by Debra Fiakas CFA
|Algae in the River Wate photo via BigStock|
My post “Algae Takes Flight” featured Algae-Tec (ALGXY: OTC/PK), Lufthansa’s new biofuel partner. Algae-Tec has agreed to operate an algae-based biofuel plant in Europe to supply Lufthansa with jet fuel. Lufthansa is footing the capital costs of the plant, which is to be located in Europe near a carbon source. Algae thrive on carbon so industrial plants and power plants using fossil fuels make the best neighbors. Lufthansa has agreed to purchase a minimum of 50% of the algae-based biofuel Algae-Tec can produce.
Australia-based Algae-Tec is not Lufthansa’s first biofuel source. The same week it inked the deal with Algae-Tec, Lufthansa also entered into a memorandum of understanding with synthetic fuel developer Solena Fuels Corporation. Solena has already decided on a location at the PCK Industry Park in Schwedt/Oder, Germany. The plant will use municipal waste to produce bio synthetic paraffinic kerosene, which Solena calls Bio-SPK.
Lufthansa is eager to adopt biofuels in order to comply with the European Union’s emissions trading system (ETS), which added aviation to the mix of industries that must reduce carbon emissions in the EU region. Airlines had until March 2012 to reach compliance to the EU standards. In the future, airlines that do not comply could face fines of US$128 per ton of carbon dioxide emissions. Non-compliance could lead to a ban from European airports. It is not surprise that According to the U.S. Energy Information Administration, worldwide over 5,000 barrels of jet fuel are used each year, resulting in as much as 635 million tons of carbon dioxide emissions.
Lufthansa burns at least nine million tons of jet fuel each year. The airline has had some difficulty in sourcing renewable fuels that could reduce it carbon footprint. In July 2011, Lufthansa began using Neste Oil’s (NEF: Berlin) NExBTL renewable aviation fuel in an Airbus A321 aircraft. Flights between Hamburg and Frankfurt were run in both directions four times a day. One of the engines of the aircraft operated using a blend of 50% NExBTL renewable aviation fuel and 50% fossil fuel. However, in January 2012, Lufthansa announced it would be discontinuing flights using renewable jetfuel because it had not been successful in securing long-term sources of biofuel. In all, Lufthansa completed 1,187 biofuel flights between Hamburg and Frankfurt that relied on biofuel. Lufthansa claimed CO2 emissions were reduced by 1,471 tons.
It would seem that meeting aviation emissions standards in Europe would be a source of significant demand for renewable fuels. However, it might be premature to expect anything more than modest shifts in fuel sourcing. After considerable pushback from China and India airlines, the European Union has been considering a rollback of emissions standards. Members of the U.S. Senate met in August 2012 with representatives from twenty countries to draft a resolution against the EU’s fines. The group was unable to reach agreement, but the meeting made clear that U.S. leadership is more concerned about profits than environmental sustainability.
In the meantime, several biofuel companies have been cozying up to the aviation industry. Amyris (AMRS: Nasdaq)is working with Brazil’s Azul Airlines. Solazyme (SZYM: Nasdaq) has been mentioned as in cooperation with both United and Quantas airlines. Honeywell’s UOP (HON: NYSE) is working with India’s Kingfisher Airline, United Airlines, British Airways, France Airways and Spain’s Iberia. U.S. carriers alone used at least 16.4 million gallons of aviation fuel in 2011 (U.S. Bureau of Transportation Statistics). At least a third of that is used in international flights. It presents a very large market opportunity for the biofuel producer that can deliver renewable fuel. Unless, of course, politicians get in the way.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.