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By Robert Rapier on Feb 14, 2007 with no responses

Xethanol Can’t Deliver on its Promises

The Xethanol saga continues, but is probably nearing an end. I have written a pair of articles about this, after being initially interviewed by Sharesleuth.com for their article:

Moonshine Blindness

I had indicated my deep skepticism to Sharesleuth reporter Chris Carrey about Xethanol’s prospects. We had a long discussion about their claims, and I told Chris that I did not think they were credible. I wrote two follow-up articles:

Xethanol Story

World’s Worst Businessman

I had written:

While I think cellulosic ethanol will eventually be commercialized, I don’t believe it is going to be by a company who just recently jumped into the game with essentially no experience, and then doesn’t invest heavily into R&D.

I also wrote:

My prediction is that XNL will continue to be a very small conventional ethanol producer, and will offer up a litany of excuses and delaying tactics for why their cellulosic ethanol plant is not up and running.

Well, Fortune Small Business has updated the story, and Xethanol is coming along pretty much as expected:

A biofuels startup can’t deliver on its promises

I was interviewed for this story by Justin Martin, one of the authors. We covered a lot of ground in the interview, including the prospects for cellulosic ethanol, U.S. energy policy, the need for more conservation efforts, and Peak Oil. I did get 1 short mention on the second page of the article when I pointed out that the kind of license Xethanol has can bought for a dime a dozen. I also told him that I thought Xethanol would probably eventually go bankrupt.

Some excerpts from the article:

According to scientists, stock analysts, former Xethanol board members, and competitors interviewed for this story, Xethanol exaggerated its experimental ethanol capabilities. The company’s repeated announcements that it was on the verge of producing large amounts of a new kind of fuel called cellulosic ethanol triggered a buying frenzy for its stock.

If you have read some of my essays on the topic, it should come as no great surprise that the capabilities were exaggerated. In fact, most of the claims that I read about cellulosic ethanol are exaggerated, or best case projections with little grounding in reality. However, even ethanol pitch man Vinod Khosla indicated to me during a phone conversation that he thought Xethanol was exaggerating their claims. (Not that Khosla hasn’t been guilty of doing the same).

Moreover, Xethanol is not close to producing ethanol from anything but corn. Established players in the waste-to-ethanol race, such as Spanish giant Abengoa (abengoabioenergy.com), DuPont (Dupont.com) and a Canadian company called Iogen (iogen.ca), each spend tens of millions a year for R&D.By contrast, Xethanol has spent $239,651 over the past two years. The bulk of the company’s R&D spending has gone to buy licenses for experimental processes developed in various university labs.

It was over this section that I was quoted. I had pointed out that in comparison to Iogen, for instance, Xethanol has spent next to nothing on research. When asked about their licenses, I pointed out that those can be had for next to nothing. My position was reiterated by another source:

“To make themselves look like a tech-oriented company, they’re obtaining licenses that anyone can acquire,” says Barry Borak, a Boston-based energy consultant with financial-services clients such as AIM Investments and Loomis Sayles.

The article is a really good read, and should serve as a cautionary tale for those who invest in things they don’t understand. Cellulosic ethanol is not easy to produce. It is expensive and technically complex, claims to the contrary nothwithstanding. No way was a small producer like Xethanol going to be the first to commercialize it after others have spent tens of millions of dollars and many years in the lab without success. This story turned out the only way it could have turned out: Badly for Xethanol investors.