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BP May Come to Mean "Biofuels Pro"

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Over the past few years, there's been a raft of attention directed toward replacing a percentage of the gasoline we consume with supposedly cheaper biofuels. Unfortunately, corn-based ethanol, which has been our primary approach in this country, has proven to be expensive, has ramped up food costs, and may actually burn less efficiently than gasoline refined from crude oil.

Now, along comes BP (NYSE: BP  ) willing to put its money where its mouth is by teaming up with Massachusetts-based Verenium Corp. (Nasdaq: VRNM  ) in laying plans for large-scale production of cellulosic ethanol from non-edible feedstocks, like energy cane and sorghum. The new factory will be built in Florida and will dwarf the Verenium plant in Louisiana -- which is currently the world's largest -- by a factor of 25. It’s also likely to cost $250 million to $300 million by the time it is completed.

BP -- which is familiar with biofuels, given that it blended 1 billion gallons of ethanol in the U.S. last year and in September had a refinery come online in Brazil -- is committed to this joint venture. With this new announcement of $22.5 million, BP has now invested $112.5 million in the partnership -- in exchange for a half-interest in Verenium's technology. And beyond that, the companies have expressed a desire to build yet another commercial-scale facility along the Gulf Coast.

These efforts are being prodded by U.S. government mandates calling for sizable increases in the volume of renewable fuels that will contribute to the nation's future supplies. At this point, the mandate calls for approximately 7% of the nation’s total fuel supply -- around16 billion gallons -- to be cellulosic ethanol by 2022. Among those companies also currently working toward this objective are DuPont (NYSE: DD  ) and Archer Daniels Midland (NYSE: ADM  ) .  Not wanting to be left behind, Big Oil members ExxonMobil (NYSE: XOM  ) and Royal Dutch Shell (NYSE: RDS-A  ) are also turning their attention to the next generation of biofuels.

But, for my money, the real compliments in the effort go to BP. Not only has the company overcome a range of adversity, including refinery mishaps, pipeline leaks, and an abrupt change in the CEO office, but it has expanded its production of late, solved problems in a partnership in Russia, and is leading the biofuels pack. Add in a better than 8% dividend yield, and you have a company well worth Foolish attention.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2009, at 1:53 PM, c300man wrote:

    BP itself is probably responsible for most of their troubles. While they are busy touting their small commitments to non-petroleum energy they overlook or shortchange crucial activities like safety and maintenance.

    I'm not sure what the author is suggesting in the first paragraph when comparing ethanol and gasoline. There is no question; ethanol has about 3/4 the energy content (BTU's per lb or gal) of gasoline. Gasoline has less energy than diesel so that ethanol has only about 2/3 the energy of diesel.

    c300man

  • Report this Comment On February 25, 2009, at 3:39 PM, jerhoad wrote:

    Has anyone but me noticed that the corn-based ethanol plants are shutting down, losing money? We've seen this before - government 'mandating' things, then changing the 'rules' after significant investment by private enterprises. Investors in the 'mandated schemes' are then left with empty wallets after finding out that 'Polly Anna" pipe dreams do not substitute for real energy. Perhaps BP will be the exception. Science educational in the US is an abomination. And of course, political science majors (future politicians!) don't take much hard science anyway. God protect us from all the "do gooders".

  • Report this Comment On February 26, 2009, at 6:24 AM, Renergie wrote:

    The U.S. Environmental Protection Agency has granted a testing exemption to Renergie, Inc. Under the test program, the first of its kind in the U.S., Renergie will use variable blending pumps, not splash blending, to precisely dispense hydrous ethanol blends of E10, E20, E30, and E85 to test vehicles for the purpose of testing for blend optimization with respect to fuel economy, engine emissions, and vehicle drivability. Sixty vehicles will be involved in the test program which will last for a period of 15 months.

    Hydrous Ethanol

    Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.

    Variable Blending Pump

    In the U.S., the primary method for blending ethanol into gasoline is splash blending. The ethanol is “splashed” into the gasoline either in a tanker truck or sometimes into a storage tank of a retail station. Renergie believes the inaccuracy and manipulation of splash blending may be eliminated by precisely blending the ethanol and unleaded gasoline at the point of consumption, i.e., the point where the consumer puts E10, E20, E30 or E85 into his or her vehicle. A variable blending pump would ensure the consumer that E10 means the fuel entering the fuel tank of the consumer’s vehicle is 10 percent ethanol (rather than the current arbitrary range of 4 percent ethanol to at least 24% ethanol that the splash blending method provides) and 90% gasoline.

    Team Approach

    “On June 21, 2008, Governor Bobby Jindal signed into law the Advanced Biofuel Industry Development Initiative (“Act 382”), the most comprehensive and far-reaching state legislation in the nation enacted to develop a statewide advanced biofuel industry. Act 382 is based upon the “Field-to-Pump” strategy developed by Renergie. Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous ethanol pilot program,” said Meaghan M. Donovan, founder of Renergie, Inc. “We are excited and proud that Renergie, the Louisiana Department of Agriculture & Forestry, the Louisiana Department of Environmental Quality, and the U.S. Environmental Protection Agency are acting as a unified team to develop a network of small advanced biofuel manufacturing facilities and the necessary fueling infrastructure throughout Louisiana. Representative Jonathan W. Perry (R - District 47), Senator Nick Gautreaux (D - District 26), and Dr. Mike Strain, Commissioner of the Louisiana Department of Agriculture and Forestry, should be praised for their leadership on this issue. Renergie’s decentralized network of small advanced biofuel manufacturing facilities reduces Renergie’s feedstock supply risk, maximizes rural economic development, maximizes job creation in the state and does not burden local water supplies. The legislature and governor of the great State of Louisiana have chosen to lead the nation in moving ethanol beyond being just a blending component in gasoline. By blending fuel-grade ethanol with gasoline, via blending pumps at its gas stations, Renergie will offer the consumer a fuel that is renewable, competitively-priced, cleaner, and more efficient than unleaded gasoline in the form E10, E20, E30 and E85.”

    About Renergie

    Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

  • Report this Comment On March 09, 2009, at 5:55 PM, Renergie wrote:

    "Field-to-Pump" is a unique strategy created by Renergie to locally produce and market advanced biofuel (“non-corn ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

    For more information, please feel free to visit:

    http://en.wikipedia.org/wiki/Field-to-Pump

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