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A Research Report on Cellulosic Ethanol Investment

by Russell Hasan

Altenews.com

2008

 

Outline:

Preface

Introduction

Section One: Cellulosic Ethanol’s Potential for Growth

A.     The Demand for Ethanol

B.     Limits to Corn-based Ethanol

C.     Cellulose-based Ethanol’s Future

Section Two: A Who’s Who of Cellulosic Ethanol

Conclusion

 

Preface:

 

            This research report will look at a newly popular idea in alternative energy, cellulosic ethanol, and give investors useful information and data to use in analyzing the cellulosic ethanol industry. We will begin with an introduction containing a brief historical background of the situation regarding cellulosic ethanol. Then we will answer a few key questions: what is cellulosic ethanol? Is it better than corn-based ethanol? Can it replace gasoline? What will be the demand for it, and when will the supply be ready? We will conclude the report with a section containing profiles of the most interesting companies currently working on cellulosic ethanol.

 

Introduction:

 

            In recent years, alternative energy has become increasingly popular among Americans, going from a fringe idea of environmentalists into something embraced by mainstream Americans, and by corporate America. No longer reliant on oil, coal and nuclear, Americans now want more solar power, wind power, geothermal, hydroelectric, and other renewable energy. The purpose of this renewable energy is twofold. First, it will replace old, high-pollution energy sources with new less-polluting sources, reducing greenhouse gas emissions. This will curb global warming, increase air quality and improve the health of the American people. Second, it will improve American energy independence, reducing oil imports that entangle America with dangerous political instabilities in the Middle East and increasing domestic energy supplies that add dollars to GDP and create local jobs. This need has brought together a coalition of supporters, including scientists, industrialists, environmentalists, politicians from both the Left and the Right, and many segments of the American public.

            Many solutions have been looked at in answering one of the main questions in renewable energy: how do we replace transportation fuels, which are dominated by petroleum-based gasoline, with a renewable alternative? At various times people have considered hydrogen fuel cells, biodiesel, and plug-in hybrids as viable alternatives to gasoline. But the choice that seemed to have the most promise was ethanol. Ethanol is a gasoline substitute that can be made from corn or sugarcane. Advocates promised that it would pollute less than gasoline, that it would end oil imports, and that it would create jobs. Focusing on American ethanol, which is made mainly from corn, ethanol advocates promised that ethanol would create a renaissance for the Midwestern corn farmers.

Ethanol use in the USA was mandated by Federal law, used to replace an additive blended into all gasoline. This blend, E10 (10% ethanol, 90% gasoline) could be used in any car, and was widely sold. Some gas stations started selling E85 (which is 85% ethanol, 15% gasoline), which is used by “flex-fuel” cars with special engines capable of running on E85. It seemed to some people that there was endless room for growth in ethanol demand.

            Based on hype and optimism, these ideas led to a boom in ethanol companies, leading to the building of excessive ethanol capacity and a bubble in ethanol stocks. Unfortunately, as Altenews.com predicted over a year before the events unfolded, the ethanol companies built too much capacity, creating more supply than the demand could handle. This problem arose at the same time as some other disturbing facts appeared. First, a competition between corn for food and corn for fuel began, causing corn prices to go up. This hurt consumers, who bought corn and animals fed on corn, and it also hurt ethanol makers whose raw material was now more expensive. It became obvious that not enough corn could be grown to satisfy both corn for food and an unlimited demand for corn for fuel.

Meanwhile, critics pointed out that the environmental benefits of ethanol had been overstated and over-hyped. Ethanol did not displace enough oil, ethanol plants sometimes burned coal and produced extensive pollution, ethanol plants used too much water, and the use of ethanol as fuel produced some pollution, although how much was still debated. More recently an article in the journal “Science” claimed that when carbon released from changes in land uses are taken into account, the environmental benefit of ethanol in nonexistent.

            When all of these problems with corn-based American ethanol emerged, the ethanol stocks collapsed. Now, the situation for corn-based ethanol is seen as dire. Advocates still paint a rosy picture of ethanol, and some people still believe in the promise of ethanol, but the public has become skeptical, and ethanol companies have lost their promising glow.

            But a solution appears to be on the horizon, off in the distance but ready to come closer. Something that will solve all of the problems raised by corn ethanol, something capable of doing things corn ethanol just couldn’t do. That solution is cellulosic ethanol.

            Cellulosic ethanol is ethanol made from the sugar in cellulose. Cellulose is a substance found in all plant matter that forms the basic structure of the cells in plants. Previously it could not be used to make ethanol, but recent technological breakthroughs seem to make it possible that we can take the cellulose in plant matter, extract it, process it and turn it into ethanol. The new feedstock is not the starch in corn, it is “biomass,” a term for plant matter used as energy.

There are three competing technologies for the production of cellulosic ethanol. The first, acid hydrolysis, uses acid to break down the cellulose. The second, enzymes, using biologically created, genetically engineered enzymes to break down the cellulose. The third, thermo-chemical, uses heat and chemicals to turn the cellulose into gas, called “syn-gas,” and then uses a biological or chemical catalyst to turn the syn-gas into ethanol.

            If cellulosic ethanol can be commercially viable, if it can be cheaply mass-produced, then it may solve all of the problems of corn ethanol. First, cellulose is found in the inedible parts of the plant, so there will be no competition between biomass for food and biomass for fuel. Cellulose can be found in agricultural wastes, such as corn stover, sugarcane bagasse, rice straw and wheat straw, all of which are naturally occurring byproducts of farming those crops. It can be made from wood chips, which can easily be found as waste products in logging and on construction sites. It can be made from energy crops such as switchgrass and fast-growing trees. It can also be found in garbage and landfills. All of this provides an abundance of feedstock that will not compete with the food supply.

Second, the environmental benefits of cellulosic ethanol, according to the science, will far surpass that of corn-based ethanol. Whereas corn-based ethanol reduced pollution by approximately up to 30% (according to some estimates), cellulosic ethanol may reduce pollution by as much as 80%. It takes less oil to produce it, and it takes less water to produce it. The crops used to produce biomass soak up carbon as they grow, reducing pollution. And also significant is that a byproduct of creating cellulosic ethanol is the extraction of lignin, a substance in plant matter that hold cell walls together. The lignin can be burned to produce power, so that cellulosic ethanol plants can use biomass instead of coal for power and further reduce pollution.

There is also a third way in which ethanol from cellulose is better than ethanol from corn. Because of the limits to corn production and competition from corn for food, corn-based ethanol can only ever replace a small percentage of petroleum-based gasoline, perhaps 10%. But because there is so much available biomass, because cellulose is one of the most abundant biological substances on the planet, it may be possible to make enough cellulosic ethanol to make a serious bid at replacing gasoline as the nation’s favored automotive fuel. By some estimates (which we shall look at later) there may be enough biomass to replace 20% or 30% of gasoline by 2030, and Altenews will conjecture that perhaps, in 2050, with the right technology we might be able to replace gasoline completely.

In the next section we will look at the facts and data and try to discover the truth about cellulosic ethanol, and to distinguish the genuine promise from the hype.

 

Section One: Cellulosic Ethanol’s Potential for Growth

 

            In this section we will look at the data and facts relating to cellulosic ethanol. The central question guiding this investigation will be a simple one: what is cellulosic ethanol’s potential for growth? This leads to other questions: What is the demand for ethanol, both now and in the future? Can corn-based ethanol fill this demand, or is cellulosic ethanol necessary? Is there a “ceiling” to how high corn-based ethanol supply can go? What supply of cellulosic ethanol can be created to satisfy demand? Is there enough biomass to provide raw material for the supply? When will cellulosic ethanol be commercially viable? How much cellulosic ethanol can be made, how much gasoline will it replace, and what will the environmental benefit be? Will cellulosic ethanol create the political, economic and environmental benefits that its advocates promise?

            We begin by looking at the demand for ethanol, which is related to the demand for gasoline. 142.569 billion gallons of gasoline was used in 2007, according to DOE EIA data. DOE EIA also provides estimates for gasoline usage in 2030. In 2030, biofuel use is estimated at 29.7 billion gallons, 11.3% of total vehicle fuel (which means approximately 263.7 billion gallons of transportation fuel in use). Ethanol use in 2030 is estimated at 24.3 billion gallons used, 13.3 billion gallons of which will be blended into E10, and 11 billion gallons of which will be sold to flex-fuel drivers as E85. Corn ethanol will provide 15 billion gallons of the 24.3, and ethanol imports will increase after the protective tariff expires in 2009, contributing some sugarcane-based ethanol to that number. But based on this it is still reasonable to assume demand for 9 billion gallons of cellulosic ethanol in 2030. We feel that this estimate is lower than it realistically should be. America will have both the supply and demand for more ethanol usage, as will be shown below. Based on the USA federal mandate, discussed below, the actual demand will be much higher.

The data suggests that demand for ethanol in 2008 is high right now. If gasoline is blended with ethanol at 7.76%, then 10.86 billion gallons of ethanol will be blended into gasoline. 50% of all gasoline contains ethanol, as E10. The demand for E85 is also high. 1400 gas stations offer E85 right now, and there are 6 million flex-fuel vehicles on the road. GM, Chrysler, Ford have pledged to make half their new vehicles flex-fuel by 2012. DOE projects 11 billion gallons of E85 sold in 2030, but if the number of flex-fuel cars increase, and the gas stations offering E85 increase, then this demand could rise sharply. This may also happen because E85 stations are concentrated in the Midwest (the corn farming region), but cellulosic ethanol will be made all over America, spreading interest in E85.

            Some demand for ethanol will be satisfied by imported ethanol (mainly from Brazil), but there should still be a healthy demand for domestic ethanol. In 2007 the U.S. imported 426 million gallons ethanol, 188 million of which was from Brazil. Imported ethanol faces a steep protective tariff in the U.S. This tariff ends in January 2009. However, there is likely to be an intense political battle over whether to extend the tariff or not, and so American ethanol may continue to see some form of protection.

To judge the future demand for ethanol, it is necessary to look at the Renewable Fuels Standard, the legal federal mandate for ethanol usage created by the Energy Independence and Security Act of 2007 (HR 6). This law mandates consumption of ethanol, and specifies the mandate for cellulosic ethanol. The mandate from 2009 to 2012 is that in 2009 600 million gallons are mandated, in 2010: 950 million gallons, in 2011: 1.35 billion gallons, and in 2012: 2 billion gallons.

