Natural Gas as an Alternative Energy Feedstock Redux

As the global reserves of shale gas and shale oil continue their upward revisions, the economics of other energy sources continue to change. Emerson’s Douglas Morris, a member of the mining and power industry group, looks at the changing biofuel economics.

Emerson's Douglas MorrisAbout a year ago, one of my posts, Is Natural Gas the New Alternative Energy Source?, hit upon the movement to use natural gas a feedstock for advanced biofuels processes in lieu of biomass or similar carbon sources. This week, I read something that really impressed upon me the economics that abundant shale gas is imposing on the alternatives industry.

In a Bloomberg Businessweek article, Biofuel Pioneer Forsakes Renewables to Make Gas-Fed Fuels, the former Codexis CEO and ardent biofuels supporter, Alan Shaw, discussed how “it’s impossible to economically turn crop waste, wood and plants like switchgrass into fuel”. He now heads up a new company, Calysta Energy, whose business model is to use natural gas to produce fuels and chemicals that would compete with firms in the advanced biofuels space.

Regardless of whether or not you are discussing a firm that uses natural gas or some bio pathway, long-term viability always boils down to economics. For any non-petroleum based company to have success in fuel and chemical markets, their business model needs to be profitable without subsidies, particularly in today’s environment of austere government. Companies may find that natural gas is the quasi-subsidy they need.

As a general rule, advanced biofuels companies have not seen sustained success and can use a jumpstart. Even those with seemingly compelling business models that issued public offerings have struggled.

Google Finance 1-year chart: NASDAQ:KIOR, NASDAQ:GEVO, NASDAQ:AMRS, NASDAQ:SZYM, NASDAQ:CDXS

Google Finance 1-year chart: NASDAQ:KIOR, NASDAQ:GEVO, NASDAQ:AMRS, NASDAQ:SZYM, NASDAQ:CDXS

Now to be fair, only some advanced biofuel processes will be able to take advantage of natural gas and it will be interesting to see how many do. I’m afraid, though, that without some form of change, this industry, filled with great entrepreneurs and state-of-the-art technology, will continue to struggle because of the economic challenge as stated by Mr. Shaw.

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