The Myth of Alternative Fuels: As Told By an Alternative Fuels Maker
It always irks me when I see articles about the wonders of ethanol from any means of production. What really pisses me off however, is that everyday investors get caught up in the conversation - or as I like to call it MYTH. Perhaps you have read articles or heard why ethanol isn't the godsend people claim it to be. But do you really know the facts behind it? Don't worry. As a bioprocess engineer student I would like to help my fellow investors by putting it quite simply: ethanol is a load of crap. Here's why...
1) ETHANOL YIELDS: Ethanol is only relevent because of the massive government subsidies that keep it alive. One acre of corn yields 342 gallons of ethanol, 263 of which is burned from seed to fuel. That's a net yield of 79 gallons! The US has 442,309,000 acres of arable land and imports 317,790,900,000 gallons of oil per year (2008 number). Doing some simple math the US could plant corn on every acre of farmland, convert it ALL to ethanol, and still only make 10% of its 2008 consumption needs. This would be a major step backwards given that the US currently imports only 60% of its crude oil. These facts and statistics come from the book Gusher of Lies and Department of Agriculture reports.
2) SUBSIDIES: Corn ethanol subsidies totaled $7.0 billion in 2006 for 4.9 billion gallons of ethanol. That's $1.45 per gallon of ethanol. Good thing, because producing a gallon of ethanol costs $2.24 compared to $0.63 for gasoline. Even with the subsidies producing ethanol costs 25% ($0.16/$0.63) more than gasoline! These facts and statistics come ultimately from Cornell University's David Pimentel. I added a little math.
3) LESS ENERGY: Ethanol only has 66.7% of the energy as a gallon of gasoline and produces twice (2x!) the amount of CO2. Combustion is quite simply: CxHx + O2 --> H2O + CO2. So, when the DOE ups the ethanol content in gasoline from 10% to 15% you are going to be paying more money for less miles and more pollution. Pretty sweet huh? These facts and statistics come from me, but don't worry, I passed all of my chemistry courses.
What are Fools to do? There are other negative effects of ethanol on society, but this is a blog not a book. Now I know what you are thinking, "BlacknGold, what about cellulosic ethanol?" Sure, it is more efficient in terms of yields (8x as much in some cases) and can be grown on land not labeled as arable, but it has its shortcomings too. Chemists claim we are just an enzyme away from breakthroughs, but in chemical engineering everything is an enzyme away.
If ethanol was so amazing, why did dozens of companies that pursued it go bankrupt or switch production away from it? The paper industry, which is desperate to make a buck, looked to produce ethanol from various byproducts. It quickly learned that it was A) not viable B) the least value-added product they could produce C) better off burning the byproducts. Ethanol will always be pursued, but I have a better investment strategy for Fools looking to capitalize on alternative fuels.
Rule #1. When researching a company, if you see the word bacteria or algae the company is already one million times better than an ethanol company. It has to do with efficiency and spacing. Still in its infancy, microbial systems that produce fuel out-compete ethanol. (When I searched butanol companies for links to show you, Google corrected me to "ethanol companies".) Butanol isn't as sexy as ethanol to politicians, but it should be something you are familiar with. It is cheap to produce (from Clostridium strains), contains 90% of the energy of a gallon of gasoline, is a drop in replacement to the current infastructure, can be mixed with gasoline in higher blends, won't ruin your car engine, and is supported by DuPont, BP, Braskem, and others. Go to the following link if you do nothing else: www.nrel.gov/analysis/seminar/docs/ea_seminar_mar_11.ppt Algae fuel companies are similarly intriguing although they play in the diesel court. Giants and innovation leaders such as Solazyme (http://www.solazyme.com/) and Sapphire Energy (http://www.sapphireenergy.com/) are showing the DOE that biodiesel from algae is fo real, fo sho.
Any questions or comments please feel free to ask. Also, my first Pharma Blog is coming out next week on BDSI, be sure to check it out!