It is important that we understand that the stock market is not the economy. Even people who are not investors tend to make this mistake. It’s easier to make that mistake if you’re personally invested. On the surface, however, it’s obvious that economies don’t change as dramatically as the market does. Paper losses can be painful, but they don’t translate directly into the destruction of real assets.

I am pointing out the obvious because I’m so sick of mainstream media’s economic coverage. We know, in fact, that our so-called Fourth Estate has the collective IQ of an underachieving adolescent. We know this because the mainstream media utterly failed to cover the oncoming credit crisis. They did so even as rational analysts were screaming that Fannie Mae and Freddie Mac were headed for a cliff. When the media spin current events, remember how wrong the pinheads were until now.

So let me quote someone who is not a pinhead: economist Thomas Sowell. He wrote a great piece recently criticizing the media’s constant connection of the 1929 stock market crash and the Great Depression.

“Let’s start at Square One, with the stock market crash in October 1929. Was this what led to massive unemployment?” Sowell asks.

He then presents the fact that the unemployment rate was at 5% in November 1929, a month after the stock market crash. “It hit 9% in December — but then began a generally downward trend, subsiding to 6.3% in June 1930.

“That was when the Smoot-Hawley tariffs were passed, against the advice of economists across the country, who warned of dire consequences.

“Five months after the Smoot-Hawley tariffs, the unemployment rate hit double digits for the first time in the 1930s.

“This was more than a year after the stock market crash. Moreover, the unemployment rate rose to even higher levels under both Presidents Herbert Hoover and Franklin D. Roosevelt, both of whom intervened in the economy on an unprecedented scale.”

So the real question is will the Obama administration duplicate the Hoover and Roosevelt fiasco? Frankly, I don’t think it could if it wanted to. I say this for several reasons.

One is Obama’s choice of economic advisers, a group praised by free-market economists and criticized by those who want a new deal. Moreover, there are significant international factors driving economic growth that simply didn’t exist in the 1930s. Specifically, India, China and the old Soviet satellite countries have been growing at double-digit rates for years.

In many ways, policymakers in these countries are smarter than their American peers. This is because they are playing catch-up for populations that demand real economic improvements. In fact, my Breakthrough Technology Alert portfolio will expand this year to include breakthrough technologies in these unstoppable markets.

The Obama administration has the power to end the influence of the anti-nuclear energy movement. His science adviser, in fact, has stated that he intends to do just that. More importantly, he has been personally involved in researching next-generation nuclear technologies. I’ll have more for you in the future, but somebody is going to make a fortune as these long-repressed technologies finally come to market. We’ll be there.

Until next time,
Patrick Cox

January 19, 2009

Nuclear Energy Will Power Enormous Gains Under Obama was originally featured in the Penny Sleuth.

The Big Picture

We all know that we’re at major crossroads both from a political and economic perspective right now. The United States and our allies abroad have become increasingly dependent on foreign oil — this puts us in an extremely vulnerable position from a geo-political perspective.

How can we continue to exert influence and authority abroad if we’re constantly at the mercy of a market we have very little direct control over?

Combine that with the growing call-to-arms of the Green movement and it’s easy to see why there’s such a big opportunity brewing in alternative forms of energy.

The U.S. and many other countries around the world are (as my grandfather would say), “backing the truck up” and pouring money into this sector right now. There’s a tremendous opportunity here for the investors who play the sector right.

While this sector is still considered to be in its earlier stages — meaning, some companies will stick around and others will fold – I feel that if we pay attention to the fundamentals we can still find great companies, trading at reasonable valuations that have a high degree of succeeding and being one of the companies that will “stick around”…and show investors some handsome profits in the interim.

One of my favorites at the time being is, Trina Solar (NYSE: TSL). This company is based in Changzhou, China and manufactures and sells solar modules to countries around the world.

While we may be going through a tough time in the market here in the U.S., things aren’t so bad on the other side of the pond. The fact that Trina sells much of its products into European countries like Spain, Germany and Italy, makes this writer very happy.

