Synthetic Fuels Archives


March 11, 2017

Rentech's Wood Saw Hits a Knot

by Debra Fiakas CFA

Last week Rentech, Inc. (RTK:  NYSE) revealed plans to idle its wood pellet production facility in Wawa, Ontario Canada.  To operate efficiently the plant requires additional repairs and upgrades beyond the replacement of conveyors that was completed in Fall 2016.  Beside the fact that the additional repairs were not included in the regular capital budget, Rentech management has apparently determined the expenditure is not economic given profits from Wawa.  When Rentech reports financial results for the fourth quarter ending December 2016, shareholders will be treated to an asset impairment charge for the Wawa facility.

Doors Close, Windows Open (then shut again)

The demise of Wawa is symptomatic of broader issues at Rentech, which has had to reinvent itself several times as the renewable energy industry has evolved.  Rentech got its start well over a decade ago pursuing synthetic gas technologies.  The company’s Rentech Process for producing synthetic fuel was thought capable of producing synthetic fuel by gasifying coal.  In 2004, Rentech bought a natural-gas fed nitrogen fertilizer plant in East Dubuque, Illinois and laid out plans to convert it for coal feedstock.  However, by October 2011, fuel projects in Rialto, California and Natchez had to be scrapped.  The company had planned to produce drop-in synthetic fuel from landfill waste at Rialto using Rentech’s proprietary application of Fischer-Tropsch technology.  Just a few months later in March 2012, Rentech abandoned its coal-to-liquid plant and later sold its land holdings in Natchez, Mississippi.

In March 2013, Rentech shuttered its product demonstration unit located in Commerce City, Colorado and terminated research and development on advanced biofuels.  With the syngas effort behind it, Rentech quickly moved on other opportunities.  In May 2013, the company acquired Fulghum Fibres, a processor wood fiber with 32 wood chipping mills strung out across the U.S. and South America.  Rentech had its eye on the market for wood pellets to be used as a low-carbon alternative to coal feedstock in power generation plants.  Unfortunately by 2015, the company was forced to begin writing down the value of its wood pellet inventory as the realizable fell under question under evolving demand and pricing conditions.  Now those economic conditions have forced the shutdown of the Wawa wood pellet operation.


Some of Rentech’s early strategic moves have eventually proved fortuitous.  By 2011, all the company’s revenue was from sales of fertilizer products made from natural gas at the East Dubuque, Illinois facility.   In November 2011, 39% of the fertilizer operation, the Rentech Nitrogen Partners, was sold through a public offering of its common units.  The company received $276 million net of costs that was promptly used to retire term loan.  Then in early April 2016, another fertilizer producer, CVR Partners (UAN:  NYSE) acquired all the common units for $2.67 per share, retiring the units Rentech Nitrogen Partners from public trading.  Rentech received $59.8 million in cash and 24.2 million CVR common units valued at approximately $142 million in the bargain.  Again Rentech promptly distributed cash and some of the securities to repurchase $100 million in preferred stock and retire $41.7 million in debt obligations.  Altogether Rentech received $477 million for its interests in Rentech Nitrogen Partners.  Considering that the company paid $63 million for the business in 2004, the returns have been impressive.

After all the deal making, acquisitions and divestitures, at the end of September 2016, the last balance sheet disclosed by the company, Rentech had total equity of $278.1 million.  The company has taken in $533.2 million in equity altogether, but losses over the years have accumulated to $255.1 million.  The company has used leverage over the years, but long-term debt has been reduced to $125.9 million.  The debt-to-equity ratio is now a relatively placid 0.45.

While Rentech has improved its balance sheet, its assets appear to go underutilized.  Return on assets and return on equity are both negative based on recent financial performance.  The net loss was $127.7 million or $10.42 per share on $287 million in total wood pellet sales in the twelve months ending September 2016.  Even excluding discontinued operations, net results were negative.  Indeed, positive returns from its renewable fuel operations have eluded Rentech. Only when the company was producing fertilizer did Rentech generate profits.

Disappointing operating performance appears registered in the RTK price.  Rentech equity is valued at just $20 million and its enterprise value is near $106.2 million.  Some investors might argue that at a stock price less than $1.00 per share, RKT is a bargain against its total assets of $470.1 million.  Then there is that looming Wawa asset write-down and the possibility of additional charges to reflect the demise of yet another misstep in Rentech’s travels through the renewable energy market.

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.

October 06, 2015

Velocys: A Key To Advanced Biofuels At Scale

Jim Lane

Velocys-unitFour new technologies approach scaled operations, all with one element in common – Velocys (VLS.L) technology on the back-end.

Why Velocys, why now? The Digest investigates.

In Oklahoma, Southeast Oregon, Eastern Ohio, and a site near London we’re about to see the commercial-scale debut of Velocys technology, a smaller scale gas-to-liquids processing technology that converts natural gas or biomass into premium liquid products, such as diesel and jet fuel. In this case, specifically designed for smaller scales, resulting in standardized modular plants that are economic, easier to ship and faster to install, at lower risk, even in the most remote locations.

velocys logoVelocys makes what’s called micro-channel FT technology, and two of the major aviation biofuels projects, Solena (in partnership with British Airways, in the UK) and Red Rock (in partnership with FedEx and Southwest Airlines) are using it at the back-end to convert syngas to fuel. Fischer-Tropsch has been around as a technology for a long-time, but only at a massive scale — these are among the first small-scale FT projects ever. It’s not entirely correct to say that the future of sustainable aviation rests on this technology, but it’s not entirely incorrect either.

More about Velocys

The Digest’s 2015 8-Slide Guide

The Digest’s 2015 5-Minute Guide

Where will it be seen first?

Where will we see it at a “commercial reference” scale first? Probably in Oklahoma, where the Envia Energy Oklahoma City project is underway and will deploy a number of Velocys’ full-scale reactors. It’s now under construction, after a joint venture between Waste Management, Velocys, NRG Energy (NRG) and Ventech was announced early last year and the final investment decision was made (in July 2014) to proceed with construction of the joint venture’s first plant being developed adjacent to Waste Management’s (WM) East Oak landfill site in Oklahoma, USA. Ground breaking took place last May, and mechanical completion is expected in the first half of 2016.

Next? Could be Red Rock or Solena

In July 2012, Velocys was selected by project developer Solena Fuels as sole Fischer-Tropsch supplier to GreenSky London, Europe’s first commercial-scale sustainable jet fuel facility, being developed in partnership with British Airways. A site for this project was selected in April 2014, and the project is expected to be in operation in 2017.

GreenSky London is the first of several waste-biomass to jet fuel projects planned by Solena. Approximately 575,000 tonnes per year of post-recycled waste, normally destined for landfill or incineration, will instead be converted into 120,000 tonnes of clean burning liquid fuels. British Airways has committed to purchasing all 50,000 tonnes per annum of the jet fuel produced at market competitive rates on a long-term basis.

Meanwhile, in September 2014, Red Rock Biofuels was selected to receive a $70 million grant through the US Department of Defense to construct a biomass-to-liquids plant in Oregon, USA that will incorporate Fischer-Tropsch technology from Velocys. Red Rock Biofuels, a subsidiary of IR1 Group, is experienced in constructing and operating commercial scale biofuel facilities.

What about natgas?

Last year, Velocys announced the acquisition of Pinto Energy LLC and the Ashtabula GTL project. This represents a significant step in the North American oil & gas industry’s adoption of smaller scale GTL and of the Velocys technology, accelerating the development of “shovel ready” projects. As its first facility, Pinto Energy is developing an approximately 2,800 barrels per day (bpd) plant at an 80 acre industrial site that it owns near the Port of Ashtabula, Ohio, USA.

The project will benefit from both access to abundant low-cost natural gas from the Marcellus shale region and substantial existing infrastructure. Initial engineering for the facility is complete and the air permit has been issued. Final investment decision is expected within six to nine months. Future expansions could see installed capacity of 10,000 bpd or more at the site. In addition to Ashtabula, Pinto Energy has a pipeline of smaller scale GTL projects it is seeking to develop throughout North America.