In 2015, 15 billion gallons of ethanol from corn is mandated, and 3 billion from cellulosic ethanol is mandated. The mandate for corn-based ethanol holds at 15 billion gallons a year, but the mandate for cellulosic ethanol grows to 5.5 billion in 2017, and peaks at 16 billion gallons per year in 2022.

These levels are mandated. This will increase the demand for ethanol and make a stable, steady demand. But while corn-based ethanol will reach a “ceiling” at 15 billion gallons/year, cellulosic ethanol might grow much faster and reach a higher level. Even though the mandated levels create a minimum demand, there may be a much bigger maximum demand if flex-fuel vehicles and E85 become popular. It must also be noted that some states have passed their own ethanol mandates, creating more local demand.

To know how much gasoline will be displaced by ethanol, we must know how many gallons of ethanol is equivalent to 1 gallon gasoline? Some estimates hold that ethanol contained only 75% of the power of gasoline. But advocates claim that E10 has little noticeable difference in energy, and E85 flex-fuel engines can supposedly be modified to get only a small difference. Because of this, one may estimate replacement at a gallon for gallon level, or at 80% to 90%.

We have seen that there is a growing demand for ethanol, created by consumers and also mandated by the government. Cellulosic ethanol can count on a minimum demand of 16 billion gallons per year in 2022, and so capacity will have to expand from the absence that exists now to a full 16 billion gallons per year. This, however, is only a minimum, and if E85 becomes popular with drivers the demand could go much higher. More interestingly, if the political realm ever feels that it would be useful to go for the distant but possible goal of replacing gasoline with a domestic, more environmentally friendly alternative, then a mandate could be passed creating demand of as much as 260 billion gallons per year. (Later we will look at whether that capacity is possible.) When the benefits of cellulosic ethanol become popular knowledge, and if environmentalists see this as a cause or “Big Business” see this as an opportunity, that could become a very real possibility.

Demand for automotive fuels is going to remain steady, and may grow considerably. In order for the United States to curb its politically dangerous addiction to oil, and to help prevent global warming from destroying the planet, for political, economic, and environmental reasons, a great portion of gasoline must be replaced with domestically produced ethanol. The supply is supported by government mandates for ethanol usage. But can ethanol supply meet the demand? First let’s look at whether corn-based ethanol can do this, and then consider whether cellulosic ethanol is necessary.

Corn-based ethanol’s demand in the Renewable Fuels Standard is capped at 15 billion gallons per year. But could corn-based ethanol contribute more than that? Can corn-based ethanol satisfy all of the demand for ethanol, or is there a natural limit, a “ceiling,” that limits corn-based ethanol production? The data may provide an answer.

What is the current corn-based ethanol capacity, and what is its expected growth? The corn-based ethanol capacity in 2007 was 7.88 billion gallons. There were 139 bio-refineries in 21 states. 6.49 billion gallons of corn-based ethanol was actually produced. In 2008 there is expected to be 11.8 billion gallons capacity, with 68 bio-refineries under construction or expanding. There will be 13.42 billion capacity when all current construction on ethanol plants is complete. It would seem that corn-based capacity is poised to reach 15 billion gallons annually, but may not go beyond that.

Now let’s look at the raw material, corn. In 2007 approximately 14 billion bushels of corn were collected. Ethanol consumed 2.3 billion bushels, or 18%. In 2007 93.6 million acres of corn were planted. The yield was 153 bushels per acre, for a total of 14.32 billion bushels. In 2007 there was a 1.9 billion bushel surplus. The USDA expects 90 million acres of corn to be planted in 2008. This number may fluctuate, but it could go up to 100 million acres. It is estimated that if wheat and soybeans were replaced with corn (which is not a real possibility) then a full 225 million acres of corn could be planted. It is also expected that yield may go up to 170 bushels per acre in 2017.

Now let us look at what this means for ethanol production. The percentage of the USA corn crop used for ethanol is expected to rise to 30%. It is estimated that 1 bushel of corn yields 2.8 gallons of ethanol, and that 1 acre of corn yields 400 gallons of ethanol. Assuming 100 million acres of corn planted, a yield of 170 bushels per acre, and 30% of the American corn supply used for ethanol, that would allow somewhere between 12 billion gallons and 14.28 billion gallons of ethanol to be produced. Going beyond 15 billion gallons per year would strain the American corn supply to its breaking point. What impact would that have on corn prices, and on the price of raw material for corn-based ethanol plants?

USDA expects corn prices to rise to $4.60/bushel in 2008, and the price could rise to $5/bushel in the future. That totals to an input price of $1.78/gallon just from corn alone at 5$/bushel and 2.8 gallons/bushel. That is only from the corn, without the costs of operating the ethanol plant and transporting the ethanol taken into account. The cost of making 1 gallon of corn-based ethanol could rise to $2/gallon. At that price, ethanol is not competitive and ethanol makers will lose their profit margin. Cellulosic ethanol, it is believed, could be made for $1/gallon or less. If ethanol’s need for corn grows, competition between corn for food and corn for fuel could push the price of corn even higher, making both consumers and ethanol makers suffer.

The environmental benefit of corn-based ethanol has also been hyped. It is claimed that corn-based ethanol reduces greenhouse gas emissions by around 30% (more precisely by up to 28% or 29%), and that the use of ethanol in 2007 eliminated 10.1 million tons of pollution. But many ethanol plants operate using coal or oil, and it is has been estimated that it takes 1 unit of oil to make 1.3 units of ethanol. This does not displace much oil. Critics claim that 3 gallons of water produce 1 gallon of corn-based ethanol, while 2.5 gallons of water produce 1 gallon of gasoline. Because of this ethanol plants are notorious for using excessive water. Cellulosic ethanol, in contrast, may only take 1 gallon water to make 1 gallon ethanol, and may use 1 unit oil to make 6 units ethanol. Critics have also claimed that corn-based ethanol is not energy efficient, that it takes more energy to make than it gives out, and that it gets much worse mileage-per-gallon than gasoline. All of this is open to debate, and science suggests that the critics’ claims are exaggerated, but it is clear that corn-based ethanol is not the solution for a greener future.

The demand for ethanol is there, and is ready to grow due both to consumer choices (flex-fuel cars using E85) and, even more, because of Federal and State mandates for ethanol consumption, with the goal of helping the environment and creating American energy independence. But because of logistics in supply, such as the competition between corn for fuel and corn for food, it is not realistic for corn-based ethanol to go beyond 15 billion gallons/year and meet the goal of replacing 20% or 30% of gasoline with ethanol. There is an inherent “ceiling” that keeps corn-based ethanol production at or below 15 billion gallons annually. Beyond that level of corn being used for ethanol, the competition for corn will drive up food prices and ethanol input prices to a point where everyone, both consumers and ethanol makers, will suffer.

It seems that this has already been accepted, since the Federal corn-based ethanol mandate stops at 15 billion gallons per year. There is no demand with which to extend corn-based ethanol capacity beyond 15 billion gallons per year, nor would the logistics allow for this to happen. Thus it is impossible for corn-based ethanol to replace gasoline as America’s car fuel of choice. Also, corn-based ethanol’s environmental benefits have been overstated, critics have made the case that corn-based ethanol does not help the environment very much, and something else is needed to curb global warming.

The solution to this problem is cellulosic ethanol. Cellulosic ethanol is energy efficient (it contains 6 times the energy used to make it), pollutes less (as much as 80% less than gasoline), and does not compete with the food supply (it can be made from agricultural waste, forest products waste, and inedible energy crops). Cellulosic ethanol, unlike corn ethanol, according to our predictions, does not have an inherent supply “ceiling” that will limit supply and prevent it from making a bid to seriously replace gasoline as America’s fuel of choice.

What kind of growth in cellulosic ethanol can we expect to see? We can pose this in terms of a minimum expectation and a maximum expectation. The minimum, to meet the Renewable Fuels Standard mandate, is 2 billion gallons annual capacity in 2012, 5.5 billion in 2017, and 16 billion gallons in 2022. This by itself should spark a boom in cellulosic ethanol in the decade from 2012 to 2022. But this is only the minimum, which assumes some ethanol blended into gasoline and some sold as E85 to flex-fuel drivers. There is also a different set of assumptions used to calculate a maximum: some advocates want ethanol to replace 20% of gasoline usage by 2030. We at Altenews think that it would be reasonable to set a goal of replacing 30% of gasoline in 2030, and it may be possible to think about using ethanol to completely replace gasoline at or around 2050. One might optimistically expect as much as 53 or 80 million gallons per year of cellulosic ethanol usage in 2030, which would replace 20% or 30% of gasoline. And if America makes a bid to seriously replace gasoline with ethanol, cellulosic ethanol capacity could go up to 260 million gallons per year, or higher, by 2050. The era from 2012 to 2022 should see a huge increase in cellulosic ethanol capacity, sparking an ethanol boom. The era from 2022 to 2050 might see a massive shift in the structure of the American economy from an oil-based economy to a biomass-based economy. The actual demand for ethanol could be the minimum, the maximum, or anywhere in between.

The question is: does America have the biomass, and the productive technologies, to meet those goals, and to make that capacity commercially viable? And how soon will cellulosic ethanol be ready to be commercially mass-produced? When will it go from the research and development stage to the commercial stage? And which companies will be the ones to take advantage of the opportunities? To look at this we must examine the data regarding cellulosic ethanol.

            Cellulosic ethanol can be made with three different technologies, acid hydrolysis, enzyme, or thermo-chemical gasification. Each has advantages and disadvantages, and the many different cellulosic ethanol companies use many different versions of these technologies. Acid hydrolysis is an established method. However, it may not be the cheapest method, and there is some debate about whether it produces more energy than it consumers or not. Enzyme-using methods are becoming more popular. However, these depend upon finding the right fungi and bacteria and genetically engineering them to produce the right enzymes. This technology is being improved in the lab, but there is still more improvement that needs to be done. Thermo-chemical gasification promises to be cheap, and to use as feedstock a wider array of substances than the other two. But it is also in the development stage and needs to be improved.

In spite of the need for the technologies to be improved, it is estimated that cellulosic ethanol technology will be commercially viable and will go from the research and development stage to the industrial stage of commercial production in 4 to 5 years. That will put it on schedule to meet the goals set for 2012. Many companies are currently in the stage of setting up pilot and demonstration plants to develop their technology for use in commercial-sized plants.

