Syntroleum: Fat is good

Syntroleum, a company perhaps best known for their coal-to-liquids conversion technologies (as bizarre an alternative fuel as there possibly is, but that's another story), recently announced it's getting into the fat-to-fuel business with leading meat processor Tyson Foods.

The stated objective for the partnership is to produce 75 million gallons of diesel and jet fuel (!) from cow, pig and chicken waste fat. The plant is to come online in 2010.

For Tyson, this is big step number two in their attempt to enter the alternative fuels market. Tyson, you might remember, recently launched a similar partnership with petroleum giant CononoPhillips (which I blogged on here.) It's an intriguing tactic in that it is taking a byproduct that is quite literally waste and transforming it into a commodity (versus re-tasking a food stock grain such as corn into ethanol, which, incidentally, just gets less appealing by the day... see this BBC article.)

For Syntroleum, the early returns say it all: stock value increased 12% in the day following the announcement. Things have cooled off a bit since, but Syntroleum isn't going away anytime soon. In addition to its new Tyson deal, the company has some proprietary technology in converting natural gas into diesel that has attracted the attention of the Department of Energy and Marathon Oil. I figure this quote from Hillary Kramer at Seeking Alpha says it all:

Syntroleum’s gas-to-liquid technology is patented, it is developing coal-to-liquids, and if it can get plants off the ground smoothly, it should fly high. Further, this an acquisition target: a great option for a larger energy company looking to acquire this cutting edge technology, and if acquired, imagine the upside to the stock under those circumstances.

Certainly Syntroleum is no sure thing, but if you're looking for early stage alt fuel investment opportunities, its certainly worthy of consideration.

Ethanol from Corn Continues to Underwhelm

I've been accused in the past of being a bit of an ethanol basher. That's not true. Ethanol has some potential, provided it's not made from corn.

It's the corn thing that gives me pause. The ethics involved with moving food to fuel, the global impact on rising corn demand on food prices, and questionable energy capability of the kernel make corn (at least in my humble opinion) a less than thrilling alternative fuel source.

Now add to the equation the fact that the price of corn and crude oil have merged. Good article in the Economist on this topic recently. It references Jeff Currie of Goldman Sachs, opinion that planting more corn will not reduce its price:

Since high oil prices and generous government subsidies ensure that biofuels are profitable, any extra grain will be used to make more of the stuff. That will not dent the oil price, since the volumes remain tiny compared with global oil consumption. Instead, the price of biofuels has risen to that of petrol, and the price of corn and crude oil, the main feedstocks for the two, have converged. For grain prices to fall, Mr Currie argues, either governments must pull the plug on biofuels programmes, or the oil price must fall.

Now, is this going to stop people from investing in a corn-based ethanol future? Not a chance. Too much lobbying in the US from agribusiness and financial groups who have staked large bets on corn for it to go away. But as people realize that the performance of corn is underwhelming and does not compete on price, opportunities will arise for other alternatives.

ADM goes to Brazil

I usually try to focus on new companies in this blog. It's where the greatest amount of innovation is taking place, and (frankly) I find the topic more interesting.

But when global agriculture heavyweight ADM says it's headed to Brazil to enter the sugar cane market, it's worth taking notice. According to the Wall Street Journal, the company is exploring different entry strategies, from greenfield development to acquisitions. This could include the outright purchase of Cosan, Brazil's largest sugar and ethanol producer (market capitalization of about ~ $3.5 billion USD). That's about all ADM executives are saying at this point.

If, as expected, ADM uses Brazil investments to serve as a base for exports to the US, has the potential to radically reshape the nascent ethanol market (which in the US is so heavily linked to corn.) That, and it's going to make everyone who has invested so heavily into corn-based ethanol a little nervous.

UQM is Motorin'

Let's review the last several months for UQM Technologies, maker of propulsion systems for the growing electric vehicle market.

• Phoenix Motorcars orders $9.25 million of UQM motors for Phoenix's new all electric SUT.
• Forms strategic alliance with advanced battery maker Altairnano, one of the fastest risers in this critical market space.
  
• Obtains over $1.7 million in two separate contracts from the US Air Force.
• Announces development of a new 150kw motor ready for use in high performance vehicles (are you reading this Tesla?) and heavy duty commercial/military vehicles.
  

