Super ethanol is on its way
The next generation of this biomass fuel could be cheaper, more
plentiful and arriving sooner than you think.
By Steve Hargreaves, CNNMoney.com staff writer
June 23, 2006: 11:23 AM EDT


NEW YORK (CNNMoney.com) - Cellulosic ethanol, the biofuel that
differs from corn-based ethanol in that it can be made from pretty much
any organic matter, has made an impression among people who matter.

Alan Greenspan, the revered former chairman of the Federal Reserve with
a big distaste for irrational exuberance, recently sang its praises
before a Congressional hearing on energy security. Greenspan said
cellulosic ethanol is the only alternative energy source that could be
produced in enough volume to make a dent in gas usage.


"You'll get an awful lot of investments [into this technology] coming
in, especially if the numbers make sense, which I think they do," he
said.

And last month Goldman Sachs (Charts), the world's largest investment
bank, poured $27 million into Iogen, a Canadian-based biotech
specializing in ethanol made from cellulose.

It used to be thought that this fuel, which some argue has the
potential to replace more than two thirds of all gasoline used in the
U.S., was decades away from commercial viability.

But high gas prices, a touch of technical innovation, and a healthy
dose of capital may move that date up.

"There are a lot of people who think the technology is there," and
could be competitive even if oil prices return to $30 a barrel, said
Greg Bohannon, a managing partner at Greenrock Capital, a
California-based private equity fund that focuses on renewable energy.
"Why would Goldman Sachs invest in a company that's not going to be
commercially viable for 10 years?"

Chances are, they didn't.

Beyond corn
Most ethanol currently produced in the U.S. is made from corn kernels.

Its benefits have been well documented in the press, especially since
gasoline prices reached a record average of $3.06 a gallon last
September, and haven't fallen much since.

Ethanol is clean burning. It's renewable. And it costs about a dollar a
gallon to produce. Existing cars can run on 10 percent ethanol with no
modifications, and they'd need only about $100 worth of tinkering to be
85 percent ethanol powered. And, perhaps most importantly, it's
domestically produced.

But there are a few major problems with corn-based ethanol.

First, it takes a lot of energy to make it. According to the Department
of Energy, most studies put the ratio as low as 1:1.4 - meaning that
for every one unit of energy spent, only 1.4 units of ethanol energy
are created. Indeed, there are some camps who believe producing
corn-based ethanol actually results in a net loss of energy.

Second, an expensive infrastructure would need to be built if people
started using mostly ethanol in their vehicles, since ethanol is water
soluble and the existing pipelines and filling station equipment for
gasoline are not completely water tight.

Third, there's not enough corn available. John Ashworth, a biomass
expert at the Department of Energy's National Renewable Energy
Laboratory, said corn could only supply about 12 to 18 billion gallons
of ethanol a year, or about 10 percent of the nation's 140 billion
gallon-a-year gasoline habit.

After that, ethanol would start to run up the price of corn, raising
the cost of everything from eggs to Coca Cola. Of course the same
problem would emerge with ethanol made with sugarcane or soy or any
other food crop.

Wood chips to the rescue
Cellulosic ethanol has all the advantages of corn-based ethanol - there
is no difference in the ethanol, only in the way it's produced.

But unlike corn-based ethanol, cellulosic ethanol can be made from a
variety of things that might otherwise be considered waste - sewage
sludge, switchgrass, plant stalks, trees - virtually anything that
contains carbon.

Ashworth said there are an estimated one billion tons of such material
available in the U.S. every year, enough for 100 billion gallons of
ethanol.

While it's not feasible to actually go out and collect every ounce of
that one billion tons, he said it's not unreasonable to expect ethanol
to replace 40 billion gallons of gasoline in the near future.

"There's a lot of venture capitol out there that's willing to invest in
cellulosic ethanol," he said. "You're likely to see some plants built
in the next 12 to 18 months."

Entrepreneurs are in fact pressing ahead with ambitious plans.

"We know the technology is proven," said Jim Stewart, a spokesman for
Bioengineering Resources Inc., or BRI, an Arkansas-based biofuel
outfit. "It's at the point of commercialization."

Stewart said BRI uses a patented bacterial culture to transform organic
matter into ethanol, and can produce a gallon of it at a fourth the
retail cost of a gallon of gas.

He said the company plans to have 4 plants operating commercially
within the next 16 to 18 months, but some industry-watchers believe it
will be at least several years before cellulosic ethanol production
will become commercially viable.

Vancouver-based Syntec Biofuel uses a different process to make
ethanol. It turns the organic matter into gas and then moves the gas
over a metal catalyst, which then turns it into liquid fuel. But the
end result is the same.

Syntec hopes to have a full-scale plant up and running in three years,
then plans to make most of its money by selling the plant's design to
outside producers.

Company spokesman Jeff Eltom touted the efficiency of Syntec's process,
saying it plans to get 10 units of energy out of every one unit they
put in.

"We're not going to totally replace gasoline," said Eltom. "But we can
take a big chunk out of what we import and become more energy
efficient."

Temperance
Eltom's comment reflects the conventional wisdom in the alternative
energy field: As the shift is made from fossil fuels to other options,
it won't be any one single thing that meets the world's energy needs,
but rather a mix of sources that will do so.

Still, not everyone believes cellulose ethanol will be part of that mix
in the near term.

When the U.S. Energy Information Administration released its long term
world energy outlook earlier this week, it projected a surge in U.S.
oil consumption over the next 25 years, mostly due to transportation
needs.

The agency said it does take new technologies into account when making
its predictions, but that it believes cellulose ethanol is still too
expensive to compete in the market place with corn ethanol and
gasoline.

"It would take a breakthrough in the costs," said Andy Kydes, a
forecaster at EIA. "It could happen, and we have hopes for it, but
right now it's not on our radar."

Kydes did, however, ask for the names and phone numbers of the
companies mentioned in this story, saying the agency would "look into
it."

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