Where can you see it today?

The Velocys Pilot Plant is operating in Plain City, Ohio — this integrated GTL facility includes Velocys’ microchannel FT and steam methane reforming reactors.

How much does Velocys make out of these projects?

Some time back, Velocys indicated that successful implementation of the GreenSky London project and receipt of the notice to proceed is expected to generate more than $30M to Velocys during the construction phase, and additional ongoing revenues of more than $50M over the first 15 years of the plant’s operation.

Why aren’t investors falling all over a technology that can tap new value in stranded gas?

Well, stranded gas may stay stranded a little longer. Just two years ago, we had $2 gas and $90 oil. Now, we have $2 gas and $40 oil — a lot of enthusism has gone out of the GTL space because the crack spread has narrowed considerably.

When will demand recover for GTL technologies?

Ultimately, we’ll see more enthusiasm when demand for liquid energy recovers — it’s been sluimping in China, and even a resurgence in gasoline demand in the US — it’s up several points since oil prices crashed — hasn’t shored up oil prices in the face of a surge in US production around fracking technology, and a “no backing down on market share” strategy from OPEC.

Will biomass or natgas be the big winner?

It’s really not a case of fossil feedstock vs biofeedstock, it’s all about advantaged feedstock. Smart investors will take a portfolio approach. As LanzaTech CEO Jennifer Holmgren says, “never fall in love with a feedstock”. 10 years ago, it was all about corn sugars and soybean oil. Then, cellulosic energy crops, then cellulosic residues. Then, the rage was for cheap Brazilian sugar. Then, along came algae, then it was advantaged natgas will save the world. Most recently it is “oil prices will be low, possibly for 10 years”.

Virtually every feedstock excepting coal and palm oil have received significant amounts of global love at some point in the last decade?

Two lessons there. One, think portfolio, don’t pick stocks and don’t pick feedstocks. Two, the drive towards sustainability will occasionally be interrupted by temptingly low short-term prices, but environmentally-sustainable feedstocks that are cost-advantaged will be double-advantaged, and that’s formidable. The days of single-attribute feedstocks — e.g. low on price or low on carbon, but not on both, are increasingly numbered and will end as soon as the project development crowd gets its messaging right and insists on sustainable certification and a public-imposed low-carbon benefit for technologies that deliver cleaner air, because that is a benefit to the public not to the investor.

But, then there’s policy-advantaged feedstock as well — meaning sustainability — and there we are at an impasse of sorts in the EU and US. Regulators haven’t seen enough of a robust supply-chain in residues, or enough processing technology roll-out, to robustly enforce biofuels mandates set in the 2000s — we’ve seen overt roll-back in the EU, a wishy-washy attitude in the US, and only in California is the drive still on for lower-carbon fuels., The Velocys projects will help with the latter, of course.

One of the key advantages of Velocys technology is that has the small-scale necessary to tap the value in stranded natgas or stranded biomass (e.g. waste residues such as gasified MSW or stranded wood) — that helps with finding economically advantaged feedstock.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

March 19, 2015

Linc Energy: Making Synthetic Crude From Coal Downunderground

by Debra Fiakas CFA

Gas-to-liquids is back on my radar screen after an article appearing in early March 2015 on Biofuels Digest described progress Emerging Fuels Technology (EFT) has made in perfecting the Fischer-Tropsch process to convert carbon-based feedstock to liquid fuel, otherwise called Gas-to-Liquids. 

Fischer-Tropsch often referred to as FT for short is a series of chemical reactions to convert carbon monoxide and hydrogen into liquid hydrocarbons.  The reactions are triggered by a catalyst, usually cobalt or iron, and managed under high temperatures in a chamber or reactor.  Some might consider it a neat trick to converting otherwise useless waste biomass or stranded natural gas to something useful like a liquid transportation fuel.  The problem is that FT is expensive, requiring significant capital to build the reactor and attendant gasification, water handling, and fuel distribution systems.  Operating costs are also steep for catalyst materials, operating personnel, maintenance. 

Plenty of developers have tried and failed to commercialize FT.  The last post ‘A Second Look at Gas-to-Liquids’ mentioned Rentech (RTK:  Nasdaq), which exited the gas-to-liquids development race a couple of years ago.  Rentech voluntarily threw in the towel, but Germany-based Choren Industries was forced into bankruptcy as development costs and construction delays burned up capital resources.  While that post made a nice trip down memory lane, turning over the shards of failure and loss, I really want to bring to investors’ attention new investment ideas of companies that are making a success of gas-to-liquids technologies.
Linc Energy (LNCGY:  OTC/PK, T16:  SGX) in Australia is combining its expertise in the gasification of underground coal deposits with gas-to-liquids technologies to produce synthetic crude oil.  The company is producing one million cubic meters of syngas from an underground coal deposit at a facility near Angren, Uzbekistan.  The syngas is used for electricity generation at an adjacent power plant.  Linc has demonstrated at a plant in Australia that its syngas can be converted to liquid fuel using a Fischer-Tropsch process.  A demonstration facility in Australia has proven five different coal gasifiers as well as a gas-to-liquids pilot system.  Linc Energy’s CEO has demonstrated its diesel output in a trip around Australia in 2011 and a second trip in 2012 demonstrating its jet fuel output. 

As impressive as those two trips might have been, Linc Energy has yet to earn revenue from the sale of liquid fuels.  What is more its gasification technologies are not yet its bread and butter.  In the year 2014, over 95% of revenue was provided by the sale of gas in the US derived from conventional oil and gas operations.  The sale of syngas in Uzbekistan accounted for 1.8% of sales.

Linc Energy reported AUS$148.4 million (US$112.8 million) in total sales in the year 2014, on which it experienced a total loss of AUS$229.5 million (US$174.4 million).  Gross profit was a slim 24.3%, down from a profit margin of 52.1% in the previous year.  The company used AUS$32.6 million (US$24.8 million) in cash during the year, putting some pressure on cash resources.  The company held AUS$48.7 million (US$37.0 million) in cash at the end of the December 2014, down dramatically from a year earlier when there was AUS$124.0 million (US$94.2 million) in the bank.

Understandably Linc Energy’s stock price reflects the red ink across the company’s financial reports.  The quotation for the stock on the U.S. Over-the-Counter service has come down by 48% since the beginning of December 2014.  Until the company announces some sort of fundamental accomplishment, it is not likely the stock will reverse the current weak trend.  On the other hand the contrarian investor who is tolerated of considerable risk could find encouragement in Linc Energy’s demonstration of gas-to-liquid diesel and jet fuel and regard the relatively lower price for LNCGY as a good opportunity to buy on the cheap.

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.

March 16, 2015

Rentech After Fischer-Tropsch

by Debra Fiakas CFA

A long article appearing in early March 2014 on Biofuels Digest about Emerging Fuels Technology (EFT) gave me pause.  The article has since been removed from the site but it was an interesting primer on Oklahoma-based EFT’s use of the Fischer-Tropsch process to convert carbon-based feedstock to liquid fuel, otherwise called Gas-to-Liquids. While Emerging Fuels Technology has been listed in Crystal Equity Research’s Alternative Chemicals Group of the Beach Boys Index of companies trying to harness energy from the sun through biomas, I must admit the company had not been taken seriously. 

There are reasons for my apathetic view. 

Fischer-Tropsch often referred to as FT for short is a series of chemical reactions to convert carbon monoxide and hydrogen into liquid hydrocarbons.  The reactions are triggered by a catalyst, usually cobalt or iron, and managed under high temperatures in a chamber or reactor.  The idea is quite beguiling: converting biomass or coal or even natural gas, especially stranded natural gas, to something useful like a liquid fuel.  Unfortunately, FT is expensive, requiring significant capital to build the reactor and attendant gasification, water handling, and fuel distribution systems.  Operating costs are not cheap either as all those systems require people to watch over them regular maintenance and repair.  Then there is the cost of replacing the catalyst when it wears out!