Two things should be pointed out about commercial cellulose-based ethanol plants. The first is the idea of the “bio-refinery.” The bio-refinery is postulated to be like a refinery, except that it will use biomass instead of petroleum as feedstock. It will produce fuel and other chemicals typically made from petroleum. It will be large enough to take advantage of economies of scale, so that the products will be cheaper to make. It is believed that the bio-refinery will one day replace the refinery. The companies that are the first to make a real working bio-refinery will be able to take command of large segments of the biofuels market.

Second, cellulosic ethanol can be made from all different types of biomass. It can be made from agricultural wastes such as corn stover, sugarcane bagasse, rice straw, and wheat straw. It can be made from forest wastes such as wood chips and paper pulp. It can be made from energy crops such as swtichgrass and fast-growing trees. And it can be made from the vegetable matter in garbage, found in landfills or waste disposal systems. Because of this, the plan of most companies is to locate their bio-refinery very close to the source of the biomass. This will reduce transportation costs, increasing profit margins. But this means that cellulosic ethanol production will be very regional, so that there will be room all across the country for many different cellulosic ethanol producers to flourish in different regions.

            How much will it cost to make cellulosic ethanol? Analysts claim that cellulosic ethanol will have to cost $1/gallon or less to be competitive. Once the technology is perfected and commercially viable, and large bio-refineries have been built, it is expected that the producers will succeed in producing cellulose-based ethanol for $1/gallon. Some analysts are even predicting that cellulosic ethanol could be made as cheaply as $0.50/gallon. The situations of the various companies will dictate the cost of the ethanol. Factors such as the cost of biomass feedstock, the size of the bio-refinery, and the proximity of the location of the bio-refinery to the feedstock source will determine cost. Agricultural and forest residue, energy crops, and the plant matter in garbage or landfills may all have different costs. These various factors will impact the price of the raw material. Bio-refineries located close to the source of the feedstock, and to consumer markets, will pay less for transportation. And larger bio-refineries may find economies of scale. To some degree price ultimately depends upon the details of the technology and how it is implemented.

How much capacity can be built, and how fast? It is expected that capacity can be built to meet the Renewable Fuels Standard of 5.5 billion gallons of cellulosic ethanol in 2017 and 16 billion gallons in 2022. In order for these goals to be met, cellulosic ethanol capacity will have to expand rapidly from 2012 to 2022. This could lead to a boom in the ethanol industry. One expert has predicted that growth in cellulose-based ethanol capacity may resemble growth in corn-based ethanol capacity, in this regard: that it will be difficult and require technological breakthroughs to reach 2 billion gallons capacity, but it will be much easier to go from 2 to 6, and from 6 to 12. Some companies already have viable technologies that only need to be tested in demonstration plants to be ready, while others are still in the process of research and development. Most companies plan to follow a path of first building a pilot plant, then a demonstration plant, and then a commercial plant. Most of the companies are now building or planning their pilot plants, while some are working on demonstration plants. A few have, or are close to, operational demonstration plants. Some estimates claim that a typical commercial bio-refinery should have a capacity of 15,330,000 to  21,900,000 gallons per year.

A source that we spoke with has confirmed that there are several demonstration plants currently in operation, and predicted that many large-scale commercial bio-refineries may appear in 2010 to 2011. But this source cautioned us not to be overly optimistic. Regarding the price of ethanol, it must be noted that the two variables, the technology used and the cost of the feedstock, will have a dramatic effect on the price of the ethanol. This source was skeptical of estimates of $1/gallon, saying that there are too many unknown variables to make such as prediction. But he did say that cellulosic ethanol will have to be at or lower than the price of corn-based ethanol in order to be competitive, and so corn-based ethanol may have an unforeseen impact on cellulosic ethanol prices. The price of gasoline and corn-based ethanol will determine the price of cellulosic ethanol. We at Altenews would say that $1/gallon is an optimistic view, but nonetheless some analysts have made that prediction, and only time will tell how the technology develops.

            Next we must look at a very important question: How much cellulosic ethanol can be made, given the supply of biomass in the United States? Is there enough biomass to meet the mandated goals? Is there enough biomass to one day completely replace gasoline with cellulosic ethanol?

First we must ask: How much ethanol per ton of biomass is made? The estimates vary based on which company and which technology are looked at. The low estimate is 70 gallons per ton, and the high estimate is 125 gallons per ton. There are estimates of 120 and 84. We may take as an average the estimate of 100 gallons of ethanol made from one ton of biomass.

            Next, we must ask how many tons of biomass are available to be used as a feedstock for cellulosic ethanol production? To get this data there are two sources that we will consider. There was a popular and influential study of this matter done by the USDA and DOE in 2005, which contains a wide array of data relating to biomass. But before we look at that we can look at some USDA estimates regarding cropland.

            Assuming that 1.25 tons of biomass per acre can be collected, how much agricultural waste will each crop yield? How much ethanol can be made from corn stover? In 2006 the USDA reports 93.6 million acres were planted. That could have yielded 117 million tons biomass. How much from wheat straw? 60.4 million acres were planted in 2006, which could have yielded 75.5 tons biomass. How much from rice straw? 2.7 million acres were planted in 2006, potentially creating 3.3 tons of biomass. And how much from sugarcane bagasse? 2006 saw 883,000 acres planted, potentially creating 1.1 million tons biomass.

This leaves us with a total of 196.9 million tons of biomass from agricultural waste. This could make 19.69 billion gallons of ethanol without any land use changes  (or 24.61 billion if technology enables 125 gallons per ton). This raises a serious objection to the criticism that land use changes will negate the environmental benefits of cellulosic ethanol. In the short term, up to about 20 billion gallons annual capacity, no land use changes will be required. We could also potentially get biomass from garbage and landfills, and from forest waste and paper mills, creating potentially much more capacity without land use change. One estimate claims that a full 40 billion gallons/year of ethanol could be created using only garbage in landfills as feedstock.

Now let us look at the USDA/DOE 2005 report (“Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply,” April 2005). The study found that 1.3 billion tons of biomass can be collected annually from forests and farms with few changes by 2030. That would enable from 130 billion to 162.5 billion gallons of cellulosic ethanol to be produced, which would put America one giant step closer to saving the environment and replacing gasoline. However, before we get optimistic, we must look at the details of the study, which contain some very questionable assumptions.

The study claims that 368 million dry tons can come from forestland, and 998 million dry tons from farmland, for a total of 1.366 billion tons. The study says that the United States of America has 2,263 million acres, 33% of which (749 million acres, of which 77 million is protected) is forest, and 20% of which (455 million acres, of which 342 is active, 39 is idle, and 67 is pasture) is cropland.

In the forestland, 52 million tons will come from fuel wood from forests, 145 million of waste from wood processing mills and pulp and paper plants (or much less, maybe 10 million), and 47 million from construction and demolition debris (This number also includes wood in municipal solid waste, i.e. garbage.) 64 million will come from logging and site clearing residues (wood chips), and 60 million dry tons will come from treatment to reduce fire hazards (removing small or rotting trees from forests to reduce the risk of forest fires).

The assumptions used in this part of the study are that for foresting, only forests with roads and without environmental protections were considered. Recovery of wood chips in forests of 50% to 65% was assumed. This assumes that a portion of wood was left on site for soil protection, and that most wood collected went to consumer products. It also assumes forest growth of 89 million tons biomass by 2030.

The study includes 8 million tons of forest products industry waste, 20 million from construction and demolition (8.6 from construction, 11.7 from demolition), and 8 million from wood in consumer garbage (6 million from wood, 1.7 million from yard and tree trimmings).

That gives us 368 total. But it is only 308 without fire hazard treatment, 256 without wood gathered for fuel, and 121 if the more conservative estimate of waste from mills and plants is used. These assumptions are questionable, but nonetheless it may be reasonable to use 368 as a feasible number. This is especially the case because it seems to Altenews that 8 million of biomass from consumer garbage (i.e. municipal solid waste) is too low to be reasonable. It might be the case that garbage in municipal solid waste and landfills could provide upwards of 20 million tons of biomass, or more. This is especially attractive because garbage has no financial value in itself.

            In farmland, the study claims the availability of 428 million tons of biomass from annual crop residue (corn stover, rice straw, sugarcane bagasse, etc.), 377 million tons from perennial energy crops (switchgrass, etc.), 87 million tons of grains used for biofuels (i.e. corn-based ethanol), and 106 million tons of animal manure and miscellaneous biomass. This gives us 998 total. But there is only 892 without manure (which cannot be readily turned into ethanol), 805 without counting corn-based ethanol or manure, and only 428 if only plant waste is considered and no energy crops are assumed.

The assumptions of the study are that yields will double by 2030, collection of residue (that is, plant waste from harvests such as corn stover) will be raised, and 55 million acres of cropland were converted to use by energy crops.

The study considers three different scenarios in making its predictions. In Farm Scenario One, 194 million dry tons are possible without technology changes to increase plant waste collection and energy crops, 75 million tons of which is from corn stover, 11 million tons of which is from wheat straw. In Farm Scenario Two there are no energy crops but more technological improvements, producing 600 million tons. And in Farm Scenario Three there may be 998 million dry tons, due to soybeans bred to yield more residue, and energy crops such as switchgrass and poplar trees. 35 to 55 million acres will be used for energy crops, yielding 5 to 8 tons of biomass per acre, with 93% of the harvest being used for biomass. The study notes that biomass will vary widely from year to year, due to annually fluctuating factors affecting farm biomass such as weather, soil cultivation, yield per acre, and residue per harvest. Biomass from agricultural sources will also vary because different breeds of plants produce different amounts of residue, so that plant breeding may increase residue.

Regarding energy crops it is estimated that farmers would need to be paid $40 per ton (for an input price of $0.40/gallon), and in the near term farmers could plant 42 million acres and get 4.2 dry tons per acre. The study assumes 8 tons per acre in 2030, made possible by technological advances.

 Based on the study, if we are to consider conservative estimates, we should not count on the numbers that the study comes up with. But in spite of the fact that some of the assumptions are questionable, by 2030 we can expect significant and numerous changes in technology, both in agriculture and forestry and in the production of cellulosic ethanol. Based upon this we would feel justified in claiming approximately 1 billion tons of biomass available in 2030, which could produce 100 billion to 125 billion gallons of cellulose-based ethanol in 2030. If we assume 263.7 of transportation fuel consumed in 2030, that could displace approximately 38% to 48% of gasoline usage. It could also be blended to produce 117 to 147 billion gallons of E85. And if the cellulosic ethanol can be made for $1/gallon and sold for $2/gallon, it could blossom into a $100 billion dollar industry.

