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This Discovery Should Concern Valero Energy Corporation

According to Valero's (NYSE: VLO  ) 2013 10K filing, the company has two reportable segments (refining and ethanol). It's ethanol that I wanted to highlight because according to an April 9 article in the science journal Nature, researchers at Stanford University may have created an innovative way to capture CO2 from the air and convert it into ethanol from a copper oxide electrode powered by the sun, wind, or waves. If this is true, Valero's focus on creating ethanol from corn could be severely challenged since this process impacts our food supply, raises corn prices, requires a lot of water to nourish corn crops and creates the need for fertilizer to maximize crop growth. If that can all be eliminated by what is being studied at Stanford University, Valero should be worried. 

For those not familiar with Valero's bet on ethanol, through its subsidiary Valero Renewables, the company only trails Archer Daniels Midland (NYSE: ADM  ) as the largest U.S. producer of ethanol. Valero owns 11 ethanol plants that can produce roughly 1.3 billion gallons per year from over 425 millions bushels of corn. 

Considering the company slated in its 2013 10K that it will spend $90 million in 2014 and a whopping $204 million in 2015 to comply with environmental regulations, Valero should seriously explore what is happening inside the lab of Stanford University. If the idea shows promise and actually works, it should do whatever possible to acquire the IP. It has too much invested in ethanol derived from corn not to. 

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  • Report this Comment On April 27, 2014, at 3:21 PM, richardmmiles wrote:

    Seems like a key part of that article in Nature is this:

    "Although many catalysts4, 5, 6, 7, 8, 9, 10, 11 can reduce CO2 to carbon monoxide (CO), liquid fuel synthesis requires that CO is reduced further, using H2O as a H+ source. Copper (Cu) is the only known material with an appreciable CO electroreduction activity, but in bulk form its efficiency and selectivity for liquid fuel are far too low for practical use."

    Additionally my recollection is that academics generally believe that it takes a decade to migrate lab experiments/development to the marketplace.

    Think Valero is safe for the foreseeable future.

  • Report this Comment On April 28, 2014, at 12:48 PM, nubblyman wrote:

    Sounds like the author above is trying to manufacture a concern for VLO. If there is a need is to create ethanol, no matter what, you still need a chemical factory and all its associated quality control packaging/distribution tools. If the Stanford innovation materializes and EtOH is cheaper to make that way, the best place to make it is likely in an existing ETOH refinery, refitted for the new process. If the Stanford process is a great success it will just increase demand as a replacement fuel. If the Stanford process is more expensive or has other problems, then there is no real issue. Therefore, the new process will either have no effect or spur more demand. Either way, its not a negative on VLO or other refiners.

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John Licata

John Licata is the Founder & Chief Energy Strategist of Blue Phoenix Inc. You can follow John on Twitter @bluephoenixinc

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