Look at the Numbers

So the big picture/macro story is there, now let’s take a look at how this company has been performing from a financial perspective.

2006 revenues were about $114 million — not bad.

2007 revenues more than doubled to $301 million — even better!

And the most recent quarter showed gross revenue of $101 million — which is nearly TRIPLE what the company did in the year-ago period.

So the top line growth is certainly here, but what about the bottom line?

Well, the bottom line numbers are looking even better. Due to some favorable shifts in the supply of polysilicon (the raw material used to build solar panels) Trina was able to expand their profit margins and returns on equity in the most recent quarter. The company showed a 40% increase in net profit margins, putting it at about 15% and its Return on Equity jumped to 17.5% — a BIG improvement by anybody’s yardstick.

And the market has been rewarding Trina handsomely for its performance — the stock is up 50% within the last month but it still has a long way to go before it reaches the 52-week high it previously set back in July.

So for me, this is definitely the company to look at further if an investor were looking for a long-term play in a market that’s just beginning to take off. The macro picture is firmly in place, the company is showing some strong signs of growth while continuing to improve its fundamentals and the stock still seems to have some upside in it.

Sincerely,

Wayne Mulligan
April 22, 2008

One Amazing Alternative Energy Penny Stock for Your Portfolio was originally featured in the Penny Sleuth.

“The answer my friend, is blowin’ in the wind.
The answer is blowin’ in the wind.”
— Bob Dylan

Ever since Colonel Drake tapped the first commercially viable oil well in Titusville, Pennsylvania back in 1849, oil has reined the undisputed king of the energy industry. But this long reign, as with all others, will come to an end. The questions lie not in the “if,” but in the “how” and the “when.”

The world’s supply of crude oil may be enormous, but it is not infinite. Eventually, therefore, crude oil will abdicate its throne to an oligarchy of “alternative energy” sources like wind, solar, geothermal and liquefied coal.

Up in Scotland, the winds of change are already blowing. Earlier this year, Talisman Energy, Inc. (UK), in conjunction with Scottish and Southern Energy, Plc. (SSE), announced that its Beatrice Wind Farm Project, located off the coast of Aberdeen in the northeastern U.K., was online and operational. The project takes advantage of some of the highest wind speeds on the planet, winds that will be around long after the last drop of crude is extracted from the North Sea’s rich oil beds.

The demonstration deepwater offshore project is the largest of its kind in operation today. “We are making history with the first electricity being generated by this offshore deepwater turbine,” said Dr. Jim Buckee, Talisman Energy’s president and CEO.

At a towering 85-meteres (278 feet), the mammoth 5MW wind turbine will be powering the nearby Beatrice Oil Platform, some 25 kilometers off the eastern coast of Scotland.

At first glance, it may seem relatively meaningless — or at least ironic — to use wind energy to power an oil platform. If you take a closer look at those funding the project, however, you begin to appreciate the importance of this landmark event for countries all across Europe. Aside from Talisman and SSE, enthusiastic contributions also came from the European Community, the Scottish Executive and the U.K. Department for Trade and Industry.

Throughout the 1990s, the U.K.’s Non-Fossil Fuel Obligation (NFFO) fostered a slow, but steady development of the wind power industry. (Broadly speaking, the NFFO was a collection of government orders requiring electricity distribution network operators to purchase energy from the nuclear power and renewable energy sectors.) But it wasn’t until 2002, when the British government replaced the NFFO with the Renewables Obligation (RO) that things really started to take off. RO works in a similar fashion to the NFFO, but with loftier targets than the NFFO. Specifically, the RO aims to see the U.K. pass the 10% mark for energy derived from renewable sources. The nearby chart plots the near-exponential growth of the wind industry since the introduction of the RO:

And this is just the beginning. The British Wind and Energy Association (BWEA) has set lofty targets, hoping to capitalize on growing public interest in, and support for, renewable energies. “Consent for an additional 660-1,000 turbines or 2 GW onshore is needed to meet almost half the U.K.’s 2010 target,” the BWEA reports. “This 2 GW of capacity must be consented by the end of 2007 in order to be built by 2010.”