Beyond 2030, say for example in 2050, factors such as new technologies might push production even higher. These numbers also may be too low because some cellulosic technologies can supposedly make ethanol from a more diverse range of feedstocks, such as rubber and plastics, enabling more garbage in municipal solid waste and landfills to be turned into ethanol. It can also be assumed that if ethanol becomes more valuable, farmers may convert more acres to energy crops, and more wood from forests might be switched from lumber and paper products to ethanol production.

To conclude our analysis of cellulosic ethanol, we must look at its environmental impact. What is the environmental benefit of cellulosic ethanol? It promises an 80% reduction in GHG (greenhouse gases), compared with approximately 30% for corn-based ethanol. How much oil does the process use? How much does it replace? This varies based on which technology is used, but some general idea can be reached. Critics say it takes 7 barrels of oil to make 8 barrels of corn-based ethanol, and the ethanol has less energy than gasoline, so there is no reduction in oil use from using ethanol. Cellulosic ethanol promises to displace much more gasoline, in part because lignin instead of oil can be burned to power the plants. Other estimates say 1 barrel of oil makes 1.3 barrels of corn-based ethanol, but makes 6 barrels cellulosic ethanol. Thus, cellulosic ethanol promises to be six times better for the environment than corn-based ethanol, which is itself an improvement over gasoline.

What is the net energy content in cellulosic ethanol? E85 gets 12 mpg compared to gasoline at 16 mpg, according to one estimate. That is 75%. However, there is some debate on this, with some advocates of ethanol claiming that E10 drives like gasoline, and that flex-fuel motors can be modified to get better mileage from E85. If that is true, then the net energy different may not be significant.

How much pollution will cellulosic ethanol eliminate? One estimate claims that biofuels could reduce greenhouse gas emissions by 1.7 billion tons per year by 2050. We can arrive at a different estimate based on the data. Transportation fuels create about 2 billion tons of GHG annually. Therefore, replacing 30% with ethanol that is 80% less polluting would eliminate 480 million tons of GHG. Replacing 50% would eliminate 800 million tons of GHG. This could be done by 2030, and it would go a long way towards protecting the environment and stopping global warming.

Does carbon release from land-clearing eliminate the environmental benefit from energy crops? The science seems to indicate that while it reduces the benefit for energy crops, it is not completely eliminated, and this is not true at all for biomass made from plant waste matter, which does not create land use changes, and from which a huge amount of ethanol can be made. Land cleared for energy crops will release some carbon into the atmosphere. However, the plants that are raised will absorb some of the carbon back as they mature. There is still an active debate about the environmental impact of ethanol made from energy crops. However, a huge portion of cellulose-based ethanol can be made from forest waste, agricultural waste, and garbage, none of which release carbon due to land clearing.

 

Section Two: A Who’s Who of Cellulosic Ethanol

 

            This section features a series of profiles on the most interesting companies involved in cellulosic ethanol. The profiles are given in alphabetical order, and it is noted whether the company is public or private.

 

            Abengoa Bioenergy is a public company (Symbol: ABGOF, Pink Sheets). It operates in Europe, U.S., and South America. It currently operates several current ethanol plants in the U.S.,  and is developing a cellulosic ethanol pilot plant in the U.S. and a demonstration plant in Spain. Abengoa uses enzymes for hydrolysis, but is also researching a thermo-chemical/syngas process.

 

Alico is a public company (Symbol: ALCO, Nasdaq). Alico is planning a 13.9 million gallon/year plant in Florida, using yard and vegetable waste as feedstock. Alico has received DOE and Florida State grants. They use BRI’s gasification technology. Alico is primarily an agricultural company based in Florida, and ethanol is not its primary focus.

 

            Arkenol is a private company. Its goal is to build bio-refineries and make cellulosic ethanol using a concentrated acid hydrolysis method. They are in the process of building a 4 million gallon a year plant in California. Their technology has been licensed by BlueFire.

 

            BlueFire Ethanol, based in California, is a public company (Symbol: BFRE, OTC:BB). It has a technology for concentrated acid hydrolysis, created partially by Arkenol, that is supposedly commercially ready. BlueFire is running demonstration plants, and plans a commercial plant in California, near a landfill, that will convert green waste into ethanol. BlueFire was given a DOE grant in 2007. The company wants to own and operate cellulosic ethanol plants, and claims that it can make ethanol from straw, wood chips and vegetable matter in garbage. Once its two plants in California are operating, it will produce 22 million gallons/year.

 

            Colusa Biomass Energy Corporation is a public company (Symbol: CLME, Pink Sheets). It has a proprietary biomass to ethanol process, and is seeking funding. Based in California, they plan to build a facility that will make cellulosic ethanol using rice straw as a feedstock. They claim that their plant, when completed, will consume 130,000 tons of biomass and produce 12.5 million gallons of ethanol per year.

 

            Coskata is a private company. It has partnered with GM, and one if its investors is the famous venture capitalist Khosla (who has invested in numerous cellulosic ethanol start-ups). They claim to have made a breakthrough in cellulosic ethanol technology, using a thermo-chemical process. They use heat and pressure to turn biomass into synthetic gas, and then uses microorganisms to make the gas into ethanol. This process uses only 1 gallon of water per gallon of ethanol, and their process can use anything dry and carbon-based, not just plant matter. They claim that garbage including tires and plastic can be used as feedstock, which would dramatically increase the potential for capacity growth. They estimate their ethanol can be made at or under $1/gallon. They plan a 40,000 gallon demonstration plant to be operational in 2009, and a commercial plant built by ICM will be operational in 2010, and will produce 100 million gallons/year. They plan to supply ethanol to GM.

 

            Dyadic is a public company (Symbol: DYAI, Pink Sheets). Dyadic is a company that uses genetic engineering on fungus to produce enzymes, for clothing and more recently for cellulosic ethanol. A short time ago the CEO was replaced after fraud was discovered in the company’s Asian sales division. The dismissed CEO subsequently accused the company of owing him $2.4 million. The company failed to file because of its accounting scandal and was de-listed from the AMEX. The stock reacted badly to all the bad news, and the company is seeking to be bought or to sell its assets.

 

            Genencor International is a private company, but it is owned by Danisco of Copenhagen, Denmark, which trades on the Copenhagen stock exchange (symbol: DCO.CO). Genencor is an enzyme company that is making enzymes for cellulosic ethanol. Danisco is a large European sugar and ingredients company for whom Genencor’s cellulosic ethanol is only a small segment. Genencor is building a $3 million plant in Iowa for cellulosic ethanol enzymes.

 

            Green Star Products is a public company (Symbol: GSPI, Pink Sheets). They have developed a technology to make biodiesel and ethanol using algae as feedstock. They have also bought two ethanol plants in Kentucky with the goal of making “super” high-octane ethanol.

 

            Gulf Ethanol is a public company (Symbol: GFET, Pink Sheets). Gulf ethanol takes sugarcane-based ethanol from CAFTA/CBI countries in the Caribbean and South America and sells it in the United States. Rather than making their own ethanol they merely take it and resell it. They are also seeking to take advantage of cellulosic ethanol by finding someone who can make it for them and then reselling it.

 

            Iogen Corp., based in Ottawa, Canada, is a private company. Their investors include Royal Dutch/Shell, Goldman Sachs, and Petro-Canada. Long considered to be the leader in cellulosic ethanol technology, they operates the world’s only currently operational scale-sized cellulosic ethanol demonstration plant. Their demonstration plant uses wheat straw, as a feedstock, and the ethanol that they make is currently in use in cars and trucks in Canada.

           

            Lignol Energy Corp. is a public company (Symbol: LECFF, Pink Sheets). Based in Vancouver, British Columbia, Lignol has acquired cellulosic ethanol technology and plans to make ethanol using wood from Canadian forests as a feedstock. It currently runs a pilot plant and wants to build a scale demonstration plant, and then a commercial bio-refinery. They have received a DOE grant to build a demonstration plant in Colorado, to be run by Suncor.

 

            Mascoma is a private company. It is backed by venture capitalists including Khosla and Kleiner Perkins Caufield & Byers. Mascoma is a science R&D company that develops biological methods for making cellulosic ethanol. They are building a 5 million gallon per year bio-refinery in Tennessee, which will use switchgrass as feedstock. Partnered with University of Tennessee, they plan to be operational in 2009. They also have plans for a wood-based plant in Michigan.

 

            Novozymes is a public company that trades on the Copenhagen stock exchange (Symbol: NZYM.CO). Based in Europe, Novozymes is an enzyme company for which a small segment is supplying enzymes for use in making cellulosic ethanol. Novozymes recently failed to meet analysts’ earnings expectations and predicted lower than expected future growth in 2008.

 

            Pacific Ethanol is a public company (Symbol: PEIX, NASDAQ). Pacific Ethanol, a longtime leader in corn-based ethanol production, has partnered with BioGasol on a cellulosic ethanol project. BioGasol is an ethanol technology company based in Denmark. Pacific Ethanol received a DOE grant of $24 million to build a cellulosic ethanol demonstration plant, using BioGasol technology, in Oregon, using wheat straw, wood chips and corn stover as feedstock. The plant, scheduled to be completed in 2009, will produce 2.7 million gallons annually.

 

            Poet, formerly known as Broin, is a private company. A corn-based ethanol maker since 1987, Poet is using technology from DuPont and Novozymes and building a 125 million gallon per year cellulosic ethanol plant in Iowa, using corn stover as feedstock. The plant is due to be completed in 2009.

 

            Range Fuels is a private company. Founded and funded by venture capitalist Vinod Khosla and his Khosla Ventures, Range Fuels uses gasification technology instead of enzymes. Range Fuels is building a plant in Georgia to use wood as feedstock, which it is claimed will have capacity of 1 billion gallons/year. Their thermo-chemical process turns biomass in syngas, then turns syngas into ethanol using a “catalyst,” without using enzymes.

 

            Stora Enso North America is a public company (Symbol: SEOBF, Pink Sheets). Stora Enso is a European paper and forest products company. Their North American division recently received a grant to build a demonstration plant for making cellulosic ethanol.

