Blue Biofuels: Inflation and Rising Corn Prices Could Make Cellulosic Alternatives for Biofuels Highly Attractive

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July 15, 2022

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(Seeking Alpha) • The inflationary forces that are currently at work in the U.S. economy will continue to cause much higher prices for many commodities, including corn.

Corn is a primary feedstock for ethanol producers and as its price rises, so do the production costs for many ethanol plants located in the corn-belt region of the U.S.
A likely result from this increased cost of producing ethanol from corn is margin contraction and reduced profits for many in the industry.
Using perennial grasses, yard waste, corn crop stover and other plant-based feedstocks is an inexpensive way to produce sugars used in ethanol production.
The main problems, up until now, have been the hurdles associated with breaking down cellulosic materials into sugars, without using expensive enzymes, caustic chemicals or high-energy use heating methods.

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We believe that if this inflationary cycle becomes secular in nature, ethanol producers will have to adapt and adopt to new feedstocks and technologies that offer a lower cost of production, higher overall margins and more generous subsidies from the U.S. government.

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The long-term trend in the energy consumption appears to be leaning towards alternative energy, and biofuels, for powering many of our common modes of transportation, including cars, trucks, and airplanes.

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Today, in the United States there are approximately 195 ethanol plants in production. Of those 195 plants, there are 3 using waste stream as their feedstock of choice, 13 of them are using milo, also known as sorghum, as their primary feedstock and 2 are categorized as using other (not identified) feedstock.

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Cellulose is said to be recalcitrant, meaning that it is hard to breakdown in an economic manner. For this reason, ethanol producers have shied away from using cellulosic biomass in producing sugars for conversion to ethanol.

In our opinion, the CTS 2.0 (Cellulose-To-Sugar) technology being developed by Blue Biofuels, Inc. offers a better alternative to traditional corn feedstocks to produce near zero-carbon biofuels including Cellulosic Ethanol, Cellulosic Jet Fuel, Cellulosic Gasoline and Cellulosic Diesel, because their unique process has cracked the code for finding a low-cost, simple and efficient way to convert cellulosic biomass into sugars.

Some of the benefits of CTS 2.0 versus corn include much lower feedstock costs, lower overall planting, hydration, and pesticide control costs, and a conversion process with much greater simplicity and efficiency.

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The company is already working with the USDA (U.S. Department of Agriculture) to optimize the use of king grass as a feedstock to produce cellulosic biofuels.

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One of the steps that the Biden administration has taken, is to increase the amount of ethanol that is blended with gasoline.

Whereas before, the maximum percentage of ethanol that could be contained in a gallon of gasoline was 10%, that has now been increased to 15%.

One area that is getting a lot of attention is SAF's (Sustainable Aviation Fuel).

Here again, policies are being put in place, by the Biden Administration, to advance the development of these new biofuels. Some of the initiatives that are a priority, in reaching a goal of producing three billion gallons of SAF by 2030, while at the same time, reducing aviation emissions by 20% are:

A new Sustainable Aviation Fuel Grand Challenge to inspire the dramatic increase in the production of sustainable aviation fuels to at least 3 billion gallons per year by 2030.

New and ongoing funding opportunities to support sustainable aviation fuel projects and fuel producers totaling up to $4.3 billion.

An increase in R&D activities to demonstrate new technologies that can achieve at least a 30% improvement in aircraft fuel efficiency.

Blue Biofuels has specifically targeted Sustainable Aviation Fuels as one of its priorities and is consider one of the primary markets where the company expects to be selling cellulosic biofuels.

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To this end, Blue Biofuels has partnered with a company called Vertimass to convert their ethanol production into jet fuel.

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We see tremendous potential for Blue Biofuels and its revolutionary CTS 2.0 process. However, this investment opportunity has significant risks.

The most obvious risk is that the company cannot bring its CTS 2.0 technology to a commercial size level to produce the required economies of scale that would create an investable growth story.

The second risk that we see ahead, for this company, is the amount of capital that will be necessary to reach an adequate level of commercialization.

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Overall, each prototype has shown considerable progress towards building a commercial scale reactor. In fact, BIOF management has stated publicly that the prototypes exceeded their expectations.

In fact, the 4th generation prototype's output was 30 times of its 3rd generation predecessor.

The company has built a moat around its IP (Intellectual Property) portfolio with multiple patents on their proprietary CTS 2.0 process. READ MORE

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