However, the Biofuels Digest article suggested EFT had achieved important efficiencies with its catalysts that could reduce the high costs of building and operating a FT-based gas-to-liquids plant.  EFT had managed to forge a partnership with an engineering firm Black & Veatch that specializes in the energy field and has worldwide reach.  Then at the end of 2014, EFT signed a memorandum of understanding with Airbus Group (AIR: Paris), which has made clear its interest in developing alternative aviation fuels.

Some investors might remember one of the most high profile developers of FT, Rentech, Inc. (RTK: Nasdaq).  Rentech exited the field with the 2013 shuttering of a demonstration plant in Colorado and the sale of property near Natchez, Mississippi that was to be the site of Rentech’s first gas-to-liquids production facility.  In winding down its gas-to-liquids development effort, Rentech indicated it would retain and protect its portfolio of patents.  Rentech owns a group of patents on FT-related technologies that purportedly improved upon the basic FT processes developed back in the 1920s.  Rentech also claims an effective, proprietary catalyst and tweaks to both the preliminary gasification and final refinement steps.  Even with all that innovation at its displosal Rentech elected mothball its efforts.   Over the last couple of years Rentech has morphed into a producer of wood pellets and a provider of wood chipping services to industry.  The company also has interests in nitrogen fertilizer production through its ownership in Rentech Nitrogen Partners LP (RNF:  NYSE).

Rentech voluntarily threw in the towel, but Germany-based Choren Industries was forced into bankruptcy as development costs and construction delays burned up capital resources.  After synthesizing the first liquid fuel from wood in a laboratory in 2001, and then building a commercial-scale plant in 2008, Choren stubbed its toe on its first large-scale ‘biomas-to-gas-to-liquids’ facility that was to have had the capacity to process 250 million liters of liquid fuel per year.  Like Rentech, the surviving Choren Industries has a series of international patents to commemorate its multi-stage gasification and fuel synthesizing process that the company still puts to use in protecting its gasification services.

Wood pellets and nitrogen are a long way from gas-to-liquids technologies.  Holders of RTK shares have found themselves short of a play on alternative or sustainable energy.  Unfortunately, for investors there is no investment play in EFT or any of its admirers either.  EFT is a private company that provides very little information to the public about its financial situation.  Its technology development and licensing business model may not require as many trips to the capital markets as an investor might expect from a company with plans to build production facilities.  On a trim operating and investment budget, EFT can remain quietly private for some time.  Assuming of course that EFT does not end up in the weeds like Rentech and Choren.

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.

July 29, 2014

Velocys Thinking Big with Microreactors

by Debra Fiakas CFA

Keep the applause down!  Contain your enthusiasm for yet another biomass- or gas-to-liquids company.  Over the past several weeks I have written about a number of privately-held developers of one technology or another intended to produce a drop-in renewable fuel from biomass or natural gas.  There are more,  In this post we check in on Velocys (VCL:  London), which stands out from the rest as a public company.  No matter that it's technology looks like that of the very next renewable fuel company, it is accessible to minority investors.

Until recently Velocys was known as Oxford Catalyst Group, a name that perhaps better describes the technology behind the company.  Velocys has developed a small-scale modular plant that can be deployed in remote locations where stranded natural gas or waste biomass can be found.  Velocys uses the conventional steam reforming and Fischer Tropsch processes, but has added a twist it calls ‘microchannel reactors’ where it deploys a proprietary catalytic effect.  The microchannels, with reduced dimensions, intensify the chemical reactions and deliver greater efficiencies than conventional Fischer Tropsh and steam reforming processes.

The company recorded the first commercial sales of its microchannel reactors in the year 2013.  An important market for Velocys is the oil and gas industry, needs to capture and upgrade stranded gases rather than burning them off in the oil field.  Primus Green Energy, which was discussed in the July 15th post “Primus Wants to Clean up Fossil Fuels” and is also targeting this market with its version of  steam reforming.

The company has some interesting partnerships to help penetrate commercial markets:  waste handler Waste Management (WM:  NYSE) and power generator Pinto Energy.  Velocys has a joint venture with Waste Management in Oklahoma, where the company expects to locate a plant next to one of Waste Management landfills.  Final permits have been submitted and approvals are expected in 2014.

Just as this article was being prepared, Velocys announced its intention to acquire its partner Pinto Energy in a gas-to-liquids project near the Port of Ashtabula in Ohio.  The project is expected to receive final permits yet in 2014 and then convert natural gas from the Marcellus shale region to liquid gas.  Velocys claims Pinto Energy has a string of similar projects in its pipeline.  If that is the case there should be a nice step up in value after the all-stock deal is completed.

Velocys shares traded down on news of the Pinto Energy acquisition.  Perhaps investors would rather see the company report its first profits.  Still investors, even those who have not considered a London Exchange listed company, should take note of VLS.L.  There is some concern about the benefits of switching to natural gas from an environmental standpoint.  Make no mistake about it, natural gas is still a fossil fuel.  However, compared to coal it has some merits.  What is more gas-to-liquids could serve as a valuable interim fuel source for U.S. transportation transitions away foreign oil and gas to electric or another more environmentally friendly fuel source.  What is more, Velocys technology does help clean up one of the dirtier elements of the oil and gas industry  -  burning off waste gases into the atmosphere.

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.

December 19, 2013

REG Enters Renewable Diesel With Syntroleum Purchase

Jim Lane

In Oklahoma, and Iowa, Renewable Energy Group (REG; NASD:REGI) announced that it would acquire substantially all of the assets of Syntroleum Corporation (NASD:SYNM), and assume substantially all of the material liabilities of Syntroleum, for 3,796,000 shares of REG common stock worth $40.08 million at today’s market close.

The purchase price subject to reduction in the event that the aggregate market value of the REG common stock to be issued would exceed $49 million or if the cash transferred to REG is less than $3.2 million).

“This will help us grow our advanced biofuel business, enhance our intellectual property portfolio, expand our geographic footprint and launch REG into new customer segments.”” said REG CEO Daniel Oh.

Syntroleum has pioneered Fischer-Tropsch gas-to-liquids and renewable diesel fuel technologies, has 101 patents issued or pending, and owns a 50% interest in Dynamic Fuels, LLC, a 75-million gallon renewable diesel production facility in Geismar, Louisiana.

”Syntroleum and its 50%-owned subsidiary Dynamic Fuels represent an attractive entry path for REG into renewable diesel,” Oh continued. “They have invested substantial resources in their Bio-Synfining technology, which enables the economical conversion of lipid-based biomass into diesel and jet fuel. Their technology and products complement our core biodiesel business.”

Syntroleum’s Board of Directors unanimously approved the asset purchase agreement and recommends that Syntroleum stockholders vote in favor of the transactions contemplated by the asset purchase agreement at a special meeting of stockholders to be convened for that purpose.

“Today’s announcement marks the culmination of our comprehensive process to review Syntroleum’s strategic alternatives to enhance shareholder value,” said Syntroleum President and CEO, Gary Roth. “We are confident that REG’s multi-feedstock business model and the combination of our strong management teams is the best path forward for Syntroleum.”

Syntroleum’s Board of Directors also has approved a plan of dissolution for Syntroleum pursuant to which Syntroleum will be liquidated and dissolved, in accordance with Delaware law, following consummation of the asset sale and subject to stockholder approval of the plan of dissolution at the special meeting.

The asset sale is expected to close in the first quarter of 2014, subject to satisfaction or waiver of the closing conditions.

More on the story.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

April 02, 2013

The Hydrogen Problem

Jim Lane

Hydro-Man[1].jpeg HydroMan may do his hydrogen-shift thing via water, at will – but outside of the Marvel Cinematic Universe, we have some hydrogen issues.

Psst! Like cutting out a fossil hydrogen dependency for many biofuels.

But, new pathways ensure that the status hydroquo may not last for long.