 

            SunOpta is a public company (Symbol: STKL, Nasdaq). A Canadian company, SunOpta is primarily a food company and only 1% of revenue comes from cellulosic ethanol operations. They are planning a 10 million gallon per year demonstration plant.

SunOpta in January 2008 made a large accounting error regarding earnings and is being sued by investors in several class action lawsuits. SunOpta is also suing Abengoa, a former partner in cellulosic ethanol.

 

            Syntec Biofuel Inc. is a public company (Symbol: SYBF.OB, OTC BB). Syntec uses a thermo-chemical process to make ethanol from syngas made from biomass. They have a catalyst that turns biogas into ethanol. They have expressed interest in building a bio-refinery.

 

            Verenium Corp. is a public company (Symbol: VRNM, Nasdaq): Verenium makes enzymes, and has a cellulosic ethanol demonstration plant. Verenium was made from the merger of Diversa and Celunol. Their process uses enzymes that can produce ethanol from both cellulose containing glucose and hemi-cellulose containing non-glucose sugar. It plans to build a plant in 2009 with capacity of 30 million gallons/year.

 

            Xethanol is a public company (Symbol: XNL, Amex). Once a leader in corn-based ethanol, Xethanol now also has plans regarding cellulosic ethanol. Xethanol plans a cellulosic ethanol demonstration plant in Florida using citrus peel waste as feedstock, and it received a $500,000 grant from the Florida state government for this purpose.

 

Conclusion:

 

            It is still very early for cellulose-based ethanol. The technology has not yet been tried on a commercial level, some technologies are still in development, and there are many factors and variables relating to the economics of cellulosic ethanol that are as yet unknown. But if one is to take estimates that are optimistic, but reasonable, and which conform to Federally mandated expectations, one can expect a boom in cellulosic ethanol in the decade from 2012 to 2022. Beyond that, it may be feasible to replace 20% to 30% of gasoline in 2030, and to one day, possibly by 2050, make a bid to replace American gasoline usage with cellulosic ethanol.

Cellulosic ethanol promises all the things that corn-based ethanol promised but failed to deliver: energy efficiency, significant environmental benefits, domestic energy independence and freedom from Middle East political instabilities, and a very real prospect for displacing a substantial amount of petroleum usage. Furthermore the economics seem to indicate that there will be room for many different companies, in different regions and using different technologies, to profit from cellulosic ethanol. For these reasons we at Altenews.com are optimistic about cellulosic ethanol, and we believe that now is the right time to seriously consider cellulosic ethanol investments.

 

 

A Research Report in Investment on Independent Oil and Natural Gas Exploration: Black Gold is Back

By Russell Hasan

Altenews.com

 

Introduction

Peak Oil and Its Effects

The Price of Oil

Independent Oil and Gas Companies

Unconventional Oil

Oil Sand

Oil Shale

Unconventional Gas

LNG and GTL

Biogas

Coal Bed Methane

Shale Gas

Tight Gas

Conclusion

  

Introduction:

 

As we enter the beginning of the 21st Century, the global economy is entirely dependent upon oil. The cars we drive, the homes we heat, and the electricity we use all depend upon the energy economy, which is dominated by oil. However, it is widely acknowledged among experts that the end of the era of oil may be near. Various statistics support the claim that “peak oil,” a steady and permanent decline in oil resources, may have begun. If that is true, then the global economy, which is addicted to oil, will run out of oil before the end of this century. As the conventional oil reserves controlled by the “Big Oil” companies dry up, the importance of independent oil exploration and unconventional oil reserves will grow, and investors may profit off of this growth. Every investor who seeks to profit off of the energy markets must understand the oil industry, the oil-based economy, and peak oil, in order to capitalize upon the future of the energy industry. It is also necessary to understand natural gas investment, because natural gas, despite being more useful for power plants than for transportation, may last longer than oil, and a post-peak oil economy may transfer to more natural gas usage. This research report gives a general overview of independent and unconventional oil and natural gas exploration, which may be called alternative oil and gas, and the offers conclusions with advice for investors on how to invest in alternative oil and gas.

 

Peak Oil and Its Effects:

 

This report will begin with an account of peak oil and its impact on the energy industry. Peak oil, also called Hubbert’s peak, is a theory first presented by an American geologist in the late 1950’s. In an era in which oil was cheap and plentiful, and there were ample oil reserves both in America and around the world, Hubbert warned that oil reserves were finite and diminishing, and that if production and consumption trends continued that it would be possible for all the oil in the world to be used up in the near future. This would bring about the phenomenon known as “peak oil,” in which global oil production would reach a point at which production would peak, and after which production would gradually and steadily decrease until all of the oil is used up. The theory of peak oil is very controversial, with many advocates and many critics, but as will be explained below, it is reasonable to assume that peak oil will happen at some point in the next ten to thirty years.

 

The theory of peak oil is incredibly important and will have a worldwide impact on technology, the economy, energy, and transportation. The greatest impact is very simple to understand in economic terms. As supply decreases, price increases. Thus, as peak oil happens in oil fields around the world, the price of oil will go up. This will have several effects. First, oil will be more expensive, and oil companies will be more profitable. Second, there are unconventional oil reserves around the world that are more expensive to produce than conventional oil reserves, and as the price of oil goes up, it will become economical to produce that oil. Third, the price of gasoline will go up, and this will impact the global transportation infrastructure that is dependent upon automobiles. This last effect will encourage the development and profitability of alternative fuels such as ethanol, hydrogen, and plug-in hybrids. However, perhaps the easiest way to take advantage of peak oil is by finding the best independent oil companies seeking to exploit unconventional oil and investing in them. By understanding peak oil, it will be possible to invest in unconventional oil before it has reached its prime and thereby see a high return to investment. 

 

Before we examine the statistics relating to peak oil and the peak oil controversy, we must provide some background relating to the oil industry. Oil was made in prehistoric times when small organisms were buried in the ground. Over time, heat and pressure converted the biomass into oil. If there was too much heat, the oil turned into natural gas, and if there was too little heat, the material did not convert into oil. Because of this, oil is only found at a particular depth where the temperature made it possible to produce the oil. Oil is scattered around the world, buried underground in formations of rock. These accumulations of oil are called oil reserves. An individual oil reserve is called a petroleum system. A petroleum system consists of the source, the reservoir, and the trap. The source is the source rock, the rock where the oil formed and is held. The reservoir, also called the migration path, is a permeable rock that enables the oil to be removed. The trap, also called the cap rock, keeps the oil in place. When a petroleum system is found, wells are drilled, liquids are pumped into the well to promote oil flow, and the oil is pumped out of the well. In technical terms, the factors that determine production are the permeability of the rock and the saturation of the resource.

 

One of the most important aspects of the oil industry, which most investors should keep in mind, is that the oil reserves of a particular area cannot be directly measured. Instead, the oil industry has a variety of technologies to probe the ground and geological formations in order to estimate how much oil may be in the ground and where the oil may be. Because of this, the oil industry has three categories of classification for measuring the oil resources of a given area: proven reserves, probable reserves, and possible reserves. These three categories are based on the probability of oil being found in the area at that quantity.

 

Two other factors that plays into this is the fact that the amount of oil that can be recovered from a petroleum system changes as the oil production process goes on, and also, even more importantly, the amount of oil that can be recovered in an area at a profit changes based on both the price of oil and oil extraction technology. For example, when a new oil field is found, in the initial stages the oil flows easily and a lot of oil can be recovered. As the production goes on, the oil becomes more difficult to extract, and it also becomes more expensive to extract. Secondly, and more significantly, it is important for the oil investor to understand that there are actually vast quantities of oil in the ground all over the world, and that a small fraction of the present oil is counted among the known oil reserves. This is because only a small fraction of the oil can be recovered for a profit based on the current price of oil and the current oil technology. As peak oil takes place and the conventional oil dries up, the price of oil goes up and there is more motivation for oil technology to develop. Thus, as peak oil progresses, conventional oil production declines, but unconventional oil production, which is more expensive and more technologically challenging, increases to meet the demand for oil.

 

It is reasonable to assume that oil production will follow a curve similar to the way in which equilibrium changes according to demand and supply. Cars and the automotive infrastructure of roads and gas stations are present around the world as the primary means of transportation. In both rural and urban areas, from the taxis on city streets to the cars that a suburban family depends upon to go places, cars are entrenched as the dominant form of transit, and because of this gasoline usage, and therefore oil demand, is highly inelastic. The supply of oil, on the other hand, is highly elastic, as oil reserves grow when more oil becomes cost-effective to extract. It can be expected that peak oil will open up unconventional oil to profitable extraction, and investors who put money into unconventional oil now may see significant gains when peak oil advances.

 

In simple terms of economics, oil supply is elastic, while oil demand is inelastic. Therefore, as oil demand rises, oil supply will rise, and the price of oil at the point of equilibrium will go up. The smart investor will be able to profit off the rise in oil prices by investing in unconventional oil and gas.

 

It is also worth noting that much independent oil and gas exploration is opposed by environmentalists and the environmental lobby. Oil sands require strip mining, coal bed methane has a high water usage, LNG terminals have security risks, ANWR exploration is blocked by Congress, and oil shale is also opposed by environmentalists. As the demand for energy and the price of oil go up, environmentalists will have to spend more to oppose unconventional drilling, and this will open up more territory for independent oil and gas exploration. Investors can take advantage of this by spotting the independent oil and gas companies that will experience an advantage from more drilling permits.

 

Now it is necessary to present the data relating to predictions of when peak oil will happen. Since oil data is commonly given with natural gas data, both will be presented.

