Biodiesel: ConocoPhillips and Tyson

Energy giant ConocoPhillips (COP) and food producer Tyson (TSN) are cooperating on a biodiesel manufacturing process that converts animal fats into fuel. A fact sheet (replete with pretty pictures) produced by the companies can be found here.

Partnerships of this type that produce closed loop manufacturing and distribution systems will undoubtedly be on the rise in the coming years. McDonald's (yes, that McDonald's) has supplied used fryer oil to a pilot biodiesel conversion program in Brazil since 2004. No word on potential US applications at this point, but consider the following: there are about 12,000 McD franchises in the US, producing an average of about 2,500 gallons of waste fry grease annually. That's 30 million gallons of potential fuel. Ergo, I'm assuming a partnership similar to CP-Tyson is inevitable.

One option may be to consider companies with stagnant market share in existing categories or looking to develop new revenue streams with long term potential to placate shareholders...

Biodiesel: Cummins

Engine maker Cummins recently announced it will approve the use of B20 biodiesel in its engines. Previously, the company had limited use to B5. However, Cummins made the move following the results of recent ATSM testing and growing confidence in the quality and stability of B20 supplies.

The important point here isn't that this is going to result in a significant short term impact to Cummins market share. Rather, it's a potential huge shot in the arm to biodiesel suppliers because a major hurdle to B20 adoption by fleet managers (the major user of diesel equipped vehicles) has been removed.

By authorizing the use of B20, Cummins will now offer comprehensive warranty support to engines using the fuel. Without this support, fleet managers charged with protecting their vehicle assets won't seriously consider biodiesel use.

As other manufacturers adopt Cummins' stance on B20, more fleets will adopt biodiesel, making suppliers a more attractive investment opportunity.

Rant: Carrots & Sticks

Two items from Monday Apr 2, one a carrot, one a stick:

1. Stick: In Massachusetts v. the Environmental Protection Agency, the Supreme Court decided that the EPA not only has the authority to regulate greenhouse gases, but has the obligation to do so. No shirking of responsibilities just because you feel like it. The 5-4 decision (is there any other kind these days...?) provides legal support for state laws mandating the development of cleaner cars.

2. Carrot: The Automotive X Prize said they are ready for the public to comment on the proposed guidelines for their clean car competition. You know the X Prize Foundation from the $10 million prize they awarded to the first private group to successfully launch a space vehicle into orbit twice in two weeks. They are doing the same thing for cars: the private group that can build a production ready car capable of 100 mpg wins a to be determined cash prize (probably in $10 million neighborhood.)

Nice symmetry to these both being announced the same day. Let's hope they spur some innovation.

Fuel Cells: Lilliputiuan Systems

Fuel cells on a chip? Sounds like snack food for computers. In truth, however, it may be a breakthrough in fuel cell based power systems.

Lilliputian Systems is yet another MIT sprung startup that has developed technology that, well, puts a fuel cell on a chip. Their focus has been on providing power for portable electronics, which gives you a sense of the size of the systems we're talking about. They are apparently concentrating on butane (prevalent and stable, though still a fossil fuel) as the fuel source.

They are backed to the tune of $40 million by some of the brand names of the VC community: Atlas Venture of Waltham, Mass., Kleiner Perkins Caufield & Byers of Menlo Park, Calif., and Boston's Rockport Capital Partners.

Unfortunately, this apparent promise isn't headed into the auto world. I asked CEO Ken Lazarus if there is any intent to push into the transportation market segment. His response is pretty black and white:

"I don't know much about the economic or other requirement for automotive fuel cells, so unfortunately I can't really comment on this. I believe there are companies looking at using SOFCs [solid oxide fuel cells] for automotive applications."

No question there's an investment opportunity given the explosion in portable electronics. And frankly, practicable applications for fuel cell technologies, particularly those using hydrogen as a fuel source are a minimum of 30 years off.

Biodiesel: Green Star Products

I admit it. I like things simple. When something isn't readily transparent or understandable, I get twitchy. My antenna starts to quiver.

