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Gevo, the Panicked Investor, and the Aviation Fuels Opportunity

Submitted by on September 30, 2011 – 7:29 amNo Comment

by Jim Lane (Biofuels Digest)  30 billion gallons of aviation fuels demand, and Gevo’s got a technology to produce it, using retrofitted ethanol plants, and a path to fueling planes at parity with conventional jet fuel prices. Game-changer?

…Why are investors panicking, generally, on the new class of advanced biofuels stocks?  Impossible to say, except to the extent that a general feeling of investor dread has settled over the market, prompting a pull-back from newfangled technologies.

For all classes of investors, and for the community of stakeholders surrounding the company, there is an interesting phenomenon that the Digest has been watching, and that is the opportunities with alcohol-based jet fuels.

If it’s a distant opportunity for Gevo, it’s simply because the company has, essentially, sold out its off take from its first two plants into the lucrative isobutanol market. Taking advantage of the new opportunities in what are called ATJ fuels will take come more capital investment in retrofitting corn ethanol plants.

…The aviation industry has stiff emissions-reducing goals, no commercial-scale solar planes on the horizon, weak balance sheets that can’t afford more expensive fuels, customers who believe in sustainability, and an existing fleet that can run on two types of fuels: fossil fuels, which cost too much and have too many emissions; first-generation aviation biofuels, which are generally made from oil stocks such as algae, jatropha, salicornia or camelina and are not yet available at scale.

…In fact, the Air Force contracted this month with Gevo to supply a quantity of renewable ATJ fuel for testing purposes. The contract, worth a possible total of $600,000, provides that Gevo will supply the USAF with up to 11,000 gallons of ‘alcohol-to-jet’ (ATJ) based jet fuel, which will be used to support engine testing and a feasibility flight demonstration using an A-10 aircraft. The fuel will be shipped to Wright-Patterson Air Force Base, where the Air Force will finish lab testing and begin engine testing. DLA has the option to order up to an additional 4,000 gallons at the end of the contract.

…You see, airlines are not obligated parties under the Renewable Fuel Standard. So, when Gevo produces a transport fuel (and, in the process, generate a RIN credit for every gallon), that RIN can be separated from the wet gallon and sold in the open market (to, say, an obligated transportation fuel blender). READ MORE and MORE (Ethanol Producer Magazine)

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