To this end, BWEA’s website proudly announces, “The U.K. is at the forefront of the offshore wind industry, with potentially 8,700 megawatts of projects at various stages of development, and is set to overtake Denmark as the leader in installed offshore wind generating capacity in 2008.”

For all the benefits of onshore wind farms, the typical problems still arise. Aside from governmental red tape, there is always a string of placard waving NIMBYs to contend with.

But NIMBYs don’t swim.

The Beatrice project is part of a larger, collective effort known as the DOWNViND Project (Distant Offshore Wind Farms No Visual Impact in Deepwater) that includes 18 organizations from six European countries. It represents a shift in focus away from the more conventional onshore wind farms and highlights the possibilities for rapid offshore growth. Aside from the obvious circumnavigation of the NIMBY obstacle, the benefits of offshore are tremendous. According to the European Wind Energy Association, offshore wind could provide up to 150GW if its full potential were harnessed — that’s about the same amount of energy produced by 150 nuclear plants.

As the rest of Europe quickens its pace in the quest for energy independence, the U.K. is among those leading the charge. At a current offshore wind capacity of 300MW, they sit second only to Denmark (400MW) and in front of the Netherlands (140MW). Even with their claim on much of the North Sea’s oil wealth, the Brits are taking proactive steps to diversify the sources of their energy. Along with growth in biofuels, solar and wave projects, a hefty part of this independence will reside in the growth of offshore wind projects:

At the recent European Wind Energy Conference in Milan, Italy, nations met to discuss the importance of research and development in the offshore field as pivotal to the successes of their energy targets. “We need to see strong growth in offshore wind farms in order to achieve the target of 20 per cent of the European Union’s overall energy supply to come from renewable sources by 2020,” stated Christian Kjaer, Chief Executive of the European Wind Energy Association (EWEA).

Alongside the U.K., Denmark and the Netherlands, projects are also in development for offshore turbines in Germany, Sweden and France. Over in Spain, the current leader in onshore operations, some 31 projects are awaiting authorization mainly in the Galicia and Andalucía regions. New regulation is expected to simplify the authorization process and should see the Spaniards getting in on the action pretty soon too:

So how does the energy throne of Big Oil respond to the emerging alternative energy oligarchy? By joining the family, of course. British petroleum has purchased both Greenlight Energy and Orion Energy, while also forming a strategic alliance with Clipper Windpower. All three of these companies operate in the wind power industry. With two farms in the Netherlands and five projects at various stages of development in the U.S. this year, BP’s land bank of development projects now has the potential to generate some 15,000 MW of power.

Similarly, Royal Dutch Shell has used its offshore oil and gas expertise to establish a formidable presence in the wind market. Their Egmond aan Zee Offshore Wind Farm in the North Sea supplies some hundred thousand homes in the Netherlands with electricity, eliminating an estimated 140k tones of CO2 emissions a year.

There is little doubt that Big Oil will rein king for a while to come. With their support, so will the alternatives.

Sincerely,
Joel Bowman
November 15, 2007

Alternative Energy Strategies was originally featured in the Penny Sleuth.

“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.

“In response to your 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 a Jon Markman 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.

“I understand how ethanol can work if you can make it from sugarcane, or switch grass, or manure, or other waste, but how can it work in commercial agriculture growing crops that are traditional in the U.S.? The farmer has fossil fuel delivered to his farm at a cost, he prepares the field with fossil fuel, he plants using fossil fuel, cultivates with the same, fertilizes with, harvests with, and delivers with, then the crop is processed into ethanol with fossil fuel, and then it must be delivered into a marketplace with fossil fuel. After all that, there is still a positive gain in BTUs? I would sure like to hear the definitive truth on this issue.” — Ken

Well, Ken, Ethanol Across America, a non-profit education campaign of the Clean Fuels Foundation, has published just such a study to examine the energy balance of ethanol.

