Big Companies Are Buying Into Biofuels

Big oil and chemical companies have financial resources and established infrastructure that is, at this point, unavailable to smaller biofuel companies. In the world of biofuels, maybe size does matter.

Feb 16, 2014 at 3:52PM

A handful of smaller companies like Solazyme (NASDAQ:SZYM), Amyris (NASDAQ:AMRS), and Renewable Energy Group are often credited as being the future of biofuels, while many experts in the biofuel industry argue that a monumental investment would be necessary for biofuels to take off in the short term. While leaders of these smaller companies in the biofuel industry are unquestionably committed to the success of their businesses, the scale of investment necessary for biofuels to see widespread implementation is likely beyond the means of these smaller companies.

Larger companies from a variety of backgrounds, including ExxonMobil (NYSE:XOM), DuPont (NYSE:DD), and BP (NYSE:BP), are seeing the potential in biofuels and are investing in a range of different advanced biofuel technologies. The resources available to these companies with market capitalizations that in some cases are over 1,000 times greater than smaller biofuel companies may make the companies' ventures into the biofuel industry that much more likely to succeed.

With size comes money
After spending over $100 million on the development of algae-based biofuels, ExxonMobil is refocusing its efforts on developing new, more productive strains of algae with the help of Synthetic Genomics.

The collaborative effort, which may result in ExxonMobil investing more than the massive $600 million originally expected for the development of algae-based fuels, is just one example of why the next great advances in biofuels may not originate from the younger start-up companies in the industry. The ability to wager and lose $100 million on higher-risk ventures like algae-based fuels would spell the end for a newer company, but can be easily written off by the world's largest oil company.

DuPont's research into cellulosic ethanol and BP's investments in biobutanol both further increase the likelihood of big developments in bio-based fuels arising from the ranks of established larger companies. Through the combined expertise of recently acquired subsidiaries Danisco and Genencor and itsown strong history of industrial bioscience, DuPont is a major producer of enzymes for traditional corn-based ethanol production and has set the necessary groundwork for large-scale production of cellulosic ethanol.

After the success of a demonstration-scale facility in Tennessee, DuPont is now nearing completion of a commercial-scale cellulosic ethanol production facility in Iowa. By the end of the year, the facility should be operational with expectations to produce 30 million gallons of fuel ethanol from corn stover feedstock.

DuPont's interest in advanced biofuels spreads beyond just cellulosic ethanol into less traditional bio-based fuels like propanediol and biobutanol. The company's Butamax endeavor into biobutanol production is in collaboration with BP, with plans to use the fuel in place of ethanol for gasoline blending.

The major advantage of biobutanol over ethanol is its higher blending percentage given current regulations. It is not clear how detrimental the proposed changes to the Renewable Fuel Standard (RFS) would be to biobutanol, but it remains an intriguing opportunity given the ability to produce the fuel at already existing ethanol production facilities.

Retrofitting existing ethanol facilities and providing the complete set of resources to transition at least in part to biobutanol production and subsequent commercialization allows BP and DuPont to invest in advanced biofuels without the complete expense of building entirely new facilities. The required investments into research and development for the venture are still substantial, but BP's established infrastructure and the combined technology from both companies increase the likelihood for commercial success of the joint venture.

The takeaway
ExxonMobil, DuPont, and BP are just three of several large corporations investing in advanced biofuels. The sheer magnitudes of the companies and the technological and infrastructural resources available make their investments more likely to pay off in the long run.

Only time will tell whether the future of biofuels will be directed more by already established large corporations or by ambitious younger companies. For investors wanting to get into biofuels without the risk inherent to smaller cap companies, ExxonMobil, DuPont, and BP are all worthy of consideration.

Biofuel companies are not alone in trying to capitalize on the changing face of American energy
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

 
 

Shamus Funk has no position in any stocks mentioned. The Motley Fool owns shares of Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers