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UPDATES

As Oil Falls, Biofuels Take Off?

Dec 15, 2014 6:06:48 AM

Good morning!

You'd think that biofuels would crash along with the price of crude. 

But here's analyst Chen Lin, explaining how it's exactly the opposite...

The conventional wisdom about ethanol has been proved wrong. Lower oil and gas prices encourage more consumption. More gas consumption, by law, requires more ethanol—more ethanol, in fact, than can be produced.

According to the Environmental Protection Agency, U.S. plants are running at 930,000–940,000 barrels per day. Maximum daily U.S. ethanol capacity is 925,000 barrels per day.

That's why the ethanol price rebounded sharply in October and is now higher than in the summer, when oil sold at $100/bbl.

Wild, isn't it! Cost of gas goes down, people use more gas... and now there's not enough biofuels to go around.

Result? Prices take off for "farmed fuels".

But this is corn ethanol, right? No! Actually, corn has reached its allowed limit.

So, advanced biofuels have to fill in the gap.

Of these, algae is the most sustainable. For example, it doesn't need fresh water to grow, a massive advantage as water tables vanish.

But, algae's been expensive to produce as a fuel. Fix that and you have a boom crop.

OriginOil Partnering on a DOE Program

That's why we are planning to partner with two separate groups (a national laboratory and a university) on a Funding Opportunity Announcement (FOA) issued by the Department of Energy entitled Targeted Algal Biofuels and Bioproducts (TABB).

This program actively seeks to make algae a competitive fuel. (More on this over the next few weeks.)

Feed prices take off, too

In the chart below, you can see that soymeal and fishmeal prices don't really follow crude oil anymore, and fishmeal is — and this is crazy — going straight up while crude goes down!

Graph-CEO-Update

We've already shown that algae can be produced for about a third of fishmeal, so that is a huge global business.

Algae producers now have a two-market strategy: proteins plus fuels. 

Jim Lane of Biofuels Digest discusses this in last week's issue.

As Jim put it to me:

The big winner is… algae.

Dual-product business strategies could win big if oil prices stay low, as protein prices have increased at the same time - overall, very good economics vs marginal shale.

As you can see on our new website, we have a three-part business: petro, algae and waste.

So, we can "play the piano" at any time, offsetting one sector with another.

Meanwhile, try to keep your stress down as we enter the holidays!

Riggs and Team

Riggs Eckelberry
President & CEO
OriginOil, Inc. (OOIL)

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