A numbers of readers responding to “Biofuels from a raging fireball” (on research work with the raging fireball, Pyrococchus furiosus, to make biofuels and renewable chemicals from hydrogen gas and CO2) raised the question, where is all the hydrogen going to come from?

As many know, hydrogen is not found in a free state in nature in much quantity — and we supply most of our hydrogen needs through steam reformation of natural gas, or cracking fossil petroleum. In other words, renewable fuels made using external hydrogen may well have a hidden fossil fuel dependency.

It all comes down to cost. There are alternative ways to make hydrogen gas, and renewable pathways for sure — if society is not using them, it is generally due to cost issues. In there, to some extent because the costs associated with renewable hydrogen are generally internalized in the process, while many of the social costs of fossil fuels are externalized — e.g. the venting of sequestered CO2.

The hydrogen dependency

Hydrogen gas is a dependency in a number of processes that make renewable fuels — most notably, those that have a hydrotreating step to remove excess oxygen. That includes the upgrade of pyrolysis oils, and even the production of aviation biofuels from renewable oils (the HEFA pathway that is currently powering most of the current flight activity).

Those beyond H2.

Now, hydrogen gas is not a required production element. Fermentation of biomass to produce an alcohol fuel does not require it. The production of diesel and jet fuels fuels using the processes pioneered by Amyris (AMRS) and LS9 do not. Neither does Joule’s process, not Cool Planet’s drop-in fuels (we think). We’ll get to the interesting case of LanzaTech shortly. Upgrading alcohol fuels to hydrocarbons can be accomplished without hydrogen gas — ORNL has developed such a process.

But some of the most promising companies are using hydrogen — Coskata, Sundrop Fuels, Primus Green Energy being three examples of companies that have begun to source fossil natural gas to get affordable feedstock. But processes such as Honeywell's (HON) UOP’s hydrotreating, used to make drop-in fuels with the Envergent process, or HEFA aviation biofuels in partnership with the likes of Dynamic Fuels and Solazyme (SZYM) — well, they need hydrogen.

So, what about hydrogen gas — can it be made renewably, and where and how?

The technical answer is, you bet. Affordably? Another question entirely. Let’s review the state of play with the two main pathways – and two outliers.


The process? Hydrogen can be produced from water, and routinely is, using an electrolytic process that you can demonstrate in a high school lab.

The problem? The process will chew up some 35-50 kilowatt hours of electricity per kilo of hydrogen. There being roughly a kilo of hydrogen in a gallon of hydrocarbon fuel — at $0.10 for lowest cost renewable electricity (e.g. wind), there’s $1.70-$2.50 cost per gallon just to provide the hydrogen feedstock, and you still have to pay for the process and whatever cost of aggregating CO2.

Solution? Advocates routinely talk about producing hydrogen using excess (and thereby, nominally priced) renewable power — at times when the grid is loaded, rather than shunting biomass steam energy to cooling towers (as opposed to the turbines) or using large scale battery storage of the type that Duke Energy put in place at its Notrees wind farm in North Carolina.

Another solution. ORNL has developed a low-cost process – yet to be demonstrated at scale. More on that here.

Anaerobic digesters.

The process? Here, microbes chew waste materials and produce biogas, rich in methane.

The problem? Costs have been the issue. But systems have been getting bigger, and options for producing hydrogen from them are there, using essentially the same processes by which hydrogen is produced from natural gas.

Solution? As an example of progression in system size, Western Plains Energy announced plans to build a $40 million anaerobic digester to produce enough biogas to replace 90% of the fossil fuel used in the manufacturing process at the company’s 50-million-gallon Oakley ethanol plant. When completed, the digester is expected to provide 15 jobs converting manure, grain dust and food waste to power. The project received a $5 million grant in April from the U.S. Dept. of Agriculture, and $15.9 million one year ago when Kansas Gov. Sam Brownback redirected unspent American Recovery and Reinvestment Act funding to the project.

Steam reformation or other catalytic processes from biogas or biooil

The process? Cracking hydrogen from biomass using heat and catalysis.

The problem? Cost, again. Steam reformation itself has struggled with high costs associated with the high temperatures at which the system operates. But it has been a technology worth chasing, for in the development of F-T plants it eliminates both the need for expensive oxygen plants and larger footprints needed to deal with nitrogen dilution from air, lowering capex and space requirements.

Solution? In 2010, we reported on a team from East China University of Science and Technology and Guangxi University  has conducted a study of hydrogen production via catalytic steam reforming of bio-oil in a fluidized-bed reactor. They note that “hydrogen production from renewable biomass is particularly adapted to sustainable development concerns. Biomass, a kind of renewable resource that adsorbs CO2 during its growth, contributes net zero carbon emissions when used to produce hydrogen.”

A system that has been attracting the most attention in this area is the ClearFuels gasifier, the star gasifier at Rentech’s (RTK) Product Demonstration Unit in Colorado. Unlike other gasifiers or pyrolysis processes, ClearFuels HEHTR is a one-step rapid steam reforming process that converts all the biomass to syngas with no char, no liquid intermediates, no ash slagging/fouling and low tar content.

The technology has operational controls for a tunable hydrogen to syngas ratio of 1:1 up to 3.5 to 1, while also interchangeably running on syngas, tailgas, biogas or natural gas.

A first outlier. Syngas as a source of hydrogen — and renewable fuels, all at once.

You may recall that LanzaTech can use hydrogen-free gases for the production of ethanol. That is because their proprietary microbe can produce hydrogen from carbon and water as required.

Which, of course, raises the possibility of combining a LanzaTech-type process with a process that needs hydrogen — and obtaining both feedstocks at the same time from synthesis gas (a combination of hydrogen and carbon monoxide), produced by gasifying biomass. Just a matter of membrane separation of the hydrogen gas. Voila, renewable hydrogen, ready to be fed to a second system that uses CO2 and hydrogen to make fuels.

A second outlier – mimicking photosynthesis.

As you might have reflected during your reading this morning, what can plants teach us? Clearly they are obtaining hydrogen to make their own biomass, from water — presumably affordably, since trees are not filing for bankruptcies.

In California last week, HyperSolar announced its plan to build renewable hydrogen generators for commercial use. Named the H2Generator, the company’s first commercial product is expected to sell at a substantially lower price than other renewable hydrogen systems that rely on expensive and energy intensive electrolyzers to split water.

By optimizing the science of water electrolysis, the low cost device mimics photosynthesis to efficiently use sunlight to separate hydrogen from water, to produce environmentally friendly renewable hydrogen.

Tim Young, CEO of HyperSolar commented, “We believe that our intensive R&D efforts will finally pay off in the form of a go to market commercial product. One key discovery was an efficient and low cost polymer protective coating that will allow us to protect solar devices against photocorrosion. Using this coating to treat traditional silicon solar cells, we are able to eliminate the expensive electrolyzer by integrating the electrolysis function directly into a solar cell immersed in water.

“We have given our tech team the green light to complete the product design required to build the first demonstration system,” Young continued. “With a demonstration system in hand, we can then move to the manufacturing phase of the business.”

The HyperSolar H2Generator will be designed to be a linearly scalable and self-contained renewable hydrogen production system. As a result, it is intended to be installed almost anywhere to produce hydrogen fuel for local use. This distributed model of hydrogen production will address one of the greatest challenges of using clean hydrogen fuel on a large scale – the need to transport hydrogen in large quantities.

The bottom line.

Digesterati, take faith. There are multiple paths to renewable hydrogen — all a matter of cost. Our take: look for symbiotic systems, of the LanzaTech type we discussed above, where hydrogen or electricity becomes available as a residue from another process. In terms of bolting on to a second technology, there’s no better way to be capital light, and get closer, faster, to parity costs with fossil pathways to hydrogen.

Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest and BioInvest Digest where this article was originally published. Biofuels Digest is the most widely read Biofuels daily read by 14,000+ organizations. Subscribe here.