Here’s EAA’s take: Ethanol is unfairly criticized, like when all the energy attributed to grow a bushel of corn and process it is counted. The report calls ethanol a co-product of corn, and that means that the corn should only be charged with the energy that was used to turn it into ethanol. After all, corn is a commodity, and it’s probably not grown for a specific purpose — so it is grown due to overall demand and sold into broad markets.

And here’s another argument EAA takes on to battle the “balance of energy” argument: Assume a pile of coal has a latent heat value of 1 million BTUs, but it can be converted into a liquid fuel that can produce 500,000 BTUs. The liquid fuel becomes more valuable because you can fill your tank with it to make your car go. Unfortunately, the same cannot be said for coal.

The report goes on to say that if you limit the debate strictly to BTU’s — then the argument that ethanol production is inefficient is bunk. For instance, electric power plants using coal are only 35% efficient. Basically, any type of energy conversion results in a negative energy balance.

The age of cheap oil is over, and whatever “hidden costs” are mentioned to try and debunk whatever the new alternative fuel is, people will still need to get around, food will still need to be delivered to grocery stores, and planes will still need to circle the globe. Our best stab at the definitive truth is this: The age of cheap oil is over, and something(s) will need to come along and supplement and/or replace it.

“You might want to look at STKL. I primarily invested in this company because of its organic food. They are starting to get noticed because of their cellulosic ethanol technology… With the technology they have they don’t need corn to create ethanol, which solves one of the problems you brought up.” — Ron

Nice find, Ron. SunOpta Inc. (STKL: NASDAQ) basically deals in biomass conversion. They have a steam explosion machine that can process all kinds if wastes and vegetable matter including wood chips, sugarcane, cereal straws, and waste paper.

“In their natural state, these materials are not easily separated into their component parts. By processing with the addition of high-pressure steam, the StakeTech Steam Explosion System breaks the chemical and physical bonds that exist between the components of these materials, allowing their subsequent separation and processing into products and components that potentially have wide and diverse applications,” according to the company’s website.

The company is focusing its efforts on the pre-treatment of biomass for the production of ethanol, which has made it a hot commodity on Wall Street. In the beginning of January, the $472 million company traded for around $5.25. Now the price is up to around $8.30 thanks to some heavy volume.

“I have spent the last year intensely studying both ethanol and biodiesel. The reality is that both fuels will be needed to wean this country off our petroleum dependence.  But I think the case for biodiesel as a better fuel can be made.  Europe, India, and now China are putting major efforts to switching to biodiesel.  Here’s why. Biodiesel can be made out of any fat or vegetable food or non-food oil. The list is endless, and includes recycled and waste oils from various processes. Where ethanol grows only in the middle of the country, a company called Fry-O-Diesel is researching how to use the unlimited supply of trap grease and waste cooking oil.  California has 88,000 restaurants in its trade organization and that represents about 75 million gallons of waste oils. Biodiesel plants so far have primarily been soybean oil based so far but that will change over the next 5 years as these new technologies get perfected that can use whatever fats and oils are available.” — Kari, Biodiesel Council of California

In the long run, I think both ethanol and biodiesel will find their respective places in the market. But for the time being, ethanol has a greater chance of growing because the country is more prepared for it. A regular gas-burning car can run on the lower-concentration ethanol blends. So it’s a good start without having to go out and buy new hardware, so to speak. And flex-fuel vehicles that can run on higher concentrations of ethanol in gasoline are also carving out their niche.

Kari continues: “To truly deal with the reality of global warming we must lower our use of petroleum in all vehicles, heavy and light, and get the absolute best fuel mileage possible. Diesel-Hybrid technology has been used on trains for decades, it is just now being crossed over to vehicles in both the heavy and light classes.”

The World’s Best Energy Investment

It’s already a major player, practically a blue chip. Yet it’s barely talked about on Wall Street. Why? Even BusinessWeek says this company “is not a household name, but maybe it should be.”

Alternative Energy Reader Comments was originally featured in the Penny Sleuth.

The cost to actually make and transport the ethanol is where it gets hairy. I’ve seen literally hundreds of scenarios, some saying that it costs the equivalent of three barrels of ethanol to make just one barrel of the fuel.

