The latest innovation in biofuel production could potentially turn this industry into the profit machine it always wanted to be. Here’s what you need to know to profit from biofuel’s latest breakthrough…
Let’s be honest, biofuel as an alternative energy source hasn’t exactly taken the world by storm.
Sure we hear about it in the media, but more often than not, a story on biofuel tends to lean towards a single controversial question: food or fuel?
Around the world, many countries at one point or another, have endorsed the idea of biofuel one day replacing fossil fuel – but very quickly they’ve come to realize that it comes at a significant cost.
From damaging biodiversity to driving up food prices, there’s been a growing backlash against a fuel that was initially praised for being sustainable and cleaner burning.
It’s been well documented that biofuel crops actually increase emissions through land clearance, fertilizer use, and by displacing other crops – namely corn.
You see, corn ethanol is currently the primary source of biofuel in US. But corn is a very energy-intensive crop, where one unit of fossil-fuel energy generates just 0.9 to 1.3 energy units of ethanol.
By contrast, 14.5 units of oil and gas can be generated from a single unit of fossil fuel.
According to the New York Times, more than one-third of our domestic corn crop is used to feed livestock. Another 13% is exported, much of it to feed livestock as well. And another 40% is used to produce ethanol while the remainder goes toward food and beverage production.
Ethanol production in the US has experienced dramatic growth over the past few years, thanks to the Renewable Fuel Standard (RFS) law set in 2007 by the Environmental Protection Agency.
But as intensive as it is to produce ethanol, our country is actually in a midst of a supply glut… for a couple of reasons.
First, the legislation mandated refiners to blend a certain percentage of ethanol in with their gasoline. In order to meet the blending goal of 36 billion gallons by 2022, generous subsidies and grants have been handed out.
While the attractive subsidies spurred production, America unfortunately began to see a gradual decline in overall gasoline consumption. Subsequently, demand for ethanol also contracted in the process.
Moreover, most refiners have reached a “blend wall” – the maximum percentage of ethanol in gasoline that their gas stations can handle (around 10%) — further crimping demand.
Even car manufacturers have expressed concerns over maximum ethanol levels that their current fleets of vehicles are safely capable of handling.
So with ethanol seemingly falling out of favor, should investors consider closing the chapter on biofuels?
After this latest technological breakthrough, it’s worth a serious reconsideration.
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A team of scientists at the University of Michigan recently turned their attention to a little-known biofuel alternative known as isobutanol – produced from carbohydrates.
Unlike corn ethanol, isobutanol is derived from the fermenting of inedible plant materials. Whether those carbohydrates come from corn, sugarcane or cellulosic fibres, a combination of fungus and E. coli bacteria ferments the carbohydrates from the feedstock, turning the waste into a biofuel that boasts better properties than ethanol.
Isobutanol gives off 82% of the heat energy gasoline provides when burned, compared to ethanol’s 67%. It has oxygen content of 22%, while ethanol has 35%.
Ethanol is fully miscible and thus is difficult to transport via pipeline, while isobutanol is only 8.5% miscible and can be transported quite easily. Furthermore, ethanol has a tendency to absorb water, in turn corroding pipelines and damaging engines. Isobutanol on the other hand, doesn’t mix easily with water.
While isobutanol looks to be far superior to ethanol, there’s still the question of how to address the slumping demand for biofuel.
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That’s where biofuel producers like Colorado-based Gevo Inc. (NASDAQ:GEVO) are quick to point out isobutanol’s many other uses.
As one of the early adopters of this technological innovation, they’ve quickly identified other potentially lucrative revenue streams beyond blended gasoline for cars.
Gevo CEO Pat Gruber states that isobutanol as a four-carbon alcohol can be used as a specialty fuel for marine fleets and small engines or converted into renewable iso-paraffinic kerosene to be blended into jet fuel. It also can replace petroleum-based butanol in solvent and coating production.
Additionally, dehydrated isobutanol becomes isobutylene, which can then be cracked into a host of aromatics and thus be used in production chains that make use of them.
So despite the current limitations being faced by the ethanol sector, isobutanol looks poised to give biofuel a second chance.
Once isobutanol reaches commercial production levels, it could be off to the races. Put it on your radar now.