“Bio Oil” Boom: Alternative Fuels Market to Double in Three Years

“Bio Oil” Boom: Alternative Fuels Market to Double in Three Years

A Taipan Publishing Group Investment Research Report
By Sara Nunnally, Senior Research Director, Taipan Publishing Group

Barack Obama’s ambitious American Recovery and Reinvestment Plan will invest $150 billion in alternative energy over the next 10 years. But the biofuels market could double in three years. If you’re thinking ethanol, think again…

Jaws hit the floor… CEOs of major oil companies stand, shaking their heads, praying the ambitious goals of our new president are not met.

It could mean their jobs.

Exxon Mobil’s (XOM:NYSE) CEO, Rex Tillerson says it can’t be done. Yeah, he hopes… Here’s a list of what President Obama wants out of the energy portion of his $700 billion recovery plan:

• Putting 1 million plug-in-electric hybrid vehicles (PHEVs) on the road by 2015 — cars that can get the equivalent of 150 miles per gallon. (Toyota’s already planning on leap-frogging GM in this department.)
• Creating 5 million new green jobs by investing $150 billion over 10 years to stimulate clean-energy infrastructure and manufacturing such as wind turbine plants and solar panels carpeting the nation’s rooftops. (Old manufacturing plants in the Midwest are already being refitted to make wind turbines.)
• Cutting U.S. oil consumption, within 10 years, by the amount currently imported from the Middle East and Venezuela combined.
• Requiring 10% of the nation’s electricity to come from renewable energy sources, like wind, solar, geothermal and biomass by 2012. By 2025, raise that to 25%. (Obama wants to double our use in the next three years.)
• Establishing an economy-wide cap-and-trade program that cuts U.S. greenhouse gas emissions by charging for every ton of carbon dioxide that goes into the sky from coal- and natural gas-fired US power plants. (There are already some exchanges trading carbon credits – in London and Chicago.)

But let’s talk about one option that can help achieve four of these ambitious bullet points: alternative fuels.

No, I’m not talking about ethanol… That fated fuel that’s been (unfairly?) accused of raising food prices and bankrupting farmers. Let’s get off the ethanol train. Even cellulosic ethanol, which has the potential to revolutionize the alternative fuels industry.

First a bit of history.

President Bush’s State of the Union speech on Jan. 23, 2007, dropped a bomb on the oil industry: it called for an annual 35 billion gallons of alternative fuels to hit the market by 2017.

This massive increase represented an annual growth rate of 70%. That meant 700% in 10 years. The only way this could be done is through huge investments in cellulosic biomass and other alternative fuel technology like gasification.

But cellulosic biofuel is very expensive, and companies are still working out the kinks. There are some pilot plants demonstrating its production, though mass production is still a few years off in the future.

No doubt cellulosic biofuel is going to the Big League – and soon – with an estimated potential of 100 billion gallons of production a year. A more realistic estimate is a production of 40 billion gallons a year, but we won’t see that right off the bat.

But there is a technology that’s already in use that can:

• Provide an alternative fuel for vehicles
• Provide an alternative fuel for power plants
• Reduce demand for imported oil
• Reduce waste
• Reduce carbon emissions

There is one company that can cheat the cellulosic biofuel cycle, and skip a huge part of the costs of producing biomass-based alternative fuels.

Here’s the process… It combines the renewable side of ethanol production – by using a renewable feedstock – with the flexibility of coal-to-liquid technology – by being able to create fuel for a number of different end uses.

Exit Zeus, Enter Pyrolysis

Pyrolysis sounds like some Greek god of fire, but there really isn’t any burning involved – at least in the classic sense.

One company, Dynamotive Energy Systems Corp. (DYMTF:OTC BB) uses pyrolysis to create a biomass-based carbon that can then go through the Fisher-Tropsch (coal-to-liquid) process to produce synthetic fuel.

