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By Robert Rapier on Feb 25, 2017 with 37 responses

Meltdown At Gevo

I am currently reading the book The Frackers: The Outrageous Inside Story of the New Billionaire Wildcatters. The excess and greed of a few of those profiled is mind-boggling. Of particular note, the late Aubrey McClendon nearly ruined Chesapeake with his excessive spending. But after presiding over a huge decline in Chesapeake shares he got margin calls and his personal shares were sold out from under him. So he turned around and did some self-dealing with Chesapeake that benefited himself enormously financially, at the expense of shareholders.

The greed was excessive, but in his defense he and Chesapeake co-founder Tom Ward (whose self-dealing was also highlighted in the book) did create a multi-billion dollar company from scratch that became one of the leading energy producers in North America. It doesn’t excuse the fact that he did things out of self-interest that weren’t in the best interest of shareholders, but the company itself did provide a lot of energy to consumers.

The same can’t be said of advanced biofuel company Gevo, one of three advanced biofuel companies that went public in 2010-11 with the backing of billionaire venture capitalist Vinod Khosla.

It has been almost exactly 6 years since Gevo’s IPO in February 2011. If you had invested $10,000 in Gevo at the IPO and left it there, today that investment is worth about $2.20. You wouldn’t have enough left to buy a Big Mac. Presiding over the destruction of shareholder value while personally enriching himself was part of McClendon’s story. But Chesapeake did enjoy profitable years under McClendon’s guidance, and its market capitalization was once $25 billion.

Gevo CEO Pat Gruber has presided over a 99.98% destruction of shareholder value. His reward? He receives total compensation of more than $1 million a year, including bonuses worth hundreds of thousands of dollars each year. McClendon’s board was criticized as being very compliant with his demands. I can only imagine that Gevo’s board is also pretty compliant. Otherwise it’s hard to understand why a board would not request Gruber’s resignation given the share performance under his guidance.

So far Gevo has managed to stay in business by screwing over its existing shareholders.

For years, Gevo has burned through cash, and then raised money by simply issuing new shares when cash was dwindling. The pattern was predictable. They would frequently issue some feel good piece of news about the future outlook. On the strength of the positive news (which rarely if ever had any near-term positive impact on cash flow), they would then issue new shares — which would tend to crash the share price. Wash, rinse, repeat all the way down. Existing shareholders were diluted to oblivion.

I predicted in January 2014 that KiOR would be bankrupt by year-end, which did happen. I considered following that up in 2015 with a prediction that Gevo would be bankrupt by year-end, but they weren’t going to throw in the towel as long as they could still raise money by issuing new shares. So, while I thought they would go bankrupt, the timing was uncertain.

But the end may now be near.

On their way to zero, Gevo has done two reverse splits to prop the price of the shares back up, so they would meet the NASDAQ listing requirements. In 2015 they did a 1-for-15 reverse stock split, but shares continued to decline. Last month the company did a 1-for-20 reverse stock split, and again shares continued to decline.

Late last month the company announced that the EPA had approved their isobutanol as an advanced biofuel, which means it is eligible for lucrative tax credits (but low fuel volumes mean the near-term impact is nominal). Then the company announced that a lender had granted them more time to pay back a loan. I joked with a friend earlier this month “It looks like they are setting up for another round of dilution.”

Then Gevo announced that it has entered into a Letter of Intent (LOI) with HCS Holding GmbH to supply isooctane under a five-year off-take agreement. But at the same time the company once more shafted existing shareholders. After the close on February 13th, Gevo announced a new $11.9 million public offering of common stock and warrants. A Valentine’s Day massacre ensued.

Shares that were still above $3 a share in early February (as a result of the recent reverse split) dipped to 92 cents this week. Shares have subsequently recovered back to $1.09, but the company will soon once again be fighting to maintain its NASDAQ listing. The company shed value so quickly in response to the offering that the current market cap of $14.9 million is barely above the value of the offering.

So far I haven’t said a word about the viability of Gevo’s process. As someone who spent years producing isobutanol commercially as a chemical engineer for a major chemical company, I do have some thoughts about their technical and economic viability. But that’s a longer discussion for another day. The share price speaks for itself.