July 31, 2012

Senator Inhofe: 9x Cost for Biofuels Is Too Much, but 29x Was OK for Synthetic Fuels

Jim LaneInhofe[1].jpg

Arch-critic of the cost of military biofuels — Oklahoma Senator James Inhofe — comes under scrutiny over earmarks for natural gas-based military fuels that cost 29 times more than conventional fuels.

In Washington, the battle over advanced military biofuels took a turn for the bizarre this week, amidst revelations that a leading Senate sponsor of legislation to restrict Navy purchases of advanced biofuels, James Inhofe of Oklahoma, had previously secured earmarks for Syntroleum Corporation (SYNM) to produce natural gas-to-liquid alternative fuels which were priced 29 times higher than conventional fuels.

Overall, Syntroleum reported receiving nearly $6 million from 2002, 2004 and 2006 joint development contracts with DoD, stemming from the earmarks by Inhofe. Syntroleum also reported a 2006 contract for $2.3 million for the sale of 104,000 gallons of gas-to-liquid jet fuel to DoD, for testing in Oklahoma-based B52s.

According to the most recent disclosures at, Senator Inhofe is an investor in BlackRock, which is the largest shareholder in Syntroleum as of March 31, according to SEC filings, through BlackRock Institutional Trust and BlackRock Fund Advisors.

Paying 29 times for natural gas fuels than conventional fuels

Adjusting for inflation, the $2.3 million contract in 2002 dollars equates to $2.93 million in today’s dollars, or $28.21 per gallon. Back in 2002, jet fuel was selling at considerably less than today – at an average price of 75 cents per gallon in the second half of the year, according to

Overall, the cost of the natural gas-based alternative fuel was 29 times more than the cost of conventional fuels at the time, and cost more, per gallon, in today’s dollars than the Navy’s advanced biofuels program.

At the time, the Senator said “Syntroleum’s gas-to-liquids barge project holds great promise for alternative fuel production in a way that has both civilian and military applications. The benefits of this kind of technology to our country are substantial and I am confident that these funds will aid in the further development of this process for the benefit of our nation.”

The Senator took a different line on the benefits of the military advanced biofuels program.

“A fiscally responsible amendment that I authored in the FY13 NDAA,” he wrote, “prohibits the DOD from purchasing high-cost alternative fuels if traditional fuels are cheaper. I pledge to continue working with my colleagues to ensure that President Obama’s far left agenda does not impact military readiness and our national security.”

In a letter to Navy Secretary Ray Mabus last week, Inhofe wrote, “requiring the Navy to spend exorbitant amounts of an already stretched budget on alternative fuels is impacting our near and long term readiness.”

Alternative fuels: good for military readiness then, bad for military readiness now

At the time of the initial $3.5 million grant to Syntroleum to develop alternative fuels from natural gas, Inhofe took a different line on the impact that developing alternative fuels would have on military readiness and national security.

“Tulsans can be very proud that Syntroleum’s advanced technology is now poised to make a significantly increased contribution to military readiness and national security,” Inhofe said at the time of the 2002 award. “I especially applaud all the workers at this company. Their efforts have been recognized, and their future endeavors are going to make a real difference for America.”

By 2012, Senator Inhofe was no longer applauding all the workers at the company, and predicting that their future endeavors would make a real difference for America.

One of Syntroleum’s future endeavors, as it happens, is its Dynamic Fuels joint venture with Tyson Foods that won the Navy contract for advanced alternative biofuels that attracted such strong criticism from the Senator.

“Sen. Inhofe’s concern in this particular case as it deals with the Department of Defense is that the alternative is cost prohibitive,” Inhofe spokesman Jared Young told last December. “The Department of Defense should not purchase alternative fuels that are priced 9 time higher than conventional fuels –$26.75 per gallon to approximately $2.85 per gallon — because those extra costs will further eat away at other necessary budget items such as operations, maintenance, training, and modernization.”

The program for Syntroleum’s proposed Flexible JP-8 (single battlefield fuel) Pilot Plant program was remarkably similar in structure to the advanced biofuels program later undertaken by the US Navy with Dynamic Fuels. Joint development grants were given to the company to design a marine-based fuel-production plant, and funding was provided to test synthetically-made (gas-to-liquids) JP-8 fuel in military diesel and turbine engine applications, and a production contract for small batches of alternative fuels was issued to the company.

The bottom line

Well, clearly there’s a credibility gap here.

There seems to be ample evidence that Senator Inhofe is intimately aware of the costs of developing and testing alternative fuels in small quantities. It appears to be a simple case of playing political games, by criticizing Dynamic Fuels for selling advanced biofuels for $26 per gallon, when the Senator himself won an earmark requiring the military to purchase even more expensive natural gas-based fuels from Dynamic’s parent.

Paying nine times as much for test quantities of advanced biofuels? “Far-left agenda.”

Paying 29 times as much for test quantities of alternatives to fossil fuels made from, ahem, more fossil fuels? “A real difference for America.”


Disclosure: None.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

July 14, 2012

Rentech Retrenches

by Debra Fiakas CFA

Clean energy solution provider Rentech, Inc. (RTK:  NYSE) is scheduled to report second quarter 2012 results the first week in August.  Usually the seasonally strong period, this year the June quarter has shareholders sweating.  That is because the warm weather conditions sent farmers out into fields earlier than usual to prepare fields.  Orders for fertilizer products from Rentech’s East Dubuque, Iowa facility were coming even before the end of the March quarter.  The net effect was to pull sales forward.  The question now is whether June will now present a weak quarter.

Even though Rentech has positioned itself as a leading edge, renewable energy company, its principal product and primary revenue source is decidedly conventional.  The East Dubuque facility produces a variety of fertilizers such as ammonia, liquid and granular urea and nitric acid from natural gas.  Sales of fertilizer products account for 99.7% of total sales.

Profits from the fertilizer business help support Rentech’s alternative energy projects.  Rentech developed technologies for the gasification of biomass.  The company has a demonstration plant in Commerce City, Colorado. Rentech claims it is the largest synthetic transportation fuel plant in the U.S. capable of producing up to 10 barrels of fuel per day.  Rentech has integrated three different processes:  steam methane reforming, Rentech’s own biomass gasification and Fischer-Tropsch technologies. 

To be fair, Rentech does realize revenue in the alternative energy segment.  However, it is mostly from consulting work, licensing or occasional sales of fuel produced in the demonstration unit. 

April 13, 2010

The Best Peak Oil Investments, Part VI: Barriers to Substitution

Tom Konrad CFA

There are two types of solution to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  These substitute have barriers to their use as a replacment petroleum based fuel.  Understanding those barriers also leads us to the investment opportunities that arise from these substitutes. 

As I wrote the first five parts of this series, looking into potential substitutes for gasoline and diesel, it was clear that many potential substitutes would need to overcome barriers to its adoption.  This article and the next will look at these barriers, and what they say about the potential for investments in substitutes for liquid fuels from petroleum.  Part VII will look at factors which constrain the supply of these substitutes.  Part VIII will combine the resulting understanding of these barriers and constraints to highlight the investment opportunities arising from them.

Barrier: Infrastructure

One great advantage gasoline and diesel have over most of the proposed alternatives is an extensive infrastructure.  In addition to an extensive pipeline network, we also have a large number of competing fueling stations.  If a new fuel requires new fueling stations, like natural gas and hydrogen, or charging points and (potentially) battery swapping stations (electricity) it may not be enough to make sure that enough filling stations exist for would-be drivers to make long trips.  If there is only one national network of filling stations, drivers will likely become concerned that the lack of competition will mean that they overpay for fuel.

Among the possible substitutes, the synthetic fuels discussed in part IV, as well as biogasoline are the best placed in that they can use existing infrastructure. 

In terms of having a nationwide transportation network, the best placed substitutes are natural gas and electricity.  In terms of point of sale delivery, electricity has an advantage in that it's safe and relatively cheap to place charging infrastructure in parking lots, and most homes already have the capability of charging an electric vehicle, although it takes a long time from the 120V outlets in most garages.  Most homes do not have natural gas in the garage, and even when they do, a compressor is necessary. 

