The Prototype for a Major New Energy Industry

by | published July 12th, 2010

An otherwise overlooked announcement last week may hold the key to a very promising direction in biofuels.

National Clean Fuels (OTC:NACF) confirmed that they have completed an agreement with privately-owned D.C. BioFuels LLC. The two companies have been talking for several months, but recent developments have accelerated the process.

At issue is a niche energy production sector, one that investors better watch with interest. Because when the combination of technology and new market opportunities hits, there will be some rather quick appreciation in stock prices… of some rather small companies. At least they will be small initially.

The upside potential here is significant.

As we wrestle with the broad implications of crude oil supply, natural gas availability, and oncoming carbon capture regulations, new technologies to generate energy from bio-sources are filling some important gaps.

If it also succeeds in mitigating rising environmental problems, so much the better…

The Key to Profitable Biofuel

D.C. BioFuels is in the process of building a biodiesel fuel plant to supply the D.C. and Mid-Atlantic areas. This facility will process millions of gallons of waste oil per year from a number of sources, including restaurants, animal waste fat, industrial locations, institutions, and even residences.

The plant is likely to demonstrate that the approach is both financially and environmentally successful (always a nice combination).

NACF has been developing a position in the remedial energy business and looking for a way to expand into waste oil. Last week’s agreement seems to be the ticket.

Originally intended to produce five million gallons of B100 fuel per year, the plant capacity doubled once NACF came on board. (B100 is 100% pure biodiesel, rather than the product often found on the market, comprising a mixture of biodiesel and petroleum diesel. B50 is 50% biodiesel… B25 is 25%… and so on.)

The new plant would also be able to cut the biodiesel to form similar mixtures, of course. But unlike other commercial facilities, its ability to be competitive would not be dependent upon the use of conventional petroleum-based diesel to produce what is marketed as a bio product.

That’s the key, both for the positive impact on the environment and usage as a fuel.

Biodiesel is renewable; it burns cleaner than petroleum and it allows us to remove the cooking and animal-based oil from the waste cycle. B100 takes the glycerin out of the vegetable or animal source oil and puts alcohol in. The modification reduces the viscosity of the oil (making it flow easier) and removes the problems to diesel injection systems resulting from earlier attempts.

Now, a plant producing 10 million gallons of biodiesel a year may mean little when the U.S. consumes almost 160 million gallons of diesel every day. However, NACF is regarding the D.C. location as a model for similar facilities in other cities throughout the country. Capturing even a small percentage of the current diesel market would prove very profitable. With sourcing continuous, and with concerns mounting over proper disposal of the cooking and animal fats-based oils, this is emerging as a win-win solution.

Oh yes, there are also millions of dollars in federal grants already available to develop such biofuels, with advances certain to improve the production sequence and reduce the costs. The current system used by D.C. BioFuels meets all Environmental Protection Agency (EPA) standards for new renewable fuels. The manufacture of B100 also results in cleaner air, greater price control in a volatile petroleum market, and real green jobs.

And there is yet another positive impact for end users…

A Less Expensive Diesel Option

As biodiesel technology improves and the production locations increase in number, competition will intensify with petroleum-based diesel and help to insulate the coming price increases.

You see, diesel is a “middle distillate” at the refinery. Others in that category are kerosene, jet fuel, and low-sulfur-content heating oil. “Light distillates” (gasoline, liquefied petroleum gases, and the feeder stock naphtha) are emphasized in the U.S. refining process over middle and heavy distillates (asphalt, lubricating, and heavy fuel oils). That causes diesel supply problems, higher prices and increasing imports of the fuel.

As a result, when gasoline prices rise (as they will soon), diesel will rise faster.

The industrial, power-generating, and especially transport usage of more expensive diesel will translate into a myriad of pass-through price increases to the end user or consumer. That puts an alternative like biodiesel into a very favorable market position.

Hardly surprising, therefore, that the NACF move is paralleled in approaches by other companies.

BIOX Corp. (TSE:BX.CA) already has a 60-million-gallon plant in Hamilton, Ontario, that uses a wide variety of feeder oils. And several of the major agricultural products producers are now increasing biodiesel production. These include Archer-Daniels Midland Co. (NYSE:ADM), ConAgra Foods Inc. (NYSE:CAG), and Bunge Ltd. (NYSE:BG).

Privately-held companies like Cargill and the Renewable Energy Group are establishing strong positions in biodiesel, too. And another private company, Piedmont Biofuels, has established a network of cooking oil collection centers in North Carolina and a rapidly developing distribution system.

The National Biodiesel Board (NBB) currently has more than 200 registered producers of BQ-9000 biodiesel (a voluntary accrediting standard for manufacture and distribution). Most of these are private and producing small volume. But biodiesel prospects are improving… and fast.

It won’t be long before the best-positioned companies go public. They’ll need to secure expansion capital in an exploding market.

At that point, there will be some incredibly attractive investing opportunities. And I’ll let you know when they arrive.


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    April 11th, 2011 at 15:51 | #1

    I read other articles that say there is a push to convert diesel driven trucks to NG. Also, there is a 7yr life for the average diesel truck therefore if they are starting now all diesel trucks will be converted in 7 yrs. Also, there is a very large chain of truck stops that are going to install NG. So how can cooking oil compete?

  2. Leland Waterman
    April 12th, 2011 at 12:23 | #2

    At least two heavy truck engine manufacturers have lately introduced LNG fueled engine options. Natural gas power diesel engines have been around a considerable length of time but problems with operation and maintenance evidentally have been a discouraging factor not to also consider the lack of LNG fuel stations on our interstate highways. The push toward the new engines developed through research at Cummins and Detroit Diesel may finally rectify the older encountered problems. The expected new push will likely come from the major interstate carriers who are able to fuel the trucks in-route from company terminals.

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