For now, Gevo will likely continue with the tactic that has served them well: rosy press releases and new stock offerings. And that will keep them in business as long as investors continue to purchase the offerings. It’s amazing how long they have managed to execute this strategy, but it validates my decision not to predict bankruptcy in 2015. This “dead man walking” has mastered the art of slowing that walk to a crawl. Maybe Gruber should be commended for managing to keep the company afloat. But existing shareholders are getting shafted in the process.


Link to Original Article: Meltdown At Gevo

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  1. By AChemPhD on March 1, 2017 at 4:03 pm

    It’s kind of version of the sad joke about losing money on every sale but making it up on volume. Gevo can’t make it up on volume.

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  2. By Ike_Kiefer on March 2, 2017 at 6:53 pm

    In Dec of 2013 I advised investors on SeekingAlpha that “if Gevo becomes a household name, it will be alongside Solyndra.” In Jan of 2014 I added that Gevo was “headed to the same destination as KiOR, but with a quarterly burn rate of $13M instead of $30M.” There’s been no reason to change my assessment for the past 3 years. We both know the chemistry of cellulosic ethanol (Gevo’s first ride) and isobutanol (the horse they changed to mid-stream) have horrible EROI if not negative energy balance. And EROI is everything for a fuel whose whole purpose is to be cheap enough to burn in bulk.

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    • By Ben G on March 8, 2017 at 10:40 am

      Ike,

      Are you drawing a distinction between EROI and EROEI?

      Regrettably, some distinguish between the two such that if the short-run numbers “work” (huge capital/operating subsidies very much a part of the calculation) for the purpose of winning the IPO sweepstakes, well, tough luck for the fools (taxpayers included) left holding the bag.

      Your SSQ article, Energy Insecurity, remains among the most rigorous debunkings of the ethanol myths as any out there. One hopes you continue to write on the subject, as the need to expose the capital cronyism between Farm Belt interests and the merchant bankers of NY and SF remains central to pressing much needed reforms into the forefront of public policy. So long as these issues remain peripheral to any national energy debate, they will continue to serve the narrow interests of those well-schooled in the clever arts of nest feathering at tax-payer/shareholder expense.

      Keep up the truth-squad march, as the natives remain restless and that isn’t necessarily a bad thing.

      Ben G

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      • By fleeb on March 9, 2017 at 5:44 am

        The article conflates ethanol with the problems and cost of biofuels development to replace fossil fuels for military (diesel). That is and continues to be extremly expensive, yet so desireable. Ethanol, on an energy return beats gasoline by a huge margin. First you do know that gasoline has a negative return, right? The processing of crude oil is a take away energy process. The inputs including the feed stock is much higher then the output energy. Natural gas is not part of gasoline and not a coproduct. If you add natural gas to the energy equation then ethanol can add wind energy produciton. Energy Department estimates if corn ethanol would fully invest in CHP processing, the energy EROEI as far as the natural gas, electricity, and petro products (it’s a sham to include sun energy) inputs would be push corn ethanol 427:1. Also, one must note that with the current cellulosic processing could only add to the math. Also, what most forget is the most energy intensive part of ethanol is the processing plant. That figure is more than 80% of required energy. Consider the ethanol plant can be run on solar and wind energy. That would radically decrease fossil fuel needs. Also, the modern ethanol plants utilize biogas from their own digestor. By the way, last credible evaluation I’ve read, corn ethanol has worked to decrease taxpayer costs to agriculture and increase farm income with higher price of corn. Also, since ethanol works to moderate price swings of petrol within U.S. borders, the most costly input of food (energy) is moderated as well. Same for increasing farm income works to increase food produciton, since farmers can invest in better equipment and learn better agronommics.

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        • By Ben G on March 9, 2017 at 1:08 pm

          Cheerleading is hardly objective analysis. My own interest in distinguishing between EROI and EROEI simply revolves around an acknowledgement that financial returns to capital are not the same as net energy benefits from energy inputs. As RR has rightfully and consistently emphasized to his readers that financial rewards may accrue (particularly in the short-term) to originating (insider) investors without offering sustainable, net-energy benefits.

          Taking into account the huge subsidies contributed to the development of biofuels (corn-ethanol) via fiscal appropriations and open-ended tax expenditures over the course of the past few decades, the EROI of biofuels is no less dubious than the EROEI results of the industry.