Conventional biodiesel and ethanol can be dispensed from the same pumps used for fossil fuels, but both present some difficulties in transport and storage.  Biodiesel cannot be allowed to get too cold, because it begins to congeal, so in colder climates, storage tanks as well as transport tankers must be insulated and even heated.  Ethanol cannot be shipped through pipelines that are also used for gasoline, because it absorbs too much water.  Hence ethanol and biodiesel are mostly shipped in tanker trucks and rail cars.  But both can be blended with conventional fuels, meaning that little new dispensing infrastructure is needed.  The importance of a competitive fueling infrastructure can be seen in in this November 2009 statement from the Trucking industry to the US Senate [pdf] about the conversion of trucking from diesel to natural gas.  They say,

It is not sufficient to have a single LNG vendor with stations built at strategic locations along key freight corridors. Absent a competitive refueling infrastructure, trucking companies could face unreasonably high prices at individual retail LNG stations that have no competition in a particular geographic area. While competition exists in the natural gas industry, the high barriers to entry for retail LNG refueling stations may slow the development of a competitive refueling infrastructure. A competitive LNG refueling model would require the presence of multiple entities selling LNG in the same geographic area.

This objection applies to any potential alternative vehicle which locks the user into one fuel, and includes Electric Vehicles (EVs) such as the Nissan Leaf and Hydrogen Fuel Cell Vehicles, but not to flex fuel vehicles (E85 ethanol) or biodiesel (which can be used in any diesel engine.)  It also does not apply to Plug-in Hybrid Electric vehicles, such as the Chevy Volt, because while charging points and battery swapping stations may be limited, the existing fueling infrastructure provides supply competition.

The fuel with the weakest infrastructure is hydrogen.  Like natural gas, it needs specialized filling stations, but hydrogen lacks a national pipeline network.

Incomplete infrastructure can be either a barrier or an opportunity.  If a potential fuel is compelling for other reasons, firms well placed to provide the necessary infrastructure should be able to profit handsomely.  If, on the other hand, a fuel lacks an existing infrastructure and also faces significant other barriers, it will be unlikely to become a significant transportation fuel, and infrastructure investors are likely to lose their shirts along with everyone else interested in the fuel.

Barriers: Energy Density

When talking about energy density, it's important to consider not only the fuel, but the tank.  Both volume and weight are important.  Few fuels are as energy-dense as gasoline and diesel, both of which can be stored in simple, unpressurized fuel tanks.  In contrast, the fuel tank for electric vehicles is the battery, and batteries are not only large and heavy for the amount of energy they store, they are also extremely expensive and degrade over time.  Although the cost of driving an electric vehicle are very low compared to gas or diesel, the large up-front investment in batteries makes the total cost of owning an eelctric vehicle higher except for drivers who use the vehicle for frequent, short trips with time to recharge in between. 

The big winners for energy density are synthetic fuels, as well as conventional biofuels such as ethanol and biodiesel.  Although ethanol has been criticized because it only contains about 2/3 of the energy of the same volume of gasoline, it's close enough that people using ethanol don't have to completely change their behavior in order to use it in a conventional vehicle.  In contrast, electric vehicle manufacturers find that the range of their vehicles is constrained not only by the cost of batteries, but also by their size and weight.  Weight is particularly important, because as a vehicle gets heavier, more of the energy is used to move the vehicle rather than the occupants, which in turn requires even more batteries.

In between energy-dense biofuels and bulky batteries lie gaseous fuels: natural gas and hydrogen, which have good energy per gram, but require heavy pressurized tanks to pack them into a space small enough to fit in a vehicle.  Hydrogen requires a pressurized tank that takes up a lot of space, even if it is not very heavy.  Natural gas can either be used as Compressed natural gas (CNG) or Liquid Natural Gas (LNG.)  CNG is similar to hydrogen, although it is a little more energy dense.  LNG has the same energy density as diesel, but requires considerable energy to compress into that form, and is not available from a home fueling station.  Hence, natural gas vehicles present a tradeoff between energy density and fueling infrastructure.


Considering just the barriers of energy density and infrastructure, it is clear why the conventional biofuels ethanol and biodiesel gained an early lead over alternatives such as electricity and hydrogen.  The big questions about biofuels arise from constraints in their total supply, and the harm that many forms of biofuel agriculture do to the environment.  Synthetic fuels made from natural gas and coal (GTL and CTL) can also have excellent energy density and can take advantage of existing infrastructure and vehicle fleets, but so far have not been adopted in a large way becasue they have had to compete with cheap oil.  As oil prices rise, we will probably also see the rise of synthetic fuels, but, like biofuels, their long term prospects will be limited by total supply and possibly by concern about the environmental harm they do. 

Such supply constraints and environmental concerns will be the subject of Part VII.  Previous articles have been:
  1. Biofuels
  2. Hydrogen and Vehicle Eletrification
  3. Natural Gas Vehicles
  4. Synthetic fuels: GTL and CTL
  5. Algae


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

April 03, 2010

The Best Peak Oil Investments, Part IV: Gas-, Biomass-, and Coal-to-Liquids

Tom Konrad CFA

There are many proposed solutions to the liquid fuels scarcity caused be stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  Some will be good investments, others won't.  Here is where I'm putting my money, and why.  This fourth part takes a look at the possibility of converting coal,  natural gas or Biomass into gasoline or diesel we can use in unmodified vehicles.

In the first three parts of this series, I looked at various substitutes for oil based transportation fuels:
This part looks at the potential of technologies to convert coal, natural gas, and other biomass into liquid fuels that can be used directly in place of gasoline and diesel. 

The Other Fossil Fuels

Like oil, coal and natural gas are fossil fuels and so their use will eventually be constrained by limited supply. However, both are more abundant and have not been as heavily exploited as oil, and so many people hope that we will be able to use them in place of oil when oil supply can no longer keep up with demand.  If this hope for a cornucopia of synthetic liquid fuels is to be realized, several question will first have to be answered:
  1. Are the technologies economically viable?
  2. Will the process be environmentally benign enough to be politically acceptable?
  3. Can we produce coal and natural gas fast enough to meet both current existing needs and supply an increasing amount of synthetic liquid fuels?

The underlying factors for the economics of synthetic liquid fuels are 1) the cost of the feedstock, 2) the efficiency of the process, 3) the capital cost of the plant, and 4) the price of oil.  I found an in depth survey of gas-to-liquids technology from BP Statistical Review of World Energy, but it is eight years old.  At the time, the authors were predicting that gas to liquids (GTL) technology would be economic at oil prices of around $20-$25/bbl.  Coal to Liquids (CTL) technology also seems to cost between $25/bbl and $60/bbl.  It's not surprising that the economics are better with natural gas, because gas is more uniform than coal and is easier to handle.  At current prices of around $80/bbl for oil, these technologies seem to be comfortably economic, at least as long as the price of the feedstock stays low.

Most of the commercial applications of these technologies to date focus on stranded feedstocks, especially stranded natural gas which cannot easily be shipped to markets.  The largest gas to liquid plants are being built in Qatar, a country with enormous gas reserves that dwarf its export infrastructure.  Biomass resources by their nature are almost always "stranded" because they have very high transport costs.  Colorado based Rentech (RTK) is developing a number of biomass based projects in addition to projects that use a mix of stranded fossil and biomass resources.  The problem with stranded resources is often limited quantities.  Synthetic fuel technologies are most economic at very large scales, but free and nearly free feedstock are usually only available in much smaller volumes... otherwise it might make sense to build the infrastructure to transport the feedstock directly to markets.  A couple companies attempting to tackle the scale problem for natural gas are Compact GTL and Velocys, which are competing to produce small gas to liquids plants to be used in Brazil's Tupi oil field.

