Tuesday, February 24, 2015

SkyNRG: 'Smokin' up the Skies'

Two privately-held companies, SkyNRG and its Italian partner Sunchem SA, have found a new use for tobacco plants  -  renewable jet fuel.  This is not just any tobacco plant.  It is nicotine-free and its seeds are rich with oil.  The partnerships issued an announcement at the end of December 2014, that the first crop of this special tobacco plant was ready and could be processed into fuel in early 2015.  While there has been widespread opposition to diverting food crops to fuel, it is doubtful anyone will object to tobacco plants ‘smokin’ up the skies.’

Sunchem is a research and development company, focused on sustainable energy crops.  The company has been working with this tobacco plant, which the partnership calls Solaris, for the last few years.  The first eleven hectares (27.2 acres) planted in South Africa in 2013, yielded four tons of oil, eight tons of meal for animal feed and four tons of biomas for biogas per hectare (1.6 tons of oil, 3.2 tons of meal and 1.6 tons of biomas per acre).  The technology behind the ‘energy tobacco’ has been patented in seventy-two countries.

Like most renewable energy companies, SkyNRG is anxious to find an inexpensive, non-food feedstock to turn into biofuel, or at least a plant that is not ordinarily a food source.  The company has been working with aircraft operators around the world to test renewable jet fuel made from various feedstocks and establish reliable supply chain infrastructure.  In June 2014, SkyNRG worked with Statoil Fuel & Retail Aviation division to establish a bio-jet fuel station at Karlstad, Sweden.  SkyNRG claims it is the first operational tank facility supplying sustainable jet fuel to all commercial flights departing from a single airport. 

One of the reasons SkyNRG might be so confident in its renewable jet fuel is its lengthy tests with aviation leaders.  Early in early 2014, SkyNRG worked with KLM Airlines to test bio-jet fuel on flights between the Caribbean and Europe.   KLM had been the first to test bio-jet fuel on a transatlantic flight between JFK Airport in New York and Schiphol Airport in Amsterdam.  Earlier tests had been completed in 2012, with Air Canada on international flights between Toronto and Mexico City and with Qantas on domestic flights from Syndey to Adelaide. 

Boeing(BA:  NYSE) and South African Airways are supporting the Solaris tobacco bio-jet fuel development project.  In January 2015, Boeing announced its interest in powering its aircraft with at least 50% biofuel.  U.S. regulators and international standards bodies will have to approve the specifications before Boeing can take off with its bio-jet fuel.  Nonetheless, based on Boeing’s action the industry direction appears clearly mapped out.

If Boeing is successful in getting its bio-jet fuel plans approved, it will need steady supplies.  Renewable fuel producers like SkyNRG need an equally steady feedstock source.  Thus arises the company’s interest in tobacco.   

The quest for ‘performance’ tobacco plants is not news.  During the 1990s the University of Georgia in the U.S. worked on a genetically modified strain of tobacco for drought resistance and tolerance for brackish water.  After that effort failed, additional work was done at the University of Arizona.  A privately-held company in North Carolina, Vector Tobacco, also worked on a nicotine-free tobacco strain.  All of these efforts were aimed at tobacco for recreational use by humans  -  not as a feedstock for biofuel. 

Over the past ten years the interest tobacco shifted to new uses.  Pakistan is among the largest producers of tobacco in Asia.  Punjab University in Lahore, Pakistan completed early studies on tobacco plants.  Their study, published in the Asian Journal of Chemistry in 2006, determined tobacco seed oil showed great promise for renewable fuel.  Tobacco makes a particularly good energy source because its seeds are rich in oil  -  over 40% of the seed by weight is oil.  Other characteristics, such as drying index and saponification value, acid value, and unsaponifiable matter are also favorable, at least as good as other vegetable oils commonly used for biofuel production.

There is no investment opportunity in SkyNRG or Sunchem for regular investors like you and me, but the two companies are well worth watching.  The aviation industry has embraced renewable energy for both budgetary and public relations benefits.  Eventually I suspect there will be a ‘green’ trade along its supply chain.  In the meantime, BA is looking like a ‘green’ stock than most in the transportation sector.

 

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. SkyNRG and SunChem are included in Crystal Equity Research’s Beach Boys Index.

 

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