Tuesday, April 03, 2007

Ethanol Shut Out

Residents in the community of Kosciusko County, Indiana signed petitions urging their elected officials to disapprove the plans of VeraSun Energy (VSE: NYSE) to building a new ethanol plant in their midst. VeraSun got the hint and put its plans back on the shelf.

Kosciusko is near South Bend, Indiana and touts its many lakes filled with pristine waters. This makes the good citizens of Kosciusko are sensitive to environmental issues so it is something of a conundrum how this community opposed to an alternative energy production.

VeraSun’s plant near Aurora, South Dakota did appear a bit ominous when I passed by on my Midwest due diligence trip. As is typical of South Dakota in late winter/early spring, a chill wind was whipping across the prairie and scattered clouds cast everything in shades of gray. There was some traffic from tractor-trailers despite the marquee notice that VeraSun was not buying corn.

Yet an ethanol plant is essentially a very big still. In that respect it is much more benign than an oil refinery or petrochemical plant. Industry-wide statistics on pollutants from ethanol plants are not readily available, but suffice it to say ethanol producers cannot claim a zero carbon footprint. Most still burn natural gas to fire up the distillation process.

This will not be the last word on ethanol producers and pollution. As this year’s corn planting season plays out, we expect to hear much more about water usage for irrigation and fertilizer waste.

VeraSun already had a bit of egg on its corporate face from the resignation of its president, Bruce Jamerson. See the March 20, 2007 post “
Ethanol Czars Run for the Exits.” Jamerson has joined Mascoma Corporation, one of the newest additions to our list of private ethanol producers. Mascoma is a private operation based in Cambridge, Massachusetts and focused on cellulosic ethanol production.

Mascoma’s corporate web-site says cellulosic ethanol is produced “…far more cost-effectively than corn-derived ethanol.” Holders of VeraSun’s shares must be smarting to learn this after the bullish talk of Jamerson and his compatriots at VeraSun during the IPO road show tour.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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