In terms of efficiency, the dominant Fischer-Tropsch (FT) based process converts about 60% of the energy in the feedstock into useful outputs.  The low efficiency of the process means that these technologies are most likely to be used only for feedstocks that cannot be easily transported or used locally.  Stranded natural gas is a good candidate.  Such natural gas is a byproduct of oil extraction, and is typically flared (burned without doing useful work) when there is no gas pipeline available to bring it to a market.  GTL can allow such stranded gas to be transported out with the oil.  Coal from mines without rail links or with heavy moisture content are also a good match for CTL technology, but only if the environmental harm of the extremely high carbon emissions are ignored. 

Environmental Impact

The biggest worry about these technologies, especially coal to liquids, are the enormous carbon emissions arising from the low efficiency of the process.  This is not a concern for stranded natural gas that might otherwise be flared. The carbon from burning stranded gas will be released into the atmosphere in any case, and if some of that gas can be used, we have a net economic gain without any net emissions.  Remote and low-grade coal resources would likely be left in the ground if not used for CTL.  Diesel made from coal will have about 2 times the associated carbon emissions of diesel made from oil, because of the higher carbon content of coal and the low conversion efficiency.  If CTL enables more coal resources to be exploited, it will result in more carbon emissions, while GTL used on stranded antural gas will not.

Where will the Gas and Coal Come From?

It would be difficult to ramp up natural gas production to a point where a significant portion of the trucking fleet could be converted to run on natural gas.  Since converting natural gas first to diesel and then using it to fuel trucks would require even more natural gas because of low GTL efficiencies, I think GTL will be mostly used on stranded gas resources. 

The same is true for coal, but with different implications.  Many coal resources are remote, and coal's bulk means that it is difficult to access such resources without a huge investment in rail lines.  The United States has large coal resources in Montana and Alaska that are remote from rail transport.  Although the "200 years of coal" doctrine is questionable, the main questions lie around declining quality and accessibility of coal reserves, not the amount of coal actually in the ground.  Peak oil is likely to continue to raise investor interest in Coal to Liquids. But prospective investors in such projects should be cautious.  Greenhouse gas regulations such as California's Low Carbon Fuel Standard could destroy the economics of CTL investments at the stroke of a pen.


In addition to most of the oil majors, the main companies developing these technologies are South Africa's Sasol (SSL), Oklahoma based Syntroleum (SYNM), and Colorado based Rentech (RTK) mentioned above.  Sasol is a diversified oil and chemicals firm with long experience running Coal-to-liquids plants.  Syntroleum and Rentech are development stage companies with efforts focused on biomass to liquids and stranded natural gas.  Rentech puts considerable effort into managing the carbon footprint of its fuels by finding ways to sequester the carbon it produces.  In terms of investment attractiveness, I would not consider Sasol as an investment because of its CTL focus.  I like Rentech's environmental efforts, but the company is several years at least from profitability, so it is worth watching but I would not consider buying the stock yet.  Syntroleum has a stronger balance sheet and cash flow, is near profitability, so this is the stock I would pick if I had to choose one of the three.


I think the best investment opportunities in this sector will probably go to those investors who choose to wait.  I think the greatest potential is in Gas to Liquids technology that can be scaled down small enough to be portable, like that being developed by the private companies Compact GTL and Velocys mentioned above.

The potential for Coal to Liquids technology is large, but companies focused on this technology are at great risk from any sort of carbon regulation.  Gas to Liquids technology will have a robust niche based on stranded natural gas, and the companies developing technologies which can operate at high efficiency on a small scale seem the most promising.  Biomass to Liquids technology also show promise, in particular because of its feedstock flexibility.  Where the feedstock is uniform and controllable, biofuels and biomass to electricity technologies will probably have the upper hand, but Biomass to Liquids technology seems to have good potential where the feedstock is available in quantity, but irregular in quality.  Municipal solid waste seems like one such potential source feedstock.

Of the publicly traded companies in the sector, Rentech seems like the most interesting one to watch because of their focus on biomass and waste feedstocks.  Nevertheless, the company is too far from profitability to make a compelling investment.


DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

September 02, 2007

War With Iran? Buy Alternative Energy Stocks.

September is starting out as the month of speculation about a massive three day air strike on Iran

Is Bush ready to attack Iran while our troops are still trying to stabilize both Afghanistan and Iraq?  In February, administration officials were denying it.   The preparations now going on could simply be the stick part of a negotiating strategy; the bad cop to Russia's good cop.  But Bush's chances of successful cooperation with Putin could be better.

What if?

If Bush does launch a massive three day air strike on Iran, what will that mean for alternative energy stocks?  I think it would have to be favorable.  We can certainly expect the oil price to rise sharply, which tends to be good for alternative energy.  Because a war with Iran would almost certainly disrupt world oil supplies, not only from Iran but from neighboring states such as Saudi Arabia.

Of Alternative Energy stocks, the ones likely to see the greatest appreciation from a war induced oil price spike are the ones most aligned with energy security, with a lesser advantage seen by the rest.  If the region remains in turmoil for a long time (and the wars in Iraq and Afghanistan certainly point to that as a possibility) then the rest of alternative energy will probably follow.

Here is my list of the alternative energy stocks I think would benefit most from short and long term increases in the price of oil:


Short term: Hybrid car makers such as Toyota (NYSE: TM) and Honda (NYSE: HMC) will benefit as people spooked by high gas prices buy hybrids.

Longer Term: All carmakers will be introducing efficient cars, so component makers with an advantage in efficiency such as Magna International (NYSE: MGA), as well as battery and capacitor manufacturers will benefit.  A war with Iran might cause car makers to stop waiting for better Lithium Ion batteries and just go with the tried and true NiMH batteries in a big way.


Short term: Ethanol from corn is lousy on the environment, but almost all the energy that goes into it is domestic.  So most corn ethanol producers will benefit.  I have mixed feelings about biofuels, but ADM is my favorite, because they have a dominant position, and produce their own feedstock. Biodiesel producers will also get a boost, for the same reason, but try to find ones which don't rely too much on the commodity oil markets.

Longer Term: Look to cellulosic ethanol companies, such as BlueFire Ethanol Inc. (OTCPK: BFRE), and ethanol from sugar companies such as Brazil's Cosan (NYSE: CZZ.)  


Short term: Coal to Liquids (CTL) firms are likely to get a big short term boost because coal is domestic.

Long term: CTL may have trouble due to constraints in the domestic supply of coal.

In general technologies that can be used for transportation fuels will see big benefits, with lesser benefits being felt by electricity generation technologies.  I've declined to list hydrogen here, because I think it's not a very good transportation fuel due to its low density, the additional energy costs of compression, as well as the high cost of fuel cells.

DISCLOSURE: Tom Konrad and/or his clients have positions in MGA, ADM.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.


January 16, 2007

The Future of Alternative Fuels: Coal-to-Liquids

Last week I wrote a post about the future of ethanol. In it, I promised a sister piece on the future of coal-to-liquids (CTL). This comes a bit later than initially promised…I apologize to those who had been holding their breaths.

I already wrote a post discussing the future of CTL not very long ago. I’m thus not going to repeat myself here, but rather supplement that post with some new info.

CTL In The News

As stated at the outset of the ethanol article, what drove me to write a series of posts on alternative fuels is that big news items on both ethanol and CTL abounded (relatively speaking) during the first week of January.

Firstly, a very insightful piece on China’s CTL industry appeared in Technology Review in early January (I would recommend this if you have about 10 minutes to spare, it’s very interesting).

This was followed, a short while later, by news that 2 US Senators were trying to revive a piece of legislation aimed at boosting production capacity and providing investment tax credits for CTL in the US. The 2 Senators are also apparently keen on forming a “Senate Coal-to-Liquid Fuel Caucus?. This could be the first step to some helpful pork being funneled to that industry, which, admittedly, hasn't been shown much political love since shortly after the oil shock of the late 1970s.

Finally, a few days ago, news came out that a DKRW unit involved in one of the first large-scale CTL projects in the US, Medicine Bow, had found a buyer for 100% of its synthetic fuel output, due to start flowing in late 2010. This project will have an initial capacity of 10,000 bpd, with a potential of up to 35,000 bpd after expansion.