In order to predict when peak oil will happen, it is useful to have estimates as to how much undiscovered oil is left in the ground. The United States Geological Survey (USGS), in its World Petroleum Assessment from 2000, lists oil in billion of barrels and gas in trillion cubic feet. According to their data, which is divided between the USA and the rest of the world, the proven oil reserves that are present, and the oil that has not yet been discovered, are:

 

Oil in Billion Barrels:

 

Non-US:

Undiscovered conventional oil, 649

Total: 2659

 

US:

Undiscovered conventional oil, 83

Total, 362

 

Worldwide Total: 3021

 

Gas in Trillion Cubic Feet:

 

Non-US:

Undiscovered, 4669

Total, 13,493

 

US:

Undiscovered, 527,

Total, 1908

 

Worldwide Total: 15,401

 

The undiscovered oil and gas by region is also given, with oil given in million barrels, and gas given in billion cubic feet:

 

Russia and surrounding area (“Former Soviet Union”), oil 115,985, gas 1,611,262

 

Middle East and Northern Africa, oil 229,882, gas 1,369,993

 

Central and South America, oil 105,106, gas 1,087,521

 

Asia, Africa and Europe, not significant

 

Worldwide Estimates, oil 674,200, gas 3,659,700

 

Paul Roberts, in his book “The End of Oil,” offers details relating to peak oil. He states that the USGS claims that worldwide there are 1.7 trillion barrels proven reserves, 900 billion barrels of undiscovered oil, and an estimated 1.5 trillion barrels yet to be found. Peak oil will happen in 2030, according to those estimates. A more conservative estimate, calculated by a peak oil research group, claims that there are only 1 trillion barrels left, including both proven reserves and undiscovered oil. Peak Oil will take place in 2010, according to that estimate.

 

The two United States government departments that give geological estimates relating to peak oil, the Energy Information Administration and the United States Geological Survey. EIA is more optimistic than USGS. Both indicate that peak oil in the U.S. has already happened, and that worldwide peak oil will happen within the next thirty years.

 

Industry analysts are divided about when and whether peak oil will happen. Arjun Murti of Goldman Sachs predicted peak oil in 2007, and oil at $105/barrel in 2007. James Hubbard of UBS also claims that peak oil is near. Oil exploration expert Peter Tertzakian also claims that peak oil will happen. Daniel Yergin, author of the famous book on the oil industry “The Prize,” does not believe in peak oil, thinks there is much future oil growth left. However, most oil experts agree that peak oil will happen. The major oil company Chevron believes that peak oil will happen, and is promoting itself as an oil company that can cope with peak oil.

 

The key difference between someone who is close to the conventional oil industry, which is often collectively referred to as “Big Oil,” and someone who is close to the renewable energy movement, is the position in regards to the phenomenon called “peak oil.” Big Oil generally claims that peak oil is a myth, while renewable energy advocates claim that peak oil is coming, and that the global economy and the transportation infrastructure will have to shift away from oil and gasoline and to alternative fuels when peak oil happens. Peak oil will affect the oil that is best and easiest to recover first, such as the light sweet crude and the conventional oil reserves, and it will affect unconventional oil last, because that oil will be the last to be used up. Thus, peak oil will diminish the importance of the Big Oil corporations and increase the value and significance of the independent oil exploration companies that are producing unconventional oil reserves. Renewable energy contrasts itself with fossil fuels precisely because oil and natural gas are not renewable, in that there is a limited and finite amount present for extraction. This means that as the supply of the commodity decreases, its value will rise, and smart investors can take advantage of this. To make the best investment in oil, it is also necessary to have an understanding of the factors that affect the price of oil, and also to understand how the oil industry works, and how independent oil company investments should be approached.

 

The Price of Oil:

 

The price of oil has recently seen a sharp drop from around $75/bbl to under $60. This drop has been caused by several factors, such as Iran, and the decrease has also affected many industries, for example by pushing ethanol prices down. Business opportunities in alternative energy depend upon the ability of the relevant technologies to compete with fossil fuels. One of the primary alternative energy markets, be it for ethanol, hydrogen, or hybrid and electric cars, is the automotive market. The primary competition is from gasoline, which is made from refined oil. The question that looms on the horizon of alternative energy, the question that everyone in the energy industry wants an answer for, is how high will the price of oil go, and how long will it stay there? The price of oil is also very important for oil investors. We at Alternative Energy News Source list several factors for your consideration below that may have an impact on the future price of oil.

 

1. Iran: Iran has made it very clear to the West, and to America in particular, that they are going to move forward with their nuclear program. When the U.N. deadline passed and Iran was not attacked, it eased fears relating to Iranian oil supplies and helped lower the price of oil. It is not clear whether Iran wants nuclear weapons, or whether they just want a domestic nuclear energy program. What is clear is that the West, led by America and Israel, do not want to see a nuclear Iran. With America’s military devoted to Iraq, it is unlikely that a war started by the USA will break out in the near future. However, a war is possible, and the threat of war should keep the price of oil above $60/barrel for several years, because Iran will use attacks on Middle Eastern oil infrastructure with their long-range missiles to retaliate if they are attacked, and this would cut oil production in not only Iran, but also Saudi Arabia and the United Arab Emirates. The Iran situation does not look like it will change anytime soon, so the price of oil is unlikely to collapse in the near future. Some analysts have made predictions that if a war with Iran does actually happen then it will bring oil to $100/barrel, and maybe higher.

 

It is also unlikely that any Iranian development will further lower the price of oil. Recently the U.N. deadline for Iran to stop enriching uranium has passed. Because there was no immediate U.S. attack, and various countries such as Germany and Russia are against a war with Iran, analysts believe that negotiations will continue for an extended period of time. This has caused oil to drop from around $75 to around $60. However, Bush has used strong rhetoric towards Iran that is similar to the pre-Iraq war speeches, America and France are both supportive of a war with Iran, and there are reports that Israel is preparing for war with Iran. America and Israel could attack Iran, and the price of oil will remain sensitive to this threat.

 

2. Iraq: Several years after the end of the Iraq war, Iraq’s oil infrastructure is still not at the level that it once was. Despite an initial military victory, the Iraqi insurgency has prevented any major progress in rebuilding Iraq, and the American planning for the rebuilding was also not very well done. With the majority of Iraq’s oil off the market for the next several years, it will be difficult to find any excess oil capacity in the Middle East.

 

3. The Gulf of Mexico Coast: As the one-year anniversary of Hurricane Katrina is remembered, it is increasingly evident that the American oil refinery capacity and the main American pipelines, which are concentrated in the Gulf of Mexico coast, are in the center of an area that is very dangerous due to hurricanes and tropical storms. Some scientists believe that global warming is increasing the frequency and danger of hurricanes, and evidence of this is presented in the movie “An Inconvenient Truth.” Other scientists believe that the bad hurricane seasons are a natural phenomenon. Either way, a hurricane could knock out American refining capacity at any time, driving gasoline prices even higher, and this threat should have an impact on gas prices for some time to come. Hurricane season is annual, so the threat will rise again every year.

 

There was a recent discovery of new oil reserves in the Gulf. However, this oil will take several years to recover, recovery may not begin until 2010, and based on estimates of oil production and consumption, the oil will only give America one to three years of oil supply, assuming that all the oil is used in America. When worldwide oil demand growth is considered, this new oil is just a drop in the bucket, and it is unlikely to push oil below $50. There are also ongoing battles with environmentalists about coastal drilling, which may limit any further oil discoveries in the area. This oil may reduce oil prices down to $60 in 2010, but it will likely not go below $60, and the price will skyrocket again three years later when this additional oil capacity has been expended. The new Gulf of Mexico oil found is only 3 to 5 billion barrels, and the U.S. consumes 5.7 bb per year.

 

 

4. Alaska: The BP pipeline leak has closed Prudhoe Bay, the largest oil field in America and has seriously reduced American domestic oil production. This decrease in oil capacity will probably have an impact that will last at least into next year. It is also clear that ANWR drilling is not going to be allowed anytime soon, so American domestic oil production will not be able to rise to meet growing American demand.

 

5. Venezuela: Hugo Chavez and his Leftist government are using oil diplomacy all over the world, cutting deals to sell their oil only to governments that support Venezuela’s ideology. It is unlikely that Venezuelan oil will reach the U.S. in the near future. There are also reports that Venezuela is having trouble getting their oil to the other countries that they are dealing with, and that the oil industry workers strike often and are ineffective. Chavez has inspired the nationalization of oil resources throughout South America, which may decrease South American oil imports to the rest of the world. Venezuelan oil sand is difficult to recover with the available technology of the region, lowering oil output. Venezuela has the largest concentration of oil reserves in South America, effectively cutting off oil relief from the Southern Hemisphere.

 

6. Saudi Arabia: Saudi Arabia remains one of the top oil producers in the world, and one of the most reliable. However, it is very possible that Saudi Arabia may be drawn into a conflict if war breaks out in the Middle East. There are also reports that Saudi Arabia may be experiencing peak oil, as some of their major oil fields have decreased production, and their reported proven reserves may be overstated. It is therefore questionable whether Saudi Arabia will be able to increase oil output to meet expected increases in oil demand. Peak oil in general should cause worldwide oil production to decrease continuously for years, and as oil production slows, oil prices will climb. There is some debate about when peak oil will happen, but it is widely accepted that American production has already peaked, and that analysis of proven reserves indicates that a global peak may happen as soon as 2010, and will almost certainly happen by 2030. A Goldman-Sachs analyst has said that if peak oil has a large impact it could push oil to $105/barrel within the next several years. Nothing can be done to prevent peak oil from diminishing oil production in the long term, and alternative energy will have an opportunity to replace the lessening oil output to meet the growing energy demands of the global economy. Saudi Arabia, like all OPEC nations, is known to give incorrect and inflated reports of its proven reserves, and Saudi Arabia does not allow foreigners to audit their oil reserve records, making independent verification impossible.

 

7. Canada: Canadian oil sands have attracted worldwide fame as one of the biggest oil reserves left in the world. Canada is the top oil exporter to the U.S., and it is also the most politically stable oil producing nation. However, America cannot expect Canada to remain its private source of oil resources. Nations from all over the world, and particularly in Asia, are trying to cut deals with Canadian oil sand companies to get their share of Canada’s oil. There is also a situation with many mergers and acquisitions among Canadian oil companies. It is difficult to tell where Canada’s oil will be going when the dust from the deals and acquisitions settles. Also, oil sand is heavier than light sweet crude and is more expensive to extract, and the price of a barrel of Canadian oil will be reflected in the global price of oil.

 

8. American oil shale: Oil exploration companies are saying that there may be more oil in Colorado and Utah oil shale than there is in all of Saudi Arabia. However, the American government has not even finalized a system of giving out permits for exploration, and the technology for cost-effective oil shale drilling is still being developed. Oil shale oil is contained in the shale rock, and must be converted into liquid oil at a cost. It is expected that a barrel of oil from shale will be more expensive to recover than in other more conventional oil reserves. It may be a long time before this oil comes to market, and when it does it may be more expensive than was expected. Oil shale, and also oil sand, can only be profitably recovered if the price of oil remains high, so that if excess capacity must come from this sources when conventional oil can no longer meet demand, the price of oil will continue to be high, possibly anywhere from $70 to $100/barrel.

