Profit From The Coming Algae Oil Boom
Algae oil is now the most promising source of alternative energy on the planet
. But dont just take my word for it the worlds biggest energy player agrees.ExxonMobil is the Big Oil player thats causing all the fuss. The company has thrown $600 million into a research partnership to study the potential of algae oil. Now, ExxonMobil will team up with human genome researcher Craig Venter in an attempt to make algae oil a more viable fuel source.
There has been so much hype and hope about the potential for algae that this announcement should act as a reality check for everyone, Venter told the Financial Times.
Up until this point, the algae oil industry was rarely mentioned in mainstream media sources. Yet it remains one of our most viable alternatives to conventional fossil fuels.
The argument is simple: Algae are the fastest growing plants in the world. And algae consume more carbon dioxide than any other plants. As they grow, algae produce lipids, or vegetable oil.
The math is greatly skewed in favor of algae. One acre of corn can yield about 28 gallons of oil in one year. In more tropical regions, an acre of palms can yield about 6,700 gallons of oil per year. An acre of algae can yield anywhere between 20,000-100,000 gallons of oil per year.
This tremendous potential exists because of a lightning-fast growth cycle. An algae plant can completely reproduce up to six times per day. And we all know it takes corn all summer to mature.
Why Ethanol Doesnt Grow Any Profits
Oil is all over the place. Itll get crushed one day and then bounce right back into the $40s the next. And while the volatility in the oil market probably wont change anytime soon, thanks to an uncertain economy, there is something distinctly different about the way were reacting to the comeback of cheap gas.
No, the green movement wont just go away. Consumers continue to demand more earth-friendly products. A sense of urgency over climate change and OPECs stranglehold over our oil supply continues. We continue to seek alternatives. But alternative energys next wave needs to prove it can sustain once the hype dies down.
Take ethanol. At first glance, 2006 looked like a great year to be in the ethanol business. Shares of Pacific Ethanol were on fire, shattering the $20 mark by the end of March. By May, shares broke $40. Bill Gates millions helped jump-start the stock, and new government mandates all but ensured the success of the corn-to-fuel business.
As time would soon tell, the spring of 2006 proved to be a great time to sell your ethanol holdings. Pacific Ethanols light is not shining quite as brightly as it once was. The stock is more than 98% off its 2006 high, and Gates is steadily unwinding his stake in the company.
Pacific has been plagued with problems recently. The companys most recent annual report is chock-full of problems, including violations of some debt covenants and other shenanigans involving the companys line of credit.
But the bigger problem is that you cant sell ethanol for more than it costs to make it. One would think that would kill this business off entirely. But thanks to inexplicable government support and backward-thinking energy legislation, ethanol production will most likely continue despite the tough lessons weve learned.
So the big question remains can someone successfully develop an alternative energy source that will actually make money?
Do the Math: 20,000 > 28
When you look at the numbers, one particular alternative energy source makes a whole lot of sense: algae. One acre of corn gives you 28 gallons of oil in a year. An acre of algae can yield anywhere between 20,000-100,000 gallons of oil per year. No wonder the updated 2007 Energy Independence and Security Act supports extracting fuels from algae.
While the algae fuel field is not completely crowded, multiple players are developing, harvesting and extracting systems that could one day be industry-standard designs. In as little as three years, we could see a powerful new energy industry.
Chevron and Shell have started exploring the possibilities of algae. There are also a few small companies that are working on the technology.
With the coming transition to alternative fuels, early investors in algae oil stand to claim some huge gains if this technology takes off
Potential Algae Penny Plays
Of course, ExxonMobils new partnership does not mean we will be filling our tanks with pond scum biodiesel just yet. Developers will still need to tackle genetic engineering and oil extraction issues
But ExxonMobils leap into the algae oil market effectively legitimizes the industry. But as you probably have already guessed, the budding algae oil industry offers very few public companies in which you can invest. However, there are a few compelling names youve probably never heard of
Here are three algae penny plays you might want to watch. All of these stocks have a market cap under $2 million, a share price under 10 cents, and can be found on the Pink Sheets and Over-the-Counter Bulletin Board:
GreenShift Corporation (OTC: GERS)
Nanoforce Inc. (PINK: NNFC)
PetroSun Inc. (PINK: PSUD)
Several private startups and partnerships are worth watching, too
Weve mentioned Sapphire Energy before. Its scored more than $100 million in private financing including a chunk from Cascade Investment, a holding company owned by Bill Gates.
Then theres Algenol Biofuels. This company has partnered with Dow Chemical on a project that would use algae as a vehicle to harvest CO2 for ethanol.
The ethanol would be sold as fuel, reported The New York Times, But Dows long-term interest is in using it as an ingredient for plastics, replacing natural gas. The process also produces oxygen, which could be used to burn coal in a power plant cleanly, said Paul Woods, chief executive of Algenol, which is based in Bonita Springs, Fla. The exhaust from such a plant would be mostly carbon dioxide, which could be reused to make more algae.
The companys target price is $1 a gallon incredibly cheap compared with corn-based ethanols. A breakthrough like this one could put the U.S. on the road to energy independence at breakneck speeds. Well keep you posted
Best,
Greg Guenthner
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