          One of my associates had an exchange with the late Col. William Holmberg (USMC, retired) several months before his passing, last year, a co-founder and longtime board member of ACORE and war-decorated Marine Corps officer, about the ethanol industry. The colonel shared that one of his great disappointments in life was the continued exploitation by the major agribusiness executives of ethanol to the damage of
          family-farmers, sustainable development of rural America and
          wise land-use practices. He saw it a little more than criminal what major agribusiness (grain) middlemen were doing in the name of alleged energy independence in the Farm Belt. One has to respect such candor from someone who long-ago risked his own life in defense of our nation.

          Wow, 427:1, that might make actually me blush, if it wasn’t so incredibly far-fetched!

          Ben G

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          • By fleeb on March 9, 2017 at 4:32 pm

            It is in fact such a return, one that will shock the busisness as usal folks. First, biofuel ethanol is about solar energy. The energy that long ago crude oil evolved from. So, not much different, except ethanol’s solar power is within the here and now. Only a growing season away. The power of ethanol is renewable every growing season and not just a long ago period of earth history. A rare event that probably will never be acheived again, hence the limitation of the energy source.

            Agri-busness is similar to corporate America. The loss of mom and pop busisness to big money and high volume efficiency. It is sad and mostly a result of government cronyism, except agribusiness is within an investment of a a few million as compared to internation oil companys hundreds of billions $$$. International oil companys play with tyrants and demand Naval assets to protect shipping lanes. Crude oil reserves will promote concentration of wealth to the few and a whole bunch of evil doers (GW). Farm profits support the Boy Scouts.

            Besides, what is the fault of a minority energy supply competing with a few billion gallons of gasoline. Do we really demand total comitment to oil with a very dubious legacy? It is a great fuel for ICEs and makes plain gasoline a much better fuel. That is undeniable. Actually, I’m curious why gasoline hasn’t been a big fan of ethanol. I’m guessing the industry can’t as they have so savaged the fuel and commited such sins that to acknowlege the fuel would open the doors to other autrocities such as the historical killing fields of lead altnative or the poison of emissions the fuel emits to human health. If your think otherwise attempt to drink a cup of ethanol and later a cup of gasoline. The fuel doesn’t undergo magic upon combustion that will blossom upon breathing the stuff.

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            • By Ben G on March 9, 2017 at 7:49 pm

              Quite a ramble offered up with a decided bias against fossil fuels (“Crude oil reserves will promote the concentration of wealth to the few and a whole bunch of evil doers (GW),” as if this resource is motive force behind moral failings or commercial malfeasance. The failings here lie much more in a lack of vigilance about enforcing the rule of law or fostering competitive forces of commercial markets than in the inherent deficiencies of traditional fuels. As for your curiosity as to “why gasoline hasn’t been a big fan of ethanol,” I will only cite two quick points here: First, the largest owner by volume of ethanol production in America happens to be the largest independent oil refiner (Valero); and, secondly, the oil industry has shouldered the largest burden of the RFS fuel-blending requirements mandated by the federal government regardless of the air quality metrics established pursuant to implementation of the Clean Air Act Amendments.

              I’m an unabashed “all of the above” advocate for the development of energy resources to achieve greater energy security, but that hardly tempts me into promoting choices
              failing the discipline of sustainable EROI & EROEI requirements

              As much as I welcome the splendid benefits of God-given sunshine, I must confess to its limitations as an on-demand energy source. Until we solve the storage issue for solar and other renewables, our economy (and all those jobs American families reply upon) will continue its reliance on affordable, dependable and energy-efficient fossil fuels.

              Ben G

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            • By fleeb on March 10, 2017 at 5:37 am

              All but nuclear was acheived by solar energy. Nuclear is creation energy. Just like blood diamonds a nation’s crude oil resources can and often was exploited by the few. The curse that that U.S. oil companies have to work within. Terrorist have been financed by crude oil sales.

