Sunday, December 16, 2007

Energy Bill: A Biofuel Bonanza

The United States Senate passed the Energy Bill 86-8 after $13 billion in oil company taxes were dropped from the bill.

Voting on an earlier version of the bill with the tax package still included, the Senate came up one vote short (59-40) of ending a filibuster staged by Senate Republicans in support of the oil companies. The bill will now go to the House where it is expected to pass, and the President is expected to sign the legislation into law before the end of the year.

The Bill mandates that 36 billion gallons of biofuel fuel consumption by 2022, or more than 25 percent of total fuel use based on 2006 consumption.

The big winners here clearly are both the biofuels industry, lead by Archer Daniel's Midland (ADM), Pacific Ethanol (PEIX) and Verasun (VSE) and oil companies like Exxon (XOM) and Chevron (CVX) who avoided a large tax increase. Actually consumers are the winners in the tax break because if anyone thinks for a minute these taxes would not have been passed onto us, they are void of any reality. That is not to say the oil companies are bad, is just the reality.

That being said, let look at the biofuel mandate. Clearly we cannot get 36 billion gallons of ethanol from corn at current production capabilities. Now that we have acknowledged that, do we really think that we will be producing the fuel exactly the same way 15 years from now? When you consider we get almost 30% more yield per bushel that we did 5 years ago, progress is clearly being made.

Notice also the mandate is for "biofuels", not just "ethanol". That includes biodiesel in the mix. The largest US biodiesel producer is ADM. Now we have the ability in the US to dramatically expand the biodiesel use and recent breakthroughs in that arena, can give us a clue into what can happen in the ethanol arena.

In Germany, Choren Industries announced recently that it will build a 57 Mgy biodiesel plant in Schwedt. The plant, scheduled to open in late 2010, will use a second-generation process, called biomass-to-liquid, which uses sawdust and wood chips as feedstock among other waste materials. The plant will eventually have five production units and has a total planned capacity of 285 Mgy by 2015. Choren’s first commercial-scale plant, which will produce 4 Mgy of biodiesel from wood waste, opens in spring 2008 in Freiburg.

This is essentially the "cellulose" process that had been so touted as the answer. It is too. We can currently produce ethanol from biomass using similar processes, we are now working on making them economically viable. Costs have fallen dramatically in only the past two years and most in the industry feel it is only a couple years before we begin production this way.

While it may seem a lofty goal, when one sits back and looks at it and notices the advancements done in the area just in the past two year, the goal seem like the current "ethanol mandate", a mandate that the biofuels industry will blow right pass when the time comes.

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