|
One big oil company is starting to make their move toward ethanol, a signal that some dinosaurs can evolve. The real question, though, is whether ethanol can become a significant income producer for companies that are having difficulties on the exploration side of the business.
With ethanol becoming an important additive to gasoline, and being offered as an alternative fuel in more vehicles, large oil companies have had little choice but to embrace it as part of their business equation. According to The New York Times "refiners increasingly see a need to get involved in ethanol production," as they prepare for rising gasoline demand when the economy recovers. Behind this awakening are federal mandates to increase future gasoline/ethanol blends for he U.S.
And as the Times points out "The interest expressed by big oil companies is coming in the nick of time for small companies that desperately need capital and cannot find it these days in the private markets." BP (NYSE: BP) has been the most aggressive of the majors to get involved with ethanol and biofuels in general. And its shares have been moving quietly higher of late, suggesting that investors like what they see at the company, a sharp contrast to the action in Exxon-Mobil (NYSE: XOM) and Chevron (NYSE: CVX), two other majors with minimal involvement in ethanol.
Chart Courtesy of StockCharts.com
BP, along with Verenium Corporation, a small private company based in Cambridge, Mass. are working on ethanol based on grasses and sugarcane, not corn, as other companies are currently doing. And the companies have plans to expand "a second, $250 million plant in Florida with the capacity to produce 36 million gallons a year of new biofuels — the first commercial plant of its type built with oil company money and expertise." According to The Times "Verenium scientists have already developed a secret sauce of enzymes and microbes that ferment and distill biomass into ethanol. Now BP is contributing technical expertise aimed at getting the temperatures and pressures in the vats just right."
BP is now spending $1.5 billion on biofuels. And along with its Verenium project, the company has partnered with a Brazilian company to tap its expertise in sugarcane based ethanol production. Brazil uses ethanol to power 50% of its cars, and is considered the world leader in ethanol production and technology.
Chart Courtesy of StockCharts.com
BP is also partnering with Dupont (NYSE: DD) "to test production of biobutanol, an advanced liquid alcohol fuel that is made from the same feed stocks as advanced ethanols and is compatible with existing pipelines and car engines. Executives say they hope to begin making the fuel in large amounts by 2013," according to The Times. Dupont shares have also been acting very well lately.
Conclusion
Oil prices seem to have risen to a level where ethanol is becoming interesting to investors. To be sure, this wave of interest seems to be different, and it is moving away from corn based ethanol to other areas that are proven as feedstock, such as sugarcane, and others that are less proven, such as grass, and other mixtures.
The fact that BP and Dupont are now involved suggests that ethanol is no longer a fringe idea, but something that at some point in the future will be more significant in the U.S.
This kind of dynamic, though, can take years to play out, and often has a bumpy road. Still, it's worth looking into BP and Dupont at this point. See our Fallen Angels for more details.
Get Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.
|
