Tuesday, October 09, 2007

Down the Pipe

While the ethanol producers struggle to overcome a series of hurdles from justifying the use of food for fuel to transport and distribution problems, others are developing more effective ways to use coal. Aside from the greenhouse effects from burning coal, it is a very attractive fuel. After all coal is also biomass - very old and very compressed biomass! It is available in the U.S. in abundant quantities. No one wants to eat it.

The problem with coal is the carbon dioxide generated when it is burned. Coal is also hard to handle and transport, limiting it to centralized use.

GreenPoint Energy believes it has come up solutions for both problems - coal gasification. GreenPoint uses a proprietary catalyst to produce methane, a component of natural gas. Using the catalyst eliminates the very high heat needed in the conventional “thermal cracking” process. Eliminating the high heat and cool down process reduces costs.

The company has branded its natural gas product bluegas and expects to sell it at prices below prevailing natural gas prices near $7 per million BTUs. That is a compelling value proposition.

Although the company has been proving its gasification technology in a test facility in Illinois, ultimately plants will be locating its plants near coal sources. As much as half the carbon dioxide generated in the process is suitable for sequestration at the coal mine.

GreenPoint is also one step ahead of the ethanol producers in that bluegas can be transported through standard natural gas pipelines. This is huge plus to reach the power generation and industrial markets that GreenPoint is targeting.

A recent venture capital round is providing $100 million in financing for construction of commercial plants. The coal sands region in Alberta, Canada is a likely location for the first project. The roster of investors is impressive: Suncor Energy, AES Corp., Kleiner, Perkins, Caufield & Byers, Citibank Alternative Investments, and Dow Chemical among others. Dow, AES, Citibank and Suncor all get board seats.

Those of us with less than million to invest will need to wait for the next round. Those very smart venture capital firms are likely to look for an exit in the near future. A public offering of common stock seems more likely that strategic sale. Indeed, GreenPoint’s scale suggests it could be an acquirer rather than a target.

Greenpoint's venture round also provides some insight into the current thinking of venture investors on what technology has legs in the future.

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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