Who Needs Fracking When You Have DNA?
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Without a doubt, one of the biggest things to hit the US energy market is hydraulic fracturing. This technology has allowed domestic oil and natural gas production to soar. Investors in gas producers like Cabot Oil and Gas (NYSE: COG) have profited nicely from the development of so-called shale gas. COG has risen from $15 to $43 in two years. The company claims to have 14 of the top 20 gas producing wells in Pennsylvania's Marcellus shale. As more utility companies switch to natural gas from coal for electricity production, COG should continue to do well.
Some hope that America can be energy independent by using compressed natural gas as a vehicle fuel. This might take some time. Fortunately, there are companies working on alternative fuels to help America to achieve this important goal. As an investor, you can run with a couple big companies or a couple of small ones.
First is a big company butanol play. Butanol is a superior fuel substitute to ethanol since butanol blends easier with gasoline (up to 16% without modifying your car as opposed to 10% for ethanol), has 95% of gasoline's BTU's (as opposed to about 75% for ethanol) and is not corrosive so it can "drop in" existing pipelines, which ethanol can't. Butamax is a joint venture between DuPont (NYSE: DD) and British Petroleum (NYSE: BP). The goal is producing butanol using genetically modified yeast and other micro-organisms. Butamax is not in the butanol production business per se, but instead is developing the technology for license to actual producers. To get in on this action, you'll need to invest in either DuPont or BP. Once they start licensing the technology, the butanol producer becomes a potential investment.
Both BP and DuPont actively invest in cellulosic ethanol and other renewable energies. BP's cellulosic ethanol efforts are in three owned and operated ethanol mills in Brazil. Another ethanol plant in Great Britain is under construction and, as biobutanol technology is proven, will hopefully be converted to butanol production. Another joint venture is a $500 million, 10 year funding of the Energy Biosciences Institute, a public/private partnership looking for a technical solution to the problems of global warming, climate change and declining carbon based fuels. BP's green efforts also include a $8 billion investment in wind farms, photovoltaics and carbon capture.
DuPont's cellulosic ethanol efforts are primarily through its $6.3 billion buyout of Denisco in May 2011. Denisco happens to own Genencor, a company producing enzymes to create ethanol from non-food biomass. DuPont also applies biotechnology to create materials that can replace petroleum based counterparts. The biotechnology segment is one part of DuPont's efforts to reduce petroleum consumption through alternative fuels, improved fuel efficiency and solar power.
Among the smaller companies...
Solazyme (NASDAQ: SZYM) is producing oil from algae. Even better, depending on the need, the algae can be genetically manipulated to produce a variety of fuels from biodiesel (recently EPA approved, an industry first) to jet fuel. Why stop at petroleum based oils? The algae can produce oils for use in food and cosmetics. In fact, the biggest markets for Solazyme products are in skin care and cosmetics followed by nutritionals. Revenues are rising, United Continental has signed a letter of intent to buy 20 million gallons of fuel and cosmetic sales are growing significantly. Here's a short video of their production facility in Peoria IL. Now, if they can just turn a profit...
Amyris (NASDAQ: AMRS) is an interesting biofuel story. Rather than renewable energy, this company was founded on malaria. Amyris leveraged a grant from the Bill and Melinda Gates Foundation to produce artimystic acid, a precursor for an inexpensive anti-malaria drug, from genetically modified yeast. Amyris genetically tweaked the yeast to produce farnesene, an oil that can be converted to diesel fuel or used as a chemical in the cosmetics industry. Amyris s currently losing money, but companies like Nikko Chemicals, Michelin, Total, Volkswagen and Proctor and Gambel have all inked deals for AMRS products. Two production plants in Brazil are producing jet fuel.
Biotechnology offers the hope of providing a variety of vehicle fuels and other products from renewable sources. I believe this flexibility and the renewable nature of feedstocks, joined with genetically modified micro-organisms, will help bring energy independence to America.
dylan588 has positions in COG and BP. 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.If you have questions about this post or the Fool’s blog network, click here for information.