New Biofuels Fail to Meet Government-Mandated Quantities (CDXS, AMYR, GEVO, SZYM, KIOR, ADM, VLO, PEIX)

Back in the heady days of 2007, the U.S. Congress established mandates for the amount of cellulosic ethanol and other biofuels to be used in the nation’s transportation fuel supply. Cellulosic ethanol and fuels based on algae are made from nonedible biomass, and thus avoid the criticism of replacing food with fuel. The congressional mandates were very aggressive, calling for 100 million gallons of cellulosic ethanol by 2009, 250 million gallons by 2010, and 500 million gallons by 2013. By 2022, U.S. transportation fuel is supposed to include 16 billion gallons of cellulosic ethanol.

In 2010, the mandate was lowered for that year to 6.5 million gallons and for 2012, the mandate set by the U.S. Environmental Protection Agency has been set at 8.5 million gallons. Companies like Codexis Inc. (NASDAQ: CDXS), Amyris Inc. (NASDAQ: AMRS), Gevo Inc. (NASDAQ: GEVO), Solazyme Inc. (NASDAQ: SZYM) and Kior Corp. (NASDAQ: KIOR) have so far failed to reach production levels anywhere near mandated levels. Traditional corn-ethanol makers like Archer Daniels Midland Co. (NYSE: ADM), Valero Energy Corp. (NYSE: VLO) and Pacific Ethanol Inc. (NASDAQ: PEIX) continue to supply the vast majority of nonpetroleum based fuels.

Refiners are required either to use cellulosic ethanol or to pay $1.20/gallon for the privilege of not using it. Because so little is available, refiners end up paying for something they cannot buy at any price.

Most biofuels makers have turned to producing specialty chemicals for the cosmetics and pharmaceuticals industries in order to make some revenue. Truth be told, a gallon of a cosmetic component is far more costly than a gallon of cellulosic ethanol, so these companies continue to work on developing substitute chemicals. The payback from these is more certain and nearer in time than is trying to scale up manufacturing of biofuels and facing uncertain political and distribution issues.

To show how hard things have been, the share price of many pure-play stocks pretty much sums it all up:

• Codexis trades at $5.53 and its 52-week trading range is $3.91 to $12.24.
• Amyris trades at $11.16 and its 52-week trading range is $9.90 to $33.99.
• Gevo trades at $5.59 and its 52-week trading range is $5.18 to $26.36.
• Solazyme trades at $11.27 and its 52-week trading range is $7.68 to $27.47.
• KiOR trades at $9.31 and its 52-week trading range is $8.88 to $23.85.

Paul Ausick