Weeds are hardly my favorite flora. My hay fever doesn't like them and neither does my lawn. But a flax called camelina - needing little nitrogen and water - may just be the first big winner in renewable biofuels.
It is going to provide investors with a whole new way to play the renewable energy market. And its impact will be, quite literally, up in the air.
Anybody who flies has been feeling the pinch of exploding ticket prices. Having jetted over a quarter of a million miles in the last 18 months, I can attest to the connection between rising fuel prices and ticket hikes. And without a major change in how we source jet fuel, this problem will simply get worse - especially with ridership slowly returning as the crisis bottoms out.
Jet fuel is already imported in greater volume, and the refineries that can provide it reliably worldwide are limited. That's because refining puts jet fuel (which is really high-level kerosene) among the so-called "middle distillates" - along with diesel and low-sulfur heating oil. But prioritizing the need for high-octane gasoline ("light distillates") has taken up more of the available refinery capacity.
They're producing less diesel and jet fuel than the market requires, pushing up the price.
And jet biofuel may be an answer.
It's hardly theoretical.
"Weed Power" is Already in the Fuel Stream
In the past several months, KLM Royal Dutch Airlines (OTC ADR: KLMR), Japan Airlines Corp. (OTC: JALSF), Air New Zealand (OTC: ANZFF) and Continental Airlines Inc. (NYSE: CAL) have all reported successful biofuel flights.
That's where our friend the weed comes in.
Over the last four weeks, 14 airlines from four countries have signed memoranda with Seattle-based AltAir Fuels LLC for jet fuel derived from camelina oil. Those airlines include many of the big boys - Air Canada, American Airlines (NYSE: AMR), Delta Air Lines Inc. (NYSE: DAL), United Air Lines Inc. (NASDAQ: UAUA), US Airways Group Inc. (NASDAQ: LCC), JetBlue Airways Corp. (NASDAQ: JBLU), and Deutsche Lufthansa AG (OTC ADR: DLAKY). Even FedEx Corp. (NYSE: FDX) and United Parcel Service (NYSE: UPS) are warming to "weed power."
Full production will be phased in over the next two years, but the product is already moving into the fuel stream.
On the surface, there's just one problem for investors: AltAir is privately held. (That is likely to change soon, however, as the company will certainly require additional working capital to rev up production).
Dig a little deeper, though, and you'll find that you can still profit from AltAir before it goes public.
The Companies Making It Happen
First, the AltAir plant will produce its jet biofuel at a refinery located in Anacortes, Wash. It will blend with conventional production from the refinery to yield what is called a "hydrotreated" renewable jet fuel. And the refinery is operated by Tesoro Corp. (NYSE: TSO) - the initial investment move in advance of full biofuel production.
Second, the refinery technology and processes AltAir uses come from UOP Inc., a subsidiary of Honeywell International Inc. (NYSE: HON).
Third, AltAir has teamed up with Sustainable Oils to source camelina.
Sustainable Oils is the largest camelina research-and-production network in North America. It has contracts with hundreds of farmers and cooperatives throughout the United States. One of its two partners is Green Earth Fuels LLC (GEF). GEF, in turn, includes Goldman Sachs Group Inc. (NYSE: GS) among its majority owners, as well as the heavy-hitting international mover, The Carlyle Group LP.
Targeted Growth Inc. (TGI), the other partner, has as owners some of the leading investment funds in alternative energy - AllianceBernstein, Capricorn Investment Group, GrowthWorks, the Skoll Foundation and Victoria Park Capital.
Recognize that in this rapidly developing jet-biofuel market, the initial providers will quickly increase production. AltAir already benefits from an alliance with well-capitalized companies and investment funds. As this market expands, Sustainable Oils, GEF and TGI will join AltAir in going public.
With another provider, experience with one alternative source is producing movement into renewables.
Rentech Inc. (AMEX: RTK) is already on the map with synthetic-jet-fuel production from coal. At least 250 million gallons of fuel is expected a year from its proposed Adams County, Miss. plant. AirTran Airlines (NYSE: AAI) has just inked a contract for that production, while Denbury Resources Inc. (NYSE: DNR) will build a pipeline for the captured carbon dioxide, and will use it to enhance production at otherwise unrecoverable oil reserves.
That's a nice value-added byproduct with some welcome positive environmental impact.
Last week, Rentech announced it is developing an energy-production facility in Rialto, Calif., to produce renewable fuels and electricity from green waste. The company already has a multi-airline contract in place to provide the fuel at Los Angeles International Airport beginning in late 2012, when the plant is scheduled to go into service.
And more companies are entering the market.
On Jan. 7, Calif.-based BioJet Corp. and Great Plains Oil & Exploration from Cincinnati, Ohio, announced plans to enter the camelina-renewable jet fuel surge.
BioJet has experience in developing fuel from jatropha, a plant Goldman Sachs Group Inc. (NYSE: GS) recently labeled as a prime candidate for biofuel development. And Great Plains has been a pioneer in camelina oil production. Both BioJet and Great Plains are privately held, but are also likely candidates for a share offering.
There's no doubt about it. This market will be a dynamic one. Now, if I could just figure out how to use the stuff growing on my lawn...
[Editor's Note: Speculators in New York won't be calling the shots anymore. Not in oil, anyway. The way we price it. The places we trade it. The companies that stand to profit most... It's all about to change. And in a Money Morning exclusive Web eventMonday (Feb. 8) at 4 p.m., Dr. Kent Moors will show you why - as well as where to put your money as oil climbs above $200 a barrel. This is a FREE event for Money Morning readers. Just register here to watch "The 5 Energy Shocks of 2010."]
News and Related Story Links:
- Babylon Dictionary:
Middle Distillates. - Wikipedia:
Biofuel. - Altair Fuels LLC:
Official Web Site. - UOP Inc.:
Official Web Site. - Sustainable Oils:
Official Web Site. - Sustainable Oils:
Camelina. - Green Earth Fuels LLC:
Official Web Site. - Capricorn Investment Group:
Official Web Site. - GrowthWorks:
Official Web Site. - The Skoll Foundation:
Official Web Site. - Biojet Corp.:
Official Web Site. - Great Plains Oil & Exploration:
Official Web Site. - Wikipedia:
Jatropha Oil.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.