But ethanol proponents have made the argument that there are more costs associated with gasoline production than with ethanol. Some ethanol freaks will argue the “true cost” of a gallon of gas…one telling MSNBC.com it would be more accurate to assume prices to be around $5 a gallon (that is, if you choose to include things like the money it takes to support the military forces that are protecting our overseas oil supplies).

And location is also creating problems in the ethanol world. Ethanol’s main ingredient — corn — is plentiful in the rural Midwest, but not so much in the populated coastal areas of the country.

Think about it this way: the population of North Dakota is about 640,000 people, whereas the population of the Washington D.C. area (including the Maryland and Virginia suburbs) is almost six million. So an ethanol plant in North Dakota’s corn country would have to be able to get its product to the relatively corn-free capital.

This feat would be simple if the ethanol-gasoline mixture could be piped straight from the refinery to the populated East Coast like pure gasoline. But an ethanol-gasoline mixture can’t be piped, because the two ingredients separate, which could cause the fuel to damage a car’s engine. Ethanol has to be transported by rail, a much more costly endeavor than sending it through a pipe.

More on that from MSNBC:

“‘Corn is in the center of the country and gasoline consumers are on the coasts,’ he [Dr. Darren Hudson, a professor of agricultural economics at Mississippi State University] said. ‘So transportation costs can be quite high — roughly double the cost of shipping gasoline’ or about $1.20 per gallon of ethanol.”

Then there’s the ongoing problem with “reformulated gasoline” — required in some areas that have strict clean air standards. There is a cheaper additive, called MBTE, which has been widely used, and even required in some states (Maryland used MTBE for years). But as it turned out, gas companies found that MTBE had the ability to creep through underground gas tanks into the groundwater. Some have tried to link MTBE with cancer, especially in rural areas where residents rely on well water. So much for cleaner air…

And the EPA has already recommended that MTBE be phased out nationally…and a buyout is in the works which will pay oil companies and refiners some $1.75 billion to phase out production — further cementing ethanol’s fate as MTBE’s replacement.

MSNBC reports that reformulated gasoline is required in nine major metropolitan areas with the worst ozone air pollution problems and in other areas that have voluntarily chosen to use the fuel — this will be a huge market.

Solutions

Small ethanol companies can eventually solve these problems by developing cheaper and more transportable blends of ethanol fuels, and investors who recognize their achievements early will reap the rewards. Here’s what to look for:

1. The most obvious of the three: Look for a company that can make ethanol cheaper than the
3-to-1 ratio mentioned earlier through a new or improved process. This could include using a mix of products, like ethanol from corn along with a  bioethanol made from various waste products. There will always be a cost argument associated with ethanol, but the main argument for its implementation is to reduce dependence on foreign oil. So making the fuel on the cheap is an added bonus — and one that will naturally the ethanol producers the most customers.

2. Solving the transportation dilemma should be right up some small-cap chemical company’s alley. Finding an economic way to transport an ethanol-gasoline mixture through a pipeline will be a huge breakthrough — whether through a special chemical additive or an improved blending/manufacturing process. This would naturally solve the price argument as well by eliminating a majority of the transportation costs. If you find a company that can do this, you’ve found a winner.

3. Create a cleaner-burning ethanol blend. A company needs to come along that can silence the critics and cement ethanol as the only option for MTBE replacement. Ethanol reduces a lot of emissions, but Dr. Hudson noted that if it does not burn properly, burning the fuel can increase nitrous oxides. Again, this is something that could be within reach for a small-cap chemical or ethanol company over the next few years.

There’s no question that the ethanol market is growing leaps and bounds. And as with any new trend in business, the ones that innovate and stay ahead of the game are the ones that see success year after year.

Small-Caps Could Solve the Ethanol Dilemma Part 2 was originally featured in the Penny Sleuth.

Unless you’ve been living in a cave for the past few years, you’ve probably noticed the extra attention the energy sector is getting. Here at The Sleuth, we recognized how small alternative energy ventures could benefit from the pressures of finding a cure for America’s expensive oil addiction.

