Tuesday, January 19, 2010

Syngas to Diesel

At least one of the recipients of the Department of Energy renewable fuels and chemicals grants awarded in December 2009, plans on commercializing a proprietary process based in part on technology licensed from Rentech, Inc. (RTK: NYSE AMEX). Clearfuels Technology, Inc. (private) is getting $23.0 million from the EPA to produce renewable diesel and jet fuel from woody biomass at the company’s facility near Commerce City, Colorado. Clearfuels must come up with another $13.4 million in matching funds.

Rentech has been tapped to provide its Fischer-Tropsch (FT) diesel technology. Rentech already has a demonstration unit at the Commerce City site that is capable of producing 420 gallons of synthetic fuels and chemicals using the FT process. The FT process has been around for a while. It involves a catalyzed chemical reaction in which a mixture of carbon monoxide and hydrogen is converted into liquid hydrocarbons. The catalysts are based on iron and cobalt or nickel and the lesser-known ruthenium can also be used.

The original process was invented by two German researchers Franz Fischer and Hans Tropsch, working at the Kaiser Wilhelm Institute in the 1920s. They were granted U.S. patent protection in 1930. Both Germany and Japan made use of the process to make synthetic fuels during World War II. By the end of the war the two countries were producing as much as 125,000 gallons per day. Until recently only Shell and Sasol have commercialized the FT process to produce a variety of synthetic petroleum products.

With the scientific viability of the FT process well established, Clearfuel plans to make the list of commercial successes. The demonstration facility in Commerce City will leverage the Clearfuel’s High Efficiency Hydrothermal Reformer (HEHTR) technology to convert wood waste to syngas. Rentech’s FT process with then convert that syngas to renewable diesel. Once the demonstration facility is up and running, Clearfuel’s plans to open additional plants near feed stock sources such as sawmills and sugar mills, where wood waste or bagasse are readily available.

As a private company, Clearfuels is out of reach for most investors except qualified investors or venture capital. The alternative play on the FT process is Rentech. Rentech has produced a growing revenue stream, but has yet to reach profitability. We consider RTK shares as speculative and appropriate only for those investors with a high tolerance for risk and long-term investment horizon.

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

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