UQM has over 25 years of experience developing electric power systems for advanced vehicles. They've got proven contacts in both military and civilian markets. Their technology is proven, and is advancing.

As developers of next-gen EVs look for suppliers of motor systems, the safe bet is that UQM will be on their short list.

All Charged Up: Quick Battery Update

Lots happening with some of the leading makers of advanced batteries targeted for the transportation industry.

• A123: GM announced the winners of their Volt battery beauty pageant, and Germany-based Continental Automotive Systems, a division of Continental AG, was one of the two winners. A123 supplies Continental with their battery technology. GM will evaluate battery product through June 2008, and then make a determination of how to best to move forward.

• Compact Power, Inc. (CPI): CPI is the other GM pageant winner. Based in Troy, MI, CPI is owned by Korean battery maker LG Chem. CPI's large format batteries use a proprietary formula that apparently can withstand 300K recharge cycles. The company further claims a 15 year product life span. Key point: LG Chem will develop and supply all the batteries; CPI is only responsible for design and assembly of the cell packs that will be supplied to GM. Essentially the opposite of the relationship between A123 and Continental AG.
  

• Altairnano: The good news for Altairnano is that performance claims surrounding their batteries were recently verified for the California Air Resources Board by AeroVironoment. AV ran "50 ten-minute fast charging cycles at the module level with a 120-minute discharge to simulate travel at 60 mph" with no battery degradation at all. The findings seem to confirm Altairnano's claim that the battery should be "good for tens of thousands of cycles equivalent to 500,000 miles of vehicle travel." Also, looks like the folks at Altairnano found their Tesla. London-based Lightening Car Company will produce an EV sports car using Altairnano's NanoSafe batteries. At a cost of close to $300K US, it's not going to be a big seller. But, then, no one expects the Tesla Roadster to gain wide market share either. The purpose of an exotic is to draw attention to a technology that will eventually find broader application.
  

Solazyme: Small Product, Big Business

Solazyme seems to be on a bit of roll. This maker of bio-engineered algae stocks recently signed a production and distribution agreement with Imperium Renewables, the leading biofuel company on the US West Coast. (A previous post on Imperium is here.) Solazyme will use their proprietary algae strains to produce feedstock oil for Imperium, who will then convert it to biodiesel.

The agreement comes on the heels of the company's recent completion of Series B funding. The Roda Group and Harris &Harris Group are lead investors.

I suspect that that Solazyme will not have too much trouble raising additional capital in the near future. The company can lure potential funders with a line baited with a business model that is positively redolent with investors' current favorite flavors: biotechnology and alternative energy.

Frankly, it's great to see a company that combines the potential of algae-based bio-fuels with an apparent keen business sense. Other players in this area have suspect business plans or questionable histories.

Is there a lot of work left to do before biodiesel derived from algae is commercially viable? Without question. (See great post on R-Squared Energy blog for algae-to-biofuel hurdles.) However, with it's growing investor population, strategic partnerships, and varied product line (i.e. not wholly focused on energy), Solazyme stands to be able to weather any future storms.

Iogen: Cellulosic ethanol from the Great White North

Cellulosic ethanol pioneer Iogen is currently converting 40 tons of wheat straw per day into ethanol at a demonstration facility, prompting this quote from Elizabeth May, Executive Director of the Sierra Club Canada:

"Iogen has figured out how to weave gold out of straw."

Rumpelstiltskin metaphors aside, it's a statement that's only marginally hyperbolic. To whit, consider the company's recent investors (all figures in USD):

• Goldman Sachs: $30 million
  
• Petro Canada: $24.7 million
• Royal Dutch Shell: $46 million

The funding will be used to expand the company's commercialization of their technology. Interesting to note: this does NOT include building more facilities. Rather, the company is going to concentrate on what it knows best: licensing their technology and patented enzymes to ethanol producers. Given the explosion in plant construction in the American Midwest, there's going to be no shortage of potential customers.

Established in 1974, Iogen has an history in developing enzymes for commercial use. In addition to fuels, the company addresses enzymatic needs in sectors including animal feeds , textiles , and pulp and paper business. The company first began working with cellulostic ethanol in the 90's, and now it appears the work is paying off.

Strong financial backing from both institutional and industry investors, broad industry expertise and experience, and a low overhead business model combine to suggest that Iogen will continue to play Rumpelstiltskin in the alternative fuel markets.