Biodiesel is the name of a clean burning alternative fuel produced from domestic, nova88 renewable resources such as vegetable oils or other renewable resources. It can be made from soy or canola oil, waste cooking oil, and even animal fats. Biodiesel contains no petroleum, but it can be blended at any level with petroleum diesel to create a biodiesel blend. It can be used in compressionignition (diesel) engines with no major modifications. Biodiesel is simple to use, biodegradable, nontoxic, and essentially free of sulfur and aromatics. Biodiesel can be distributed using today’s infrastructure, and its use and production are increasing rapidly. Fuel stations are beginning to make biodiesel available to consumers, and a growing number of transport fleets use it as an additive in their fuel.
Biodiesel is gaining popularity because it’s good for the environment and can be used in almost any diesel vehicle built in the past 10 years. The production of biodiesel is an industry in its infancy within the United States , even though the market for the alternative fuel has been a mainstay in Europe and South America for years. It is expanding rapidly all over the world due to growing concerns about levels of environmental pollution and limited supply of energy sources.
In 2000, biodiesel became the only alternative fuel in the country to have successfully completed the EPA-required Tier I and Tier II health effects testing under the Clean Air Act. These independent tests conclusively demonstrate biodiesels’ significant reduction of virtually all regulated emissions, and showed biodiesel does not pose a threat to human health. A US Department of Energy study showed that the production and use of biodiesel, compared to petroleum diesel, resulted in a 78.5% reduction in carbon dioxide emissions. Moreover, biodiesel has a positive energy balance. For every unit of energy needed to produce a gallon of biodiesel, 3.24 units of energy are gained. Many federal agencies, including the Department of Defense (DoD), are choosing to use biodiesel or biodiesel blends.
There are some drawbacks to biodiesel worth mentioning. Biodiesel is generally more expensive to purchase than petroleum diesel but this differential may diminish due to economies of scale, the rising cost of petroleum and government tax subsidies. Besides higher costs, biodiesel coagulates at cold temperatures, so vehicles must be retrofitted with a fuel-heating system. And although biodiesel vehicles are cleaner than regular diesel in many respects, they still emit about the same amount of nitrogen oxide, one of the main components of smog. Still, many are convinced that the advantages of biodiesel far outweigh the disadvantages.
Chevron recently gave $25 million to the University of California, Davis (UC Davis) to continue research into biofuel processing technology.
Chevron also invested in a Texas biodiesel plant, which will give them 22% ownership and boost U.S. biodiesel production by more than 50%.
South Africa-based Standard Bank has entered the biodiesel sector with an $8 million equity investment in Biodiesel Energy Trading.
Environmentally-conscious celebrities such as Willie Nelson, Jack Johnson and Mandy Moore, are also supporting and investing in biodiesel. Willie Nelson even started his own biodiesel company, aptly titled BioWillie.
In the United States, 34 out of the 50 states are now producing biodiesel fuel, with Maryland recently added to the list.
So how can you capitalize on the momentum of biodiesel, make a healthy return and help to save the environment in the process? We have profiled one of our favorite biodiesel plays below.
Nova Biosource Fuels (Ticker: NVAO.OB)
Nova Biosource Fuels, which was previously Nova Energy Holding, is an energy company that synthesizes and distributes renewable fuel products. Nova’s initial focus is to construct and operate several biodiesel refineries with production capacity of more than 300 million gallons of fuel on an annual basis. Within three years Nova intends to construct, utilizing proprietary patented-process technology, seven biodiesel refineries ranging from 20- to 50-million gallons per year in production capacity. Nova has already taken concrete steps toward the realization of these goals:
Nova completed a private placement in July for over $18 million. These funds will be used to build and operate two to four biodiesel refineries with a production capacity of between 120 to 240 million gallons of biodiesel fuel per year. This news is very positive as it shows institutions and large investors believe the company to be a solid investment.
But the big news propelling Nova’s stock price is a recently-inked deal with ConAgra. ConAgra is one of North America’s largest packaged foods companies. In July, Nova signed a feedstock supply and biodiesel sales agreements with ConAgra Trade Group. The agreements provide that ConAgra Trade Group will procure the vegetable oil and animal- based feedstock requirements for the Nova-owned biodiesel refinery, as well as sell the biodiesel fuel and manage the logistics for the facility. Building on the relationship with ConAgra, Nova recently signed a biodiesel sales agreement for Nova’s 60 million gallon per year biodiesel facility to be located in Seneca, Illinois. ConAgra Trade Group will provide selling and outbound logistics services for the facility as part of the agreement. Nova expects the Seneca refinery to be open in the summer of 2007.
Operational Highlights include the first 10 million gallon per year biodiesel refinery being built in Clinton County, Iowa nearing completion. This facility is targeted for completion in the coming weeks.
The second refinery is being built near DeForest, Wisconsin, and the facility will be wholly owned by Anamax Energy Services. Nova’s agreement with Anamax provides for the design and construction of a 20 million gallon per year biodiesel facility on the premises of an Anamax-owned rendering plant. The targeted completion date of this facility is January 2007.
The third refinery is being built for Scott Petroleum Corp. and the agreement provides for the design and construction of a 20 million gallon per year biodiesel refinery located in Greenville, Mississippi. Nova already has an agreement with Scott Petroleum to purchase 50 percent of this facility’s production for ten years at approximately the production cost in exchange for initial and deferred payments intended to reimburse Scott Petroleum for the incremental construction costs associated with increasing the capacity from 10 to 20 million gallons per year. The targeted completion date for this facility is anticipated to be in early 2007.
Nova has a proprietary, patented biodiesel production technology, developed by Nova Biosource Fules, which is wholly-owned by Nova Energy Holding. This technology allows Nova to reduce processing costs by up to 35% and overall fuel production costs by as much as 20% from standard industry practices. This competitive advantage results in lower manufacturing costs, faster facility permitting, and minimal environmental impact due to the absence of air and water waste streams.
Nova boasts seasoned management, including CEO Kenneth Bern who served as President of Texaco Saudi, Inc., between 1981-1984, as Vice Chairman and Managing Director of Texaco Nigeria Limited from 1984 through 1989, and as President of Texaco Brazil from 1989 through 1994. COO Jody Powers was the former president of Halliburton Energy Services, where he worked for 35 years. Nova has also stacked their board with industry experts and experienced veterans in the energy field. Their guidance and their contacts should allow Nova to take advantage of opportunities moving forward.