In a nutshell, a feedstock goes into a boiler/reactor where it becomes instantly vaporized by the 450-500 degree Celsius fluid. The resulting vapor passes through a filter that collects char and feeds the gas into a condenser. Once the gas enters the condenser, the synthetic fuel falls into storage, and any leftover gas is returned to the boiler/reactor.

Nothing is wasted.

Why go through all this trouble to create a synthetic fuel that needs to undergo yet another process before it can be used in vehicles?

Biomass energy needs very large quantities of biomass to produce a significant amount of fuel or energy. The collection and transportation of all that biomass can be pretty expensive and time consuming. Pyrolysis cuts these costs enormously. It’s one less step the producer has to go through to create synthetic fuel.

Dynamic Dynamotive

So let’s talk more about Dynamotive. Its patented fast pyrolysis technology could be the next step in producing massive amounts of alternative fuels in a cost-competitive way, which the Obama plan needs in order to fulfill its ambitious goal of doubling use of alternative fuels in the next three years.

A bonus? Dynamotive’s pyrolysis is carbon neutral. Every product created gets used or reused, without any waste.

Dynamotive’s “BioOil” has a variety of uses without having to go through the Fischer-Tropsch process. It can be used for heat and power generation or as a partial replacement for fuels in industrial settings like boilers and kilns.

The company’s “Intermediate BioOil” (a mixture of BioOil and char) is more viscose and heavy, which is more efficient for heating needs and more cost effective when it comes to transportation.

Char is another product Dynamotive “harvests” from its pyrolysis, and it is a great substitute for industrial fossil fuels in power generation. For example, burning char and coal in a traditional coal-fired power plant reduces sulfur emissions.

Here’s the thing… All three products can be used to create alternative fuels for vehicles.

The company says, “Dynamotive views BioOil as a key intermediate in the conversion of biomass to hydrogen or [synthetic gas] since the volume reduction associated with the conversion of biomass to BioOil, Intermediate BioOil and Char leads to enormous reduction in transportation and storage costs.” Syngas can be used as a fuel all on its own, or as a feedstock for synthetic fuel production.

The Company

Expansion happened very quickly for Dynamotive. The company’s pilot BioOil plant is a 100-tonne-per-day plant in West Lorne, Ontario. It supplies Magellan Aerospace Limited’s 2.5 MW gas turbine with BioOil for power generation.

Back in the first half of 2007, Dynamotive expanded this plant from 100 tonnes per day to 130 tonnes per day. This success led to the development of another BioOil plant plan.

The new 200-tonne-per-day plant was constructed in Guelph, Ontario, about 45 minutes outside of Toronto. It will produce 130,000 barrels of oil equivalent every year, at full capacity. The Guelph Plant will also be modular, allowing for fast setup and easy expansion.

In fact, the Guelph Plant site has the capacity for four plants. Guelph may become Dynamotive’s new home for its state-of-the-art technical research and development function headquarters.

Let me show you what good alternative energy news can do for this company. Dynamotive saw a strong increase in both volume and price on Sept. 7, 2005. Prices went from $0.55 to $1.66 in seven months.

Anything strike you about that date? It’s less than a month after our Energy Policy Act of 2005 mandated 7.5 billion gallons of ethanol be blended into our gasoline stocks, and offered $11.5 billion in funding for alternative energy.

This recent call by President Obama for a doubling of alternative fuels in the next three years could have the same results. This company has been extraordinarily beat down over the past year, though the corner appears to have occurred.

The company bottomed out at $0.11 on Nov. 28, 2008. Since then, though, the company had doubled its share price, and could be set to double again in the next six months.

This company is one you shouldn’t sit on. Dec. 1, 2008, saw Dynamotive sign an agreement with China regarding the development of a new plant in Henan province… the first of Dynamotive’s plants to be built outside of Canada.

Could the U.S. be the next place to see a Dynamotive plant? I’m sure Obama would want a couple…

Other Related Topics: Alternative Energy , Biofuel Energy , China Investments , Sara Nunnally