I’ve been spending a lot of time reading e-mails about ethanol the past couple of weeks. I’ve heard from ethanol advocates, the anti-ethanol/biofuels crowd and some very inquisitive (and maybe brilliant) skeptics. And let me just say now that I appreciate the incredible response to the ethanol series.

So without further adieu, I’m going to jump into the Monday mailbag headfirst to help answer some of your questions and talk about some companies involved in the ethanol business.

*** “Please note that ethanol made from corn is anything but ‘green.’ the pesticides and oil-based substances used to grow corn are draining [the] south and killing the Gulf. Corn is a disaster.”
– Anonymous

As I mentioned last week, ethanol proponents will argue the “true cost” of a gallon of conventional gasoline, which could even include the soldier protecting the oil field. And on the other hand, what additional costs are involved in corn-based ethanol production? Pesticides and fertilizers, to name a couple…

Here is an excerpt from an article posted by the Sustainable Products Corporation: “But what’s missing in this debate is a real understanding of the true environmental costs of how we manufacture products of all kinds. Take ethanol, for example. Closer examination of ethanol production reveals that the manufacture of pesticides, herbicides and fertilizers used to grow conventional corn to make ethanol create almost as much pollution as the MTBE it replaces. In other words, the things that go into making a ‘clean’ product can be horribly polluting.”

But for every problem, there could eventually be a solution, or at least a compromise…

*** “The company I am writing about is indirectly related to ethanol production. The company name is Startech Environmental Corp. (STHK: OTC BB) and its primary technology is a plasma converter system that was developed to essentially rip hazardous waste apart down to the elemental level. It is able to handle such things as: medical waste, outdated pharmaceuticals, PCBs, chemical agents, hazardous incinerator ash, Various biological wastes, sludge, paints and solvents, electronic industry waste, contaminated soils, asbestos, etc. It doesn’t break things down beyond the atomic level, so it is not a solution for radioactive waste.

“You are probably wondering what this has to do with ethanol. Using the plasma converter system to destroy unwanted waste produces large amounts of hydrogen as a byproduct. In fact, enough is produced that this process produces more energy than is consumed. This hydrogen can be used as is for fuel cells or can be converted to methanol, ethanol, etc. for use in internal combustion engines. The company has completed the research phase on its technology; it is my understanding that they are now moving forward to begin construction. They have contracts with several other corporations for installation of plasma converters. I believe as they move forward, we will find that this provides a solution for several problems at the same time.” — David

I think something like this could solve Anonymous’ problem with pesticides and corn. When people say “waste to energy,” you probably think of those nasty incinerators that burn your town’s garbage when the landfills become full. Basically, it’s a system that solves one problem (too much trash) with another (air pollution).

But this plasma converter seems to bring the basic idea of waste to energy to the next level. And a system that can create ethanol without using sugarcane, beets, corn or any other plant may be a more viable source of energy with fewer “hidden costs” like pesticides and land use.

Also, there’s an interesting explanation (complete with diagrams) on how the plasma waste converter works on Startech’s site: http://www.startech.net/plasma.html

*** “You left off the biggest volume carrier of ethanol — railroads…

“If ethanol does take off it will ultimately go into pipelines. In some pipelines fuels can be moved in alternate sections, gasoline followed by another fuel for example. No doubt the same can be done with ethanol.” — Bob

Bob (and others) are absolutely correct — I failed to mention that ethanol is transported by rail. Bob suggested that I look up Burlington Northern and Santa Fe Railway Company (BNSF). BSNF — one of the largest railroad networks in North America — is a subsidiary of Burlington Northern Santa Fe Corporation (BNI: NYSE).

And it moves plenty of ethanol from the Midwest to more populated costal areas. BNSF is even shipping complete trains of ethanol tank cars.

Union Pacific (UNP: NYSE) is even developing a premium “ethanol infrastructure” to provide the fuel to markets in California. According to its website, the company is looking to provide 24-hour delivery from storage yards.

So it looks like the railroads have anticipated the demand and are stepping up measures to transport ethanol cheaply and effectively.

***  “In response to your 3/20/06 article regarding alternative energy companies, perhaps a back door play on ethanol can be found in Illovo Sugar (trades on the pink sheets as ILVOF.PK).”
– Anonymous

We’re seeing the price of sugar rise along with the popularity of ethanol… and this is no coincidence.

Here is an excerpt from Jon Markman’s column on MSN Money: “The great thing about sugar cane as an energy source is that it is incredibly efficient. Many ethanol feed stocks — such as corn, wheat and beets, which are widely grown in the United States — require as much energy to grow and refine as they actually produce in energy. But sugar cane production actually results in a huge net positive energy gain — about 8:1 energy output to energy input. That’s especially so when it’s grown in the country in which it is used, so there is no energy or cost expended in transportation across oceans.”

Brazil has benefited from its multiple growing seasons and sugar production and has successfully converted to ethanol fuels. About 40% of all the fuel sold in Brazil is ethanol.

And yes, sugar is way up, but it is nowhere near its all-time high. Illovo Sugar, the largest African sugar producer, could be a cheap, smart sugar play. It trades on the Johannesburg exchange, and like Anonymous said, you can get your hands on shares via the Pink Sheets.

That’s all for today. I’ll be back next week to tackle some more mailbag questions.

– Gunner
April 10, 2006

Greg Guenthner

Greg Guenthner uses his experience as a former journalist to dig up the hard-to-find headlines that could lead to big gains for your micro-cap portfolio. Greg offers his readers the scoop on topics ranging from alternative energies to biotechnology, digging up the best penny stock opportunities before they’re discovered by the mainstream media. On top of contributing to Penny Sleuth, Greg also heads Penny Stock Fortunes and Bulletin Board Elite. Special Report: Imagine Getting Rich as Ignored Stocks Soar - You could turn $200 into $1.2 million!

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Verenium Corporation Signs Agreement With VPP To Develop Ethanol From Paper/Pulp Wastes (Green Stocks Central, 10/21/09)

Corn Crop Numbers Boost Ethanol Producers (Investment U, 7/29/09)

($SU) Suncor Energy to Expand Ethanol Plant (Stock Blog Hub, 10/7/09)

Read more on Ethanol at Wikinvest

View articles by Greg Guenthner