With this in mind, I decided to publish an alternative energy guide outlining the benefits and setbacks related to ethanol, biodiesel and the hybrid car industry. The information has been compiled from a series of published Sleuth columns and other research I conducted in Spring/Summer 2006. Some of the ideas were updated for this essay, and I will continue to update the information presented here as necessary.

Select small-cap securities working in the alternative energy sector are also listed in this report. While no direct recommendation was ever made to purchase shares of these stocks, updates on share prices and pertinent news will be added on a regular basis.

It is also important to recognize the volatility of many of these small securities. In April 2006, a wave of media attention and higher gas prices drove up the share prices of many of these companies. Since the hysteria has died down, share prices have settled back to more reasonable levels in most cases. Here is a look at three alternative energy companies I’ll profile later in this piece. You should be able to clearly see when buying increased, and how shares have settled since earlier this year:

(Note that 02 Diesel (OTD) is back to where it started one year ago. It is the smallest of the three stocks depicted above, with a market cap of about $27 million.)

I never encouraged readers to attempt to time the market when it comes to these stocks, and I still do not recommend this strategy. Attempting this could lead to catastrophic losses. If you determine one of the securities mentioned worth purchasing, expect to hold for a few years before it realizes its true value.

Remember, the “alternative energy age” is still in its infancy. It will be some time before the world will see how these ideas play out as far as practicality and profit are concerned. Research thoroughly and be patient — then you will be rewarded.

Alternative Energy

Part I: New Laws Could Energize Small-Cap Alternative Energy Outfits

The Wall Street Journal featured ethanol on the front cover last week. Here at home, the Baltimore Sun touted ethanol as an “emerging energy star.” Even our president called in an interview earlier this year for the U.S. “to not only advance that technology of deriving fuel from corn, but also deriving fuel from waste materials.”

That’s bold talk for a one-time oilman, but it is becoming more and more apparent that alternatives to the traditional barrel of crude will have to become more prevalent in this age of political tension and dwindling natural resources.

A Corn Farmer’s Best Friend

Ethanol is made from the sugar of corn or sugarcane — and is basically grain alcohol that can be mixed in varying amounts into gasoline.  Brazil has successfully reduced 40% of its oil demand by using ethanol fuels and ethanol-burning vehicles.

And it has made its way into the United States as well, with special thanks due to new government mandates.

The U.S. Energy Policy Act of 2005 required that ethanol production increase to 7.5 billion gallons a year by 2012. (Right now, production is at 4 billion gallons annually.) And some local jurisdictions are jumping ahead with their own ethanol laws.

Take Hawaii, for instance — a state that has passed a law requiring 85% of all its gas to contain at least 10 percent ethanol by next month. According to the Associated Press, some companies don’t think they can make the transition by the deadline set for April 2: “The would-be producers say they are a year or more away from having production facilities in place… Oil companies in Hawaii are importing ethanol in order to meet the April 2 deadline.”

In other states — especially in corn country — news of new ethanol facilities seems to come out every week.

Once total funding is secured, the Southeast Missourian reports that a new ethanol plant could be constructed as early as this year…and it’s not the region’s first facility. The plant would produce 100 million gallons of ethanol a year:

“Construction of a second new ethanol plant in Southeast Missouri could start as early as this summer on more than 100 acres along Nash Road and be fully operational 18 months later, officials said Wednesday…

“The news on Danforth’s plant comes just four months after Bootheel Agri-Energy LLC, headed by Chaffee farmer David Herbst, announced its intentions to build a $175 million plant near Sikeston to manufacture 100 million gallons of ethanol per year.”

Same goes for North Dakota’s corn country. From the Associated Press:

“Two companies plan to build North Dakota’s largest ethanol factory here in southeastern North Dakota’s corn country, with construction beginning late this summer. Officials of Gold Energy LLC of Wahpeton and US BioEnergy Corp., which is based in Brookings, S.D., announced the project Wednesday. The plant will cost about $145 million to construct, and will be designed to produce 100 million gallons of ethanol annually.”