              The oxgenate requirement of EPA was dropped per the common practice of E10. Ethanol at E10 levels is above what the EPA originally forced refiners to comply with. The U.S. industry is forced to blend ethanol into gasoline per RFA regs. They wouldn’t do it themselves as ethanol is usually a hated additive upon the history of gasoline sales. Refer back to the current and old practice of chosing toxic lead instead. Just yesterday found that turmeric spice from India is pulled from U.S. selves per excessive lead content. Those farmers often still use leaded gasoline. This is the primary source of their lead poisoning of the land. Gasoline refiners have managed to contaminate every square foot of planet earth with lead per their desire to not use ethanol. I can not forgive them for making such a stupid choice when they had ethanal available to them. They put so much R&D into developing a product to displace the need of ethanol. The researcher even died of lead poisoning. The evidence of health harminng lead made no difference to the oil titans as they didn’t want to develop a market of a potent competitor and put more money into the pockets of farmers. This at a time when the Great Depressions savaged the farm economics and put the U.S. into a economic down spiral. India is increasing it’s imports of U.S. ethanol to avoid the lead practice.

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            • By Ben G on March 10, 2017 at 12:42 pm

              How has Fleeb managed to conflate an earlier presence of lead in gasoline supplies with the eventual adoption of federal mandates requiring the blending of alternative fuels (ethanol) by refiners to further compliance with air quality standards in America’s airsheds?

              Have I missed something or is Fleeb simply making it up as he goes? Hmm, sort of reminds me of the new occupant over at 1600 Penn Ave. Policy by anecdote is one way to put it. Not a very good strategy for effective results.

              Ben G

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            • By AChemPhD on March 10, 2017 at 8:45 pm

              Tetraethyl lead is hydrophobic. Ethanol is not.

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            • By Ike_Kiefer on March 13, 2017 at 8:02 pm

              Yes, ethanol is hydrophilic, same as MTBE, which means it right now is causing the same problem with plumes of BTX from gasoline leaching into groundwater as MTBE did. Two differences though. First, ethanol is not bitter so it doesn’t give itself away like MTBE; Second, EPA doesn’t care anymore about groundwater contamination, just about pushing ideology. If it cared about groundwater, it would be as vigilant about groundwater surveillance with ethanol as with MTBE, and it would be lighting up corn ethanol farmers for nitrate runoff instead of promoting 40 million acres of needless intensive cultivation via RFS.

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            • By fleeb on March 14, 2017 at 7:22 am

              Ike, agriculture is and has steadily decreased farm land runoffs. Presently, municipalities storm water runoff is the biggest polluter to rivers. With the prestent advent of satellite technology and computers, nitrogen application has drastically decreased to no more or less than plant needs. Yes, agriculture had to learn to become better keepers of land and desire to do so as they stay put and do not jump to well head to well head. Petrol just abondons problems unless someone with a gun is running the show. Farm technology, science, and biology have really progressed since ethanol and farm profits have increased. I live not to far from a agricultural school and impressed with the youth and interest. Nowadays farm land actually increase within fertility within our modern practices. Gone are the dustbowl days of Great Depression.

              I haven’t read that ethanol is much of a conern within nature. When a rail road car dumps into small river, its just a few minutes to dilute to no harm status. I’ve read nothing on kill rate of ethanol. I’m sure a fish would die within a gallon of ethanol, but as you say the chemical goes to solution quickly and that’s a good thing if not a poison. Micro organisms love ethanol and some like crude oil as well. MTBE as I understand not a chemnical that easily decomposes and attacked by microbes. It’s a poison to most of nature.

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            • By Ike_Kiefer on March 14, 2017 at 10:17 pm

              @Fleeb, you are suffering under several major misapprehensions. Here are two.

              1. MTBE is non-toxic and not classified as an environmental hazard. The benzene, toluene and xylene (BTX) components of gasoline are the toxins of concern (EPA considers them to be carcinogenic, though this is disputed). MTBE is hydrophilic and increases the miscibility of any hydrocarbons it is mixed with in water and soil. So adding MTBE increased the leaching of gasoline into soil and increased its blending into ground water instead of floating harmlessly on the surface of the water table as hydrocarbons would normally do. Guess what? Ethanol has the exact same effect on gasoline of increasing the soil penetration of spill plumes and the water contamination of BTX. EPA knows this, but chooses not to do groundwater surveillance for ethanol like it did for MTBE — for political reasons.