(BTW, If you want to browse a good database of CTL news, I would recommend the Green Car Congress’)

CTL Growth

There are currently no great short-term plays on CTL in the US, for the plain and simple reason that there is no CTL production to speak of in America today. The first significant CTL production is not scheduled to occur until around 2011. The EIA estimates that CTL production should reach 5.7 billion gallons by 2030. Compare that, for instance, to the ethanol industry, with 4 billion gallons of output in 2005 and a projected 14.6 billion gallons in 2030.

Investing in CTL

Potentially, CTL has all the hallmarks of a great transition fuel: coal abounds, the technology to produce CTL has been around for a few decades, it can be made into a very clean-burning alternative to gasoline, and if oil does not dip below the upper 40s/lower 50s for an extended period of time, CTL can compete.

However, as discussed above, there may not be a good way to play this in the US for a few more years. That is why you should take a good hard look at China, because CTL is already happening there, and it will be big time in the foreseeable future. The great thing is, you can invest in a US-listed company with great exposure to the Chinese CTL market: Sasol [NYSE:SSL]. Sasol is currently involved in one of China’s most ambitious CTL projects.

Sure, the company’s share price has been correcting along with the price of oil over the past few weeks, and it could continue to do so in the short run. But there are certainly other things to consider. The Gold Stock Bull made the case for Sasol based on its exposure to CTL technology just before Christmas. Need anything more recent? Some 20,000 Motley Fool CAPS participants were very bullish on Sasol today.

Although Rentech [NYSE:RTK] and Syntroleum [NASDAQ:SYNM] are 2 interesting companies to keep an eye on, Sasol may be on the verge of doing great things for its investors.

I don't think CTL is a panacea, especially not in the long run. However, it will occupy a growing niche in the transportation fuel mix of several large energy consumers like the US, China and India, at least until the feedstock (i.e. coal) starts to run low. The good thing about CTL from a retail investor standpoint is that there hasn't yet been too much unfounded excitement around it, which is a problem that often plagues alt energy stocks. This could, however, change soon. The value investor might thus be able to scoop up a some good prospects, but my sense is that the window is closing.

DISCLOSURE: I don't have a position in any of the stocks discussed above.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.

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December 19, 2006

The Future Should Be Bright for Coal-to-Liquids

You are at a cocktail party somewhere, and, after joining a random group of revelers, you utter the following words: “If I say alternative fuel, what’s the very first thing that comes to mind…don’t even think about it, just answer!? If this fiesta was taking place last night, 9 folks out of 10 would have answered “ethanol?. The remaining 10% would have probably made-up a mix-bag of “biodiesel?, “hydrogen?, and, in extremely rare cases, “synthetic fuels?, also known as synfuels. Ten years from now, I bet you anything that far more than 10% of the general public will be thinking synfuel when they hear the words "alternative fuel".

Synfuels are liquid fuels made from coal, natural gas or biomass. They can be used to power the same kind of applications that currently utilize gasoline or diesel, most notably cars. Today I want to focus on one particular sub-type of synfuel - namely coal-based synfuel or coal-to-liquids (CTL). An article on CTL hit the mainstream newswire on Monday, casting some light on this little-known-yet-promising fuel source.

Investing in CTL: 4 Things You Should Know

The aim of this post is not to go over the whole process behind making CTL, thus me providing some links above for those who are curious about the science behind CTL. What I want to do here is to give you nuggets of useful information that will provide a good starting point should you decide to look at this seriously as an investment option. Here are 4 main things you should know:

A) There’s lots of coal around. The Energy Information Agency (EIA) estimates that, at the 2002 production rate, there’s about 200 years worth of coal left in the global ground; 26% is in the US, 23% in the Former Soviet Union and 12% in China. Like oil, recoverable reserves will likely increase as new extraction processes are brought on stream. However, like oil, production rates are going to increase massively as demand from booming economies like China and India picks up.

B) I’ve come across a couple of different estimates of crude oil price floors required to make CTL operations in the US profitable. Estimates typically range from $40/barrel to $45/barrel. You thus have to be an energy bull to want to invest in CTL in the US. Apparently, the Chinese are running operations that are economical at $25/barrel.

On a related note, I recently came across an interesting article in the September 2006 edition of Chadbourne & Parke’s Project Finance Newswire (PDF, see article on p. 24) discussing, among other things, the energy price risk associated with investing in CTL from a project finance standpoint.

C) CTL fuel burns much cleaner than conventional fuels, as a lot of the dirty stuff is removed during the production process. This means that, under certain favorable regulatory scenarios, CTL could hold some form of a ‘clean’ premium over gasoline at the pump (e.g. lower taxes). However, producing synfuel from coal generates large amounts of carbon dioxide, and carbon dioxide could become regulated at the federal level before most proposed US CTL operations are fully up-and-running. This could add certain costs at the front end of the production process that would nullify back end benefits.

D) Politicians and the military like CTL. I won’t discuss the military as I don' know too much about it, other than the fact they have been running some tests and seem to like the idea of not having to rely on hostile countries to power their fighter jets.

Politicians like CTL for the same reasons they like ethanol: (a) there’s a rural job-creation angle in an industry otherwise seen as on the wane, (b) it’s an easy sell to voters concerned about the security implications of sourcing a large part of America’s energy from unfriendly nations, and (c) soft environmentalists, under the right conditions (e.g. carbon capture at CTL plants), will embrace CTL because of its overall cleaner profile. If you want specifics on the existing and proposed government incentives for CTL, go to the EIA’s most recent Coal News and Markets page and scroll down to the section called “Coal Technology? towards the end. Under the sub-heading “Coal-to-Liquids Project Financing?, there is a short discussion on this topic (sorry for not being able to provide a direct link to the section, the page doesn’t allow for it).

3 CTL Stocks

The article on CTL discussed initially lists 3 companies who are banking on a bright future for coal-based synfuel: Headwaters [NYSE:HW], Syntroleum Corp [NASDAQ:SYNM], and Rentech [AMEX:RTK].

Of the 3 companies, Headwaters is the only 1 with positive earnings, although I suspect it’s not from its CTL operations. The stock has had a terrible year, and it is currently trading down about 40% from its 52-week high of $40.19. Earnings year-on-year are down nearly 38%. Nevertheless, analysts covering the stock seem confident that 2007 EPS will be markedly higher than 2006 EPS.

Syntroleum Corp hasn’t exactly had a great year either, and analysts don’t expect the firm to become profitable for a few more years. Syntroleum is the company with the most important exposure to the military.

Rentech is the company I am most familiar with, as I seriously investigated it as a potential investment last summer. In the end, I decided not to buy at and I’m happy I made that choice. Rentech has a very interesting project pipeline, and is probably the closest thing to a CTL pureplay there is. I might look it again in the near future.

After deciding not to purchase Rentech, synfuels fell off my radar screen, and with good reason. There hasn't been an exciting synfuel story yet, and investor attention (but not mine!) has been squarely on ethanol. I must say that reading that article has rekindled my interest, and CTL is definitely something that I'm going to start paying more attention to.

To conclude, if you want a good, safe way to get some exposure to CTL, have a quick look at the South African company Sasol [NYSE:SSL]. When South Africa was under a trade embargo because of its apartheid regime, Sasol perfected CTL technology to keep South African cars running, and the company is now busy developing that side of their business in places like China.

March 31, 2005

Milestone for Gas-to-Liquids Fuel Plant

Syntroleum Corp (SYNM) commemorated the successful production of more than 140,000 gallons of ultra-clean fuels at its gas-to-liquid (GTL) fuels plant at Port of Catoosa, Oklahoma. The plant also manufactured 60,000 gallons of additional products, such as syncrude. Gathered to mark the occasion were representatives from Syntroleum, the U.S. Department of Energy (DOE), Marathon Oil Company and Integrated Concepts and Research Corporation (ICRC). [ more ]

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