What to Expect in 2008

This is the crystal ball time of year in 'mainstream' media, so I don't see why this blog should be any different. Here's some things to consider / look out for in 2008, a year that could be a watershed for development of new fuels and efficiency technologies for the automobile.

People Will Continue to Throw Money at Corn Ethanol
And no one will be able to give good reason why. I've made no secret of my almost complete and utter disdain for corn-based ethanol (comparatively low energy output, water absorption, infrastructure challenges, diversion of food supply, etc.) In addition to these much discussed shortcomings, now we learn that farmers seeking to benefit from the Corn Boom of the Mid-Aughts have dumped so much nitrogen-based fertilizer into the Mississippi River, it's killed off virtually all species in a 7,900 square mile area in the Gulf of Mexico, a place fetchingly called the "Dead Zone".

So with all that going against corn ethanol, of course we can expect huge increases in spending in this area. Why? Three things: politics, politics, and politics. It's an election year, so pandering to Midwest farm states is essential. The recently passed Energy Bill (excuse me, the ‘‘Energy
Independence and Security Act of 2007’’) dramatically increases funding on ethanol production and research, leading elation on the part of upstart suppliers like VeraSun.

Order of the Day (er, Year): Mergers and Acquisitions
Maybe you saw the news about VeraSun acquiring USBioenergy for stock. The resulting company will have enough (planned) capacity to put sector titan Archer Daniels-Midland in the number 2 spot.

Oh, we're just getting started. There's a glut of small, cooperatively owned ethanol producers throughout the Midwest (Iowa alone has 29 plants up and running with another 18 under development.) Next, the ethanol craze has produced a high demand for corn , thereby dramatically increasing costs for these small producers. Lastly, the federal government has legislated a huge jump in biofuel capacity, making the big suppliers eager to jockey for position.

The result? A whole bunch of small suppliers are going to turn the keys over to the big boys. The shakeout that follows will benefit the usual suspects like ADM and Monsanto. Smaller winners maybe VerSun, Range Fuels, Pacific Ethanol, and some others.

While ethanol company activity will get the lion's share of attention, M&A activity will extend to other alternative sectors as well. A precursor could be Ballard's sale of their automotive fuel cell business to Daimler and Ford.

OK, this is getting too long. I'll break it into separate posts. More later (I've still got 9 days before the New Year...)