              2. Runoff has not decreased. Reductions due to agrichemical application efficiency have been offset by tens of millions of acres of new cultivation due to biofuels mandates. For decades there has been a perpetual hypoxic dead zone in the Gulf of Mexico the size of Connecticut caused by the fertilizer runoff of the corn belt into the Mississippi River. This zone of dead algae blooms and their deadly mycotoxins is a marine mortuary of dead sea life. If it was caused by an oil spill, environmentalists would be at DEFCON 4. But since it is caused by farmers and biofuels, none of them or the EPA pay any mind. Sometimes the runoff even causes a dead zone in the Great Lakes, such as the mycotoxin poisoining of Toledo’s drinking water supply in 2014 due to Lake Eerie algae blooms fed by phosphate runoff.

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            • By fleeb on March 15, 2017 at 4:48 am

              Interesting that ethanol and MTBE increase leaching in soil of gasoline. That being correct, ethanol still wins with its oxgenate and octane boost as the commodity is not fossil fuel based, overall less toxic, and more biodegradeable. Also, ethanol is more stable in price and comes from an entirely alternative supply chain thus improving or moderating petrol price swings. Both chemicals work to decrease the need of toxic BTX brew, that is a good thing. MBTE not listed as carcinogin, but data suggest so at high levels. The chemical is bitter and even at low concentrations will make water undrinkable. U.S. fuel supply switched to ethanol as the oil industry couldn’t get excemption laws past to exclude the chemical from legal liability of drinking water contamination.
              Also, most consumers like the idea of alternative or competing supply chain of fuel and having ability to switch to lower cost fuel upon emergency or price swings. Consumers really started to hate oil when tankers or off shore well drilling contaminated huge areas. Also, the Bush years when oil Sultans savaged markets with supply manipulation. Nontheleast, consumers became very suspicious of the industry when it became almost routine to be held up upon every industry glitch of production or supply routes. Funny thing. The latest ethanol railroad accident wherein a ethanol tanker spilled into river and the tanker car caught fire. The neighboring downstream city hadn’t noticed. No change in water quality.

              Farmers pay alot for fertilizer and pay for equipment and technology that will minimize the need. Minimum tillage is gaining much favor. Up to date permaculture practices include a buffer zone to eliminate all runoff. Farm runoff has drastically been reduced and will continue the trend. Farmers would be the number one chieftain to eliminate water or fertilizer runoff as the process costs them money. The main problem now is turff grass maintenance and storm water management. Voting public desires to spend much time and money on manicured lawns or golf courses.

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            • By Ben G on March 16, 2017 at 8:22 am

              Fleeb is clearly is one of the Ethanolistas who is intent of volunteering propaganda in lieu of inconvenient facts. Anyone believing that agriculture is not a primary contributor to water pollution must be smoking too much treated corn silk.

              In promulgating rules for implementation of the total maximum daily load (TMDL) regulations at EPA effecting America’s most vulnerable waterways, agricultural lands along the Chesapeake Bay, for example, were cited as the leading contributor of nitrate run-off into this immense watershed. And which crop contributed a major share of this onerous nitrogen loading? Corn production, as principal feedstock for the Eastern Shore’s huge poultry population and, of course, the chicken manure recycled back on to the fields.

              Rightly so or not, debate over MTBE vs ethanol is effectively a dead one. The real debate is about RFS mandates and subsidies. At a minimum, either the mandates or subsidies will undergo adjustment. In resisting both during an era of resurgent oil supplies and relatively stable prices, the corn growers may risk both. That, however, is of little concern to lobbyists shining the seat of their pants in Washington, as their livelihoods may be crimped a bit by such losses, but the well-being of their communities are hardly effected. No, folks who started out ostensibly representing the family farmers and independent production, sold their souls a long time ago as the renewable fuels industry became big business rather than what some of them thought was a nifty idea to boost America’s home-grown transportation fuels.

              Yes, indeed, the road to hell certainly is paved with good intentions!

              Ben G

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            • By AChemPhD on March 10, 2017 at 8:38 pm

              You’re really into ethanol, or is ethanol (a lot) really into you, and the fact that you can drink it has little to do with its inherent enthalpy or net enthalpy after production. Corn ethanol in the U.S. is only made possible by enormous use of ammonia based fertilizers produced from