A Growing Trend

This is happening all over the country: Wherever corn is being grown, there is talk of ethanol. Governments will begin mandating its use and it could be the rehab program our oil addiction so desperately needs.

And with bio-fuels in such strong demand, small producers are bound to get their share of the business. The government is even helping the small-cap company along in this case, offering a “small producer biodiesel and ethanol credit.”

This credit will benefit small biodiesel producers by giving them a 10-cent per gallon tax credit for up to 15 million gallons of agri-biodiesel produced. In addition, the limit on production capacity for small ethanol producers increased from 30 million to 60 million gallons. This is effective until the end of 2008.

Even gas stations themselves are being thrown incentives. Gas stations are eligible for a 30% credit for the cost of installing clean-fuel equipment, like E-85 ethanol pumping stations, effective through December 31, 2010. According the U.S. Department of Energy, a clean fuel is “any fuel that consists of at least 85% ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, or hydrogen and any mixture of diesel fuel and biodiesel containing at least 20% biodiesel.”

Relevant Companies – First Reported March 20, 2006/ Updated Sept. 2006

1. 02Diesel Corporation (AMEX: OTD) Recent price: $1.05; 52-week high: $2.97.

02Diesel develops additive products that help fuels burn cleaner by adding ethanol. 02Diesel’s main product is called O2D05 — a fuel additive that can be made from soybean oil, vegetable oil or animal fats. It is designed to stabilize blending of fuel grade ethanol with diesel fuel, with the end result being a clean burning fuel called 02Diesel.

Possibly even more important to 02Diesel’s business is its ties to Brazil — a country that has successfully reduced 40% of its oil demand by using ethanol fuels and ethanol-burning vehicles. In 2004, 02Diesel began operations in Brazil through its 75%-owned subsidiary, O2Diesel Químicos Ltda.

O2Diesel is finding new markets for its additives, shipping its first bulk order to Australia. Alan Rae, CEO of O2Diesel, said in a statement that “many of our early adoptive partners have eclipsed the one-year anniversary since switching to O2Diesel’s fuel,” thus building credibility of O2Diesel’s additive as a viable alternative.

2. Pacific Ethanol Inc. (NASDAQ: PEIX) Recent price: $18; 52-week high: $44.50.

Pacific Ethanol makes corn-based ethanol, and also sells products generated from the manufacture of ethanol, such as grain and carbon dioxide.

Shares of Pacific took a big hit in the spring after the company signed off on the sale of 5.5 million shares of the stock totaling $145 million. Pacific Ethanol will use the cash to speed up work on five ethanol production facilities.

3. MGP Ingredients Inc. (NASDAQ: MGPI) Market cap: $236 million; share price: $14.40; 52-week high: $19.22.

MGP Ingredients distills wheat starches and wheat proteins for wheat starches and vital wheat gluten and mill feeds. The company makes alcohol used in beverages and industrial alcohol — like ethanol. Like Pacific, MGP also deals in the grain and carbon dioxide byproducts of its distillery operations.

MGP reported net income of $2.1 million ($0.12 per share) for its most recent quarter — up from the $1.6 million ($0.10 per share) reported a year ago. Despite this growth, MGP did not meet analyst’s expectations, which were set at $0.14 a share.

And while revenue was up 12% to $79.4 million, distillery products sales grew 22% percent to $10.2 million, according to the Associated Press.

And MGP’s management has said it expects the company will charge higher prices for its products while paying lower prices for natural gas during the next quarter. Because of this, they are expecting operating income totaling at least as much as during the previous three quarters combined. Talk about a serious growth opportunity…

Up Next: Part II: Small-Caps Could Solve the Ethanol Dilemma

The End of America’s Oil Addiction Begins With This Product

The government recently issued an order that requires the use of the product I’m talking about for ALL government vehicles, including military aircraft, trucks, buses, cars, Postal Service vehicles, fire trucks and emergency vehicles.

Alternative Energy Journal 1 was originally featured in the Penny Sleuth.