May 04, 2012 at 11:43 AM EDT
Oil Alternatives
Call me jaded, but I just don't see a huge place in the market for alternative liquid fuels right now.

Are you sure it isn't 2008?

A divisive election is under way. The stock market is hitting multi-year highs. Oil is over $100. Gas prices are nipping at $4.00.

And that's got the market talking about oil alternatives, which is also reflective of the mentality of four years ago.

Let me mention a few names to see if they ring a bell...

Pacific Ethanol (NASDAQ: PEIX), Verenium (NASDAQ: VRNM), VeraSun Energy, Aventine Renewable Energy (OTCBB: AVRW).

Is it all coming back to you?

Ever wonder what happened to those gems?

VeraSun is gone — bankrupt. Here's a chart of the other three:

Ethanol Stocks 2012

Don't laugh...

Ethanol's the "next big thing," remember?

The Next "Next Big Thing"

We've simply traded in the Bush trumpeters of ethanol and a hydrogen economy for Obama's fondness of algae.

Fool me once, shame on... The point is you shouldn't be fooled again. Because even the algae train has left the station once before.

Remember OriginOil or PetroSun or Valcent Products?

Those guys were going to save the world with their vats fool of algal oil, fed only by the sun and dirty CO2.

I think algae may eat money, too:

Algae Biofuel Stocks 2012

Call me jaded, but I just don't see a huge place in the market for alternative liquid fuels right now.

Natural gas is practically being given away. The nation's fleet of Big Rig trucks could run on liquid natural gas (LNG) for less than $2.00 per gallon while reducing emissions. Just ask T. Boone Pickens...

Companies that burn tons of diesel are already switching to LNG to power diesel engines, generators, forklifts, tractors, and more.

In an effort to save drilling costs, Apache Corp (NYSE: APA) is starting to convert diesel-fueled rigs to run on LNG.

~~eac_nat_gas~~

No word on whether algae was in the running or not.

I don't mean to sound trite or cynical; I'm just tired of "the next big thing" turning out to be the next big dud.

I can think of much easier and less risky ways to make money than betting on tiny companies that are supposedly going to change the world — a world, by the way, that uses almost 90 million barrels of crude per day, or about 32 billion barrels a year... or almost 1.4 trillion gallons annually.

How many gas stations and oil storage tanks do you see while driving around?

How many algae or biobutanol plants and storage tanks do you see?

That's something that takes a decade to change.

I know oil isn't just fuel. In some way or another, it's used to make almost every product within sight.

We use it in concrete, shingles, pipes, ink, synthetic fabrics, crayons, computer cases, carpet, paint, Styrofoam, shampoo, helmets, electrical insulation, toothpaste, lipstick, tires, rope, fertilizer, candles, adhesives, refrigerants, artificial turf, pill capsules, soft contact lenses, shaving cream, antifreeze, antihistamines, insecticides, fan belts, hand lotions, caulking, golf balls, credit cards, Formica, footballs, bandages, medical tubing, packing tape, and many, many more items.

There are even companies like Gevo (NASDAQ: GEVO) trying to make bio substitutes for those uses. They say the biochemicals are “drop-in” replacements for their petroleum counterparts, meaning they can be substituted with no effect on performance or efficiency.

I heard that about ethanol, too — and every charter boat captain I ask starts cussing when I ask him how ethanol affects his marine motor.

Even if they can be “dropped-in,” it's still a +10-year game.

Our addiction to oil is severe.

It affects every country on earth.

We've been searching for new veins to inject for 100 years, and the search continues at higher and higher costs each day.

Likewise, little Davids have been trying to kill the giant for decades. They end up with stock charts like those above. Gevo lost almost $20 million last quarter.

For my money right now, it's hard to beat our old friends oil and gas.

U.S. companies are drilling shale oil on the cheap and selling it into a global market. It's cheap American fuel being drilled and making money today.

Same on the natural gas side: We're getting gas for under $2.00 per Mmbtu, the cheapest in a decade.

But they're paying upwards of $17 per MMbtu in Asia...

Oil alternatives are fun to think about, but if history does in fact repeat itself, they aren't worth investing in.

~~nicks_signoff~~



Oil Alternatives originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.
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