch

So keep your eye on Craig Venter, the scientist who helped map the human genome. His latest venture, Synthetic Genomics, is using $31 million in venture-capital funding to make genetically modified plants and plant-eating enzymes. Such an ambitious, DNA-level project will take a lot longer than three years.

And by then, Bill Gates' bet may prove to be the smartest of all. Microsoft's chairman, who will step down from his day-to-day role at the company in a couple of years, has bought 25 percent of Pacific Ethanol, a Fresno, Calif. company that is planning to build dozens of ethanol refineries in the U.S.

Those refineries will be easy to adapt to whichever ethanol production method ultimately wins out. That could put Gates in a familiar spot -- as the gatekeeper to a must-have product.

And he's a pro at winning format wars.
 

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Seems like corn could deliver a better energy ratio if they used cellulosic technology...I assume now they discard everything except the corn kernels, like making moonshine.
 

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As I recall, many years ago it was too expensive to extract oil from coal, or shale, current oil prices makes it more attractive. The real problem are the politicians, both Repub & Dem, pandering to oil companies, auto makers etc, not passing legislation to make it mandatory to develop new alternative energy sources. Thus we are in a mess having to rely on foreign oil. This is a failed policy that's going to lead to bigger wars in the future.
 
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