Green Star Products (stock: GSPI) makes my antenna quiver. And not just because of their rudimentary website design...

The company recently announced that, with it's "consortium of independent companies" will "begin construction of two demonstration algae-to-biodiesel production facilities in the U.S. and abroad... The Consortium has developed a patent pending proprietary algae processing system and it also has assembled a seven-member research team, which has been in operation at the University of Baja California in Ensenada, Mexico."

Now, I've already written that I love the algae to biodiesel process (see Algae Biofuels posting from 3.27.07). It seems to have a lot more potential than feedstock derived biodiesel. I confident that there will be a sound investment opportunities for companies seeking to leverage related technologies.

Green Star Products does not seem to be one of them, however. Here's some of the gems from their last letter to company shareholders:

• "...we are slightly behind on finishing our financials because, as many of you know, the accounting procedures have become immensely more complex over the last two years due to the Sarbanes Oxley Act."
• "GSPI still owes the IRS approximately $200,000 in back-taxes stemming from an item from 1993. Given the related details GSPI does not see this as a particularly detrimental item in our balance statement."
• [Regarding a fire that destroyed their Bakersfield facility that was not covered by insurance]: "The biodiesel industry is a new industry to all the insurance companies. They have no history and they cannot calculate their exposure. We were diligently pursuing insurance on the Bakersfield plant for a long time. Four days after the fire, we received a proposal, which could have insured the plant for only $300,000!"

The president of the company, Joseph P. LaStella, is listed as the principal point of contact on all press releases. Makes me think this is a pretty small operation.

Admittedly, I haven't talked to anyone from Green Star. It's hard to when your antenna is quivering so much...

Autos: Zap

So Zap is in a pilot program with the city of Richmond to use their all electric XEBRA cars in a fleet setting. The 3 wheeled XEBRA is manufactured in China, and will be sold in the US for about $10K. It apparently has about a 25 mile range and can hit 40 mph.

Good for Zap. But don't run out and gobble up Zap stock just yet.

I've had the opportunity to sit down with members of the Zap team a couple of times in the last 2 years, and have not exactly come away enthusiastic. Like their cars, the management team seems to lack the horsepower needed to make the company go.

Case in point: Zap is the company that figured they'd sell the Smart Car in the US based on a "handshake" agreement with Daimler Chrysler. Then, when D/C decides to sell the car on their own (after then vehicles have been "Americanized" by Penske), Zap is shocked, yes shocked, when they're issued a cease-and-desist related to their own Smart activity.

Needless to say, it's a little hard to find much about the Smart Car on the Zap website these days...

Biodiesel: Algae BioFuels

It gets interesting when discussion turns to making biodiesel from algae rather than plant or feed stocks. Not only do you remove any moral questions regarding the re-tasking of food for fuel, but certain types of algae have the potential to be substantially more productive than plant based alternatives. The below chart (based on a a Univ of New Hampshire study) seems to bear this out.

Gallons of Oil per	Acre per Year
Corn	18
Soybeans	48
Safflower	83
Sunflower	102
Rapeseed	127
Oil Palm	635
Micro Algae	5000-15000

Not surprisingly, many companies are looking to exploit this potential, including Algae Biofuels, a wholly owned subsidiary of PetroSun, Inc. On the surface, PetroSun (PSUD.PK), with their apparent experience in traditional energy markets (they own drilling rights in the US and Australia) has as much as chance as anyone to bring algae-based biodiesel to market.

But penetrating PetroSun's corporate structure is a struggle. PetroSun appears to be owned by the the Cronus Corporation. Web references to Cronus drop off shortly after the acquisition of PetroSun in 1997. A 1997 listing for Cronus indicates an OTC stock for a company with three employees. Information related to the ticker symbol (CRON.PK) is nonexistent. Finally, of the 4 key executives listed in general information for PetroSun, 3 appear to be from the LeBlanc family and the 4th is a former player for the Dallas Cowboys.

Like I said, there's a lot of potential in algae based biofuels. From an investment standpoint, however, I'm unconvinced PetroSun in the place to look for it though...