 

9. The American economy: The American economy does not appear to be slowing down significantly, and the American addiction to oil can be expected to keep oil demand up. The American government does not seem close to passing legislation to mandate higher car mileage standards, and the major car companies continue to market gas-guzzling SUVs and light trucks to the public in spite of the high price of gasoline. The American demand for automotive fuel may justify $60 or higher oil for years to come.

 

10. India and China: The economies of India and China continue to grow, as many analysts expected, and with more of the people in Asia now driving cars, there is a growing demand for oil. As these economies continue to expand, the global demand for oil will rise, and the price of oil can be expected to rise along with it. So long as Indian and Chinese oil demand continues to keep pace, oil prices will not fall far below $60.

 

11. Coal and natural gas: The two other fossil fuels, coal and natural gas, cannot significantly displace oil demand and lower the price of oil. Coal emits huge amounts of toxic air pollution. Also, coal can be used in coal power plants, but it cannot displace oil-based gasoline as a portable, efficient high-energy car fuel. Coal-to-liquid fuel technologies have some historical basis, but it is not widely believed that it would be practical or cost-effective to convert massive amounts of coal into liquid fuel to augment gasoline. Similarly, it is very difficult to use natural gas as an automotive fuel. The best alternatives to oil-based gasoline are ethanol, hydrogen, and electric or plug-in hybrids, and with gas above $3/gallon, the time is right to capitalize upon opportunities in alternative fuels. In the power generation markets, coal and natural gas can replace oil, but oil is used primarily to make gasoline, not to fuel power plants, so there is not much usage to be displaced. Also, coal has the additional problem of tremendous air pollution when used in coal power plants.

 

12. Russia: The Russian government has recently seen an increase in the power of the state over free enterprise, and this has been most extreme in the Russian energy industry. The Russian state-owned oil and gas company has monopolized Russian energy resources, and there is no end in sight to Russian attempts to gain more energy resources. Russia has put pressure on Europe to accept Russian control of the gas in the Russia. In the recent past, Russia has cut supplies to countries that have opposed it, and put pressure on Big Oil by investing in various Big Oil companies. With the Russian oil and natural gas resource under state control, both Russia and Europe will have a growing demand for energy resources.

 

In conclusion, for many different reasons, people in the energy sector should not expect oil to drop far below $60 for a long period of time, at least for the next several years, and maybe longer. Oil will likely climb back to $75 as the Iran situation plays out and global energy demand increases. There is also a decent chance of $100/barrel oil by 2010, depending on the politics of the Middle East, the effect of peak oil upon oil discovery, and the demand for oil in various nations. In conclusion, all of the above make oil at $50 nearly impossible, and the range to be expected is $60 to $75 for the next few years. Now is the right time for unconventional oil and gas projects to be undertaken with the expectation of being able to make a profit based on the price of oil in both the short term and the long term. These factors make it likely that the high price of oil is here to stay, and investors and businesses should act accordingly.

 

Independent Oil and Gas Companies:

 

There are many reasons why investing in independent oil and gas companies is very exciting. The primary reason is the state of the oil and natural gas industry. The oil industry is dominated by a few major multinational oil corporations, which are typically called “Big Oil.” The Big Oil companies concentrate their exploration on conventional oil reserves, using their geopolitical influence to get oil from the Middle East, Africa, South America and elsewhere. This leaves the unconventional oil reserves such as oil sand and oil shale free to be explored by the independent oil and gas companies. Big Oil also concentrates on proven reserves, leaving the more risky probable reserves and possible reserves to the independent companies. Rather than competing with the independent oil and gas companies for the unconventional and more risky oil and gas reserves, Big Oil typically waits for an independent exploration company to have a big find, and Big Oil then acquires the smaller company and exploits the reserves that were acquired. This makes the independent oil and gas market highly volatile, but there is the opportunity for investors reap great rewards if they invest in a small independent oil or gas company that has a big find and is then bought by one of the Big Oil companies. When investing in an independent oil and gas company, the investor is expecting the region that is being explored to yield a large find of either oil or natural gas, which will attract the attention of a Big Oil company. If this happens, the investor should see significant return to investment.

 

Unconventional Oil:

 

There are three main types of unconventional oil. The first is oil that is in a standard petroleum formation, but which is in an area that has not been explored. There are many regions of the planet that have oil resources which have not yet been discovered. Because oil can be anywhere, and the scientific methods for detecting oil are not able to find all of the proven reserves and possible reserves, it is possible for there to be oil anywhere. It is necessary to drill and to use the various methods of testing for oil in order to determine where the remaining oil resources are. Because of this, a small independent oil exploration company may choose a location somewhere that has not seen a lot of previous oil exploration, for example somewhere in Asia or the United States, and then explore the area. If by chance a large oil formation is found, the oil company will exploit the reserves and will then become a target for acquisition by a Big Oil corporation. The success of this depends on the technical expertise of the independent oil company’s engineers, the geological qualities of the area, and the quality of the oil that is found. All of these factors will determine whether the oil can be recovered at a profit, which will influence the success of the independent oil exploration company. Oil exploration is underway in many different places around the world.

 

 

The other two kinds of unconventional oil are oil sand and oil shale. Oil sand is concentrated in western Canada, while oil shale is concentrated in western USA. The next two sections will discuss these investment opportunities.

 

Oil Sand:

 

Oil sand is a kind of oil that is very thick and of poor quality. It is also called tar sand. Previously, the technology to recover and convert oil sand into oil cost effectively was not available. Recent developments in technology combined with a high price of oil have made oil sand recoverable, and prompted high interest in oil sand among energy investors.

 

The global oil reserves consisting of oil sand are concentrated in two places, Canada and Venezuela. Because of the unstable political climate of Venezuela, most analysts do not consider its oil reserves. Canada, on the other hand, has a very stable political climate. This aspect of Canada’s oil compares favorably with the other main oil center, the Middle East, which has a history of unstable political situations.

 

Oil sand was once too expensive to extract at a profit. Research by the Alberta Oil Sands Technology and Research Authority, as well as Suncor and Syncrude, reduced extraction cost to $10-15/bbl. Technology included steam assisted gravity drainage (SAGD) and directional drilling of horizontal wells. This made oil sand economically recoverable, which it had not been before. With this new oil counted, Canadian oil reserves went from 5 billion to 179-180 billion barrels. BP counts 17 billion, counting only oil sands “under development.” Canada counts oil in “crude bitumen” and “established reserves” instead of crude oil and proven reserves. Bitumen, which contains the oil in the oil sand, is a thick, black substance commonly used for asphalt. It is also called tar sand, although actual tar is made from coal. Oil sand recovery requires a mine to get the bitumen, and an upgrader to convert the bitumen into synthetic crude oil. Strip mining is used to get the bitumen.

 

The Canadian oil sands are concentrated in the province of Alberta, in western Canada. There are three oil sand deposits: Peace River, Cold Lake (which also has some liquid oil), and the Athabasca oil sands. Athabasca is the largest deposit and the only one with surface deposits that can be strip-mined.

 

Canadian conventional oil has peaked already, and oil sand is expected to peak in 2020. As peak oil takes effect and global oil reserves decline, Canada stands as an unconventional oil play that may produce significant profits when conventional oil dries up. There is a shortage of labor and housing at Fort McMurray, the main town in the Athabasca oil sand area, which indicates the high growth potential of the area. Most mines, including Suncor and Syncrude, are near this town. The Canadian Association of Petroleum Producers has predicted that by 2020, 90% of Canadian oil will come from oil sand, with total oil production being 1.75 gigabarrels per year.

 

There are many exciting investment opportunities in the Canadian oil sand. A list of major sand oil plays follows: Syncrude Canada Limited, Suncor Energy, Shell Canada, Nexen, CNRL, Imperial Oil, and SynEnCo Energy and SinoCanada Petroleum Corporation. These and other oil sand companies deserve careful consideration on the part of energy investors.

 

 

Oil Shale:

 

The other kind of unconventional oil is oil shale. Oil shale technology and exploration are still under development, but oil shale has great potential. Oil shale deposits are concentrated in the western United States. It is estimated that there are 1 trillion to 800 billion bbl in U.S. The oil shale is mainly found in the Powder River basin.

 

Because the oil in oil shale is trapped in the rock, it is twice as expensive to recover as oil sand. Methods and technology for cost-effective extraction and processing are still being developed. Critics also point out that there may be extreme environmental damage from strip-mining in dry land and water usage issues.

 

The oil shale must be recovered and then converted through pyrolysis (extreme heat without water or air) to convert it to oil. This raises logistical problems that have not yet been solved. Shell has developed method for electrical conversion of oil shale to oil in the ground over time “in situ” to reduce environmental impact and cost, such that it becomes the same as a conventional oil well. Oil shale exploration permits are still being handed out, and oil shale is a young industry. Because of this, there is a high degree of risk for investors, but the energy investor who can find a profitable oil shale company may see very high returns once oil shale technology and exploration matures.

 

In terms of regions, the Bakken shale in Montana and North Dakota is said to contain a great deal of shale oil. One estimate places the reserves at 400 billion bbl. Because of the large concentration of oil and the permeability of the rock, it is possible to get a lot of oil from a well, and this is an exciting area of shale oil for invertors to consider.

 

Natural Gas:

 

Natural gas forms historically when oil formations are exposed to pressure and heat, which converts the oil into gas. Gas is found in gas fields, coal beds, and oil fields. It is used to fuel power plants, CNG vehicles, and to make hydrogen. Because gasoline, which is made from oil, is the primary vehicle fuel, natural gas has developed as a fuel for power plants. There is a lot of gas buried around the world, but natural gas usage is limited by transportation and gas lines.

 

Natural gas production takes place in the U.S., Russia, Asia, Australia, Mexico and Venezuela, China, India, Saudi Arabia, Iran, and some African and European countries. Former Fed Chairman Alan Greenspan has warned that a natural gas crisis in the United States might happen, and that LNG would be necessary to get the natural gas required by the economy. The United States currently uses 22 trillion cubic feet of gas per year, and that could go up as peak oil causes declines in oil usage. Natural gas is also attractive because of peak oil. Natural gas will outlast oil if peak oil happens, according to most estimates.

 

The National Petroleum Council says conventional gas will peak and unconventional gas will be necessary to maintain production. There are many different kinds of unconventional natural gas that are being exploited. These include LNG and GTL and biogas. Tight gas sands, shale gas, and coal bed methane will all be necessary. The U.S. Geological Survey says that there is 135 tcf of recoverable unconventional gas in U.S., and 460 tcf total. The Rocky Mountains have high unconventional gas reserves, although unconventional gas resources are scattered around the world. The Rocky Mountains have been called the “Persian Gulf” of unconventional natural gas, because the Rocky Mountains contain tight gas sands, shale gas, and coal bed methane resources.

 

LNG and GTL:

 

LNG and GTL are two technologies that have been developed to enable the commercial exploitation of stranded gas fields. Stranded gas fields are fields of gas that are too far away from roads, trains, or gas pipes to be transported to areas where the gas needs to be used. There are stranded gas fields in the remote regions of the Middle East and in various other places. LNG, which stands for liquid natural gas, is a technology in which the natural gas is taken to an LNG terminals and is frozen to the point of becoming a liquid. It is then shipped overseas by LNG tanker and it is taken to an LNG terminal where it is converted back into natural gas for usage in the destination market. There are proposed LNG terminals in California, New York, in various parts of Asia, and elsewhere. GTL, which stands for gas to liquid, is a technology in which the natural gas is converted into a liquid fuel for transportation. There is GTL development in the Middle East and elsewhere. LNG and GTL have not yet developed as a primary means of gas transportation, but investors should know about the high potential that LNG and GTL have as natural gas usage rises in response to higher energy demands.

 

Biogas:

 

Biogas is gas made by organic methods. It can be made the gas that arises from landfills, manure, biowaste, and other biomass. Natural gas is naturally released from manure and the garbage in landfills, and this gas can be collected and processes the produce synthetic natural gas. Biogas is a very exciting area in independent oil and gas, and in the energy industry as a whole, because biogas is renewable, in that it can be created continuously. Because it is renewable it can never run out, and as conventional natural gas resources are exploited and used up, biogas will be an attractive option for producing natural gas. Biogas is still in the early stages of development, but the right biogas company could be profitable for investors.

 

Coal Bed Methane:

 

Coal bed methane is an exciting area of unconventional natural gas exploration that has a lot of potential and is often overlooked by investors. Coal bed methane is the gas that is trapped in coal beds prior to being degassed. The methane is of similar quality to conventional natural gas. Coal bed methane, which is also called CBM, is a way for energy investors to take advantage of coal mining without investing in coal. Every coal bed must have the gas removed before coal mining can begin. Coal bed methane mining requires technical expertise, and the quality and experience of the engineers involved in the project should be examining by any CBM investors. The most amazing thing about CBM is the surprisingly large quantity of CBM gas that can be exploited profitably. According to coal bed methane expert Brian Hughes, there is enough coal bed methane to rival or outpace conventional natural gas production.

 

Two major CBM sites are in the United States. These include the Powder River Basin, in Wyoming and Montana. It is the largest coal region in U.S. Recently it was the site of major coal bed methane drilling. The USPGC says 24 tcf of gas may be present. CBM is also exciting because wells could be drilled for as cheap as $80,000. The San Juan Basin in Colorado is another CBM site, The USPGC says 10 tcf may be present there.

 

Shale Gas:

 

Shale gas is a situation in which the natural gas is trapped in shale stone. The Barnett Shale in Texas is a shale gas play, and some say that it is the largest gas area in the U.S. Because the gas is trapped in the shale, the ability to recover the gas depends on fracturing technology, which is also called fracing. Shale gas has become commercially viable recently with new fracing technology. Other issues with shale gas arise because some of it is underneath the city of Dallas, Texas. Shale gas is an exciting area for investors, but the technology and the location of the wells has to play a critical role in choosing a shale gas company.

 

Tight Gas:

 

Tight gas consists of natural gas trapped in reservoirs from which it is difficult to recover the gas. In technical terms tight gas is a kind of unconventional gas, consisting of gas in a reservoir that has stone with low permeability. This can be either tight gas sands or gas shales. As the price of natural gas rises to keep pace with energy demands, tight gas will become more profitable to recover, and investors should keep a close watch of tight gas developments. The most important elements in tight gas recover are the fracturing technology and the expertise of the engineers who work for the company. Basin centered gas accumulation also now plays a role in tight gas recovery.

 

Tight gas plays an important role in global natural gas markets. Tight gas made up 19% of USA natural gas production in 2004, according to USGS. The U.S. EIA says that tight gas could be 35% of United States gas in the future. The U.S. Govt tried to use a nuclear bomb to get tight gas out in 1969 and 1973, but the gas was radioactive and could not be used.

 

One of the most significant tight gas areas is the Piceance Basin, a large gas area in Colorado with a branch in Utah. The U.S. Potential Gas Committee says there may be 31 tcf in Piceance. The gas had not been recovered because the low gas price had made it not economically recoverable, but new technology and tight energy supply has made domestic energy more important. A well can cost $1.2 million, but energy demand should support all forms of unconventional gas exploration.

 

Conclusion:

 

A list of the various factors that an investor should consider before investing in unconventional oil and gas follow:

 

  1. The technology that is being employed to explore for and recover the oil and gas resources, both in terms of established fracing technology, and any experimental or new technology in use such as GTL or synthetic oil and gas
  2. The qualifications and history of success of the company’s executives
  3. The technical expertise and qualifications of the company’s engineers
  4. The location that the company has permits to explore, and the proximity of oil or gas pipelines
  5. The geology of the region where the company is exploring for oil or gas, and a wide variety of geological factors that may indicate the presence of oil or gas
  6. The cost of drilling a well, and the cost of getting permits to explore for oil and gas
  7. The permeability of the rock and the saturation of the resource
  8. The price of oil and natural gas, both in the region in which the company operates and worldwide
  9. Any news of merger or acquisition activity relating to the company
  10. The government of the region where the company operates, both for an indication of the political stability of the region, and also to know whether the exploration company benefits from any agreements with the local government
  11. The presence or absence of environmentalists who are legally contesting the development of the local oil and gas resources

 

There are many alternative oil and gas companies worth considering. A selection from the Altenews list of stocks follows:

Alternative Oil and Gas Stocks:

American Oil & Gas Inc., AEZ

Galaxy Energy Corp., GAX

Houston Exploration Co., THX

Imperial Oil Ltd., IMO

Interoil Corp., IOC

Meridian Resource Corp., TMR

Petroleum Development Corp., PETD

Provident Energy Trust, PVX

Southwestern Energy Co., SWN

St. Mary Land & Exploration Co., SM

Storm Cat Energy Corp., SCU

Suncor Energy Inc., SU

Swift Energy Co., SFY

Syngas International Corp., SYNI.OB

Syntroleum Corp., SYNM

Range Resources Corp., RRC

Rentech Inc., RTK

Talisman Energy Inc., TLM

Terax Energy Inc., TERX.OB

The Exploration Co., TXCO

W&T Offshore Inc., WTI

It takes some luck to find an independent oil and gas exploration company with the right combination of a license to drill in an area that actually has oil or gas resources left that can be recovered profitably, as well as management and engineers with experience and talent. However, because the global demand for energy is so strong and inelastic, and the oil and gas industry is so prone to acquiring smaller companies, if the right company can be found, an investor may see the stock price rise dramatically when oil or gas is found and when the company is acquired by Big Oil. Because of peak oil and the growing demand for energy fueled by the global economy, the demand for oil and gas will only go up in the future, and now is the time for the smart investor to put some money into a good independent oil and gas exploration company. 

 

 

A Research Report on Solar Power Investment: The Dawn of Solar Power

By Russell Hasan

Alternative Energy News Source (Altenews.com)

 July 26th 2006

 Table of Contents

1. Introduction

2. Industry and Growth

3. Solar Silicon Shortage

4. Solar Technology

5. Solar Markets: Industrialized Countries and Government Incentives


6. Solar Markets: Electrification of Developing Countries

7. What Investors Should Know About Solar

 

 

 

1. Introduction

 

            Solar power is one of the hottest areas in energy investment right now, but there is much debate about the future of solar technology and solar energy markets. This research report is written with the purpose of analyzing extenstive data to predict solar investment opportunities. Alternative Energy News Source (Altenews.com) has long asserted that there are fortunes to be made from smart investments in renewable energy, and this report examines various ways in which solar power is precisely such an opportunity.

Recently there has been a burst of interest in what is commonly known as “renewable energy,” forms of energy that do not become depleted and which are environmentally friendly and producible in most parts of the world. The public is afraid of the very real threat of global warming, as popularized in the documentary “An Inconvenient Truth,” and they also want independence from politically unstable foreign oil imports, particularly from the war-ravaged Middle East. The Hubbert’s Peak theory of “Peak Oil,” which claims that oil resources have peaked and are now beginning a decline that will end in the depletion of global oil reserves, has also gained credibility. This “triple threat” of global warming, energy independence and peak oil has led to an unprecendented focus on renewable energy, which in turn has spurred businesses to concentrate on renewable energy and persuaded investors to put money into renewable energy. There are many exciting opportunities in renewable energy, but there is much confusion that clouds the ability of the investor to find the best opportunities in renewable energy. Two areas of renewable energy that have received a great deal of attention are solar power, which produces energy from sunlight, and ethanol, a fuel substitute made primarily from corn and sugarcane. In previous Altenews reports and articles, including “Ethanol Investment: Golden Opportunity or Fool’s Gold?” and “The Ethanol Hype, Quantified,” Altenews explored the problems with American corn ethanol. In this report we take a more optimistic approach, investigating various positives that we believe will cause solar markets to expland, solar technology to develop, and solar profits to grow, both in the short term and in the long term. Sunlight is free and plentiful and solar power emits no pollution, and some have claimed that enough sunlight resources reach the planet in one hour to provide 100% of the world’s energy needs for one year. There are also many other data that we feel supports optimisim towards the solar industry.

            Below you will find our research report, “Solar Power Investment: The Dawn of Solar Power.” In this report we begin with an overview of the solar industry and the history of solar growth. We then examine the shortage of silicon, which is the main raw material for most solar panels, next we review the future of various solar technologies, and then then we analyze solar markets, first in the industrialized world and then in the developing world. We conclude with our acccount of what every investor should know before th