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A Budding Investment Opportunity

By Michael Shulman

The big news in my personal life is that my twin sons recently got their drivers' licenses, so now I have real incentive to take a look at a budding, investable segment: biofuels and biotech.

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The biofuel/biotech sector isn't ready for prime time, yet, but this is a great time -- what with crude oil and gasoline prices what they are and may become -- to focus on some potential opportunities.

Let's take three views:

The Present

Despite the small bit of relief we've received at the pumps lately, the exorbitant price of gasoline is competing with $2 eggs and $5-per-pound ground chuck (coming to a market near you next year) for consumers' and politicians' attention.

Corn-based ethanol is very likely going to lose out as, sometime next year, government mandates will be lessened or waived and corn subsidies to millionaire (in some cases billionaire) farmers will be reduced or eliminated.

The market has already priced this into its view of corn-based ethanol producers. Many of those producers are currently losing money because the price of corn has spiked and shows no signs of pulling back.

If the farm lobby wins out -- and the worst American domestic subsidy program we currently have stays intact -- then we voters deserve to pay high prices for everything. Does the expression "throw the bums out" resonate?

The Near Term

Escalating gasoline prices (perhaps $5 next year), and disaffection with corn-based ethanol, will turn into rabid enthusiasm for ethanol derived from other forms of biomass. The farm lobby will trade the current absurd subsidy for a more rational one, and then it's quite likely that biomass-based ethanol plants will come online and make some dough.

The Long Term

We could say "who knows" about the long term, but market acceptance of fuel substitutes, including electricity for vehicles, will be driven by the existing infrastructure for servicing cars, trucks and buses. With the current infrastructure for repair, conversion to radically new fuel substitutes can't happen until there's someone to service them.

On the other hand, intra-city buses and trucks can shift to natural gas and cars will increasingly run on ethanol-blended gasoline, with some assistance from electricity. Ultimately, the transition will take a generation, but it has already begun and will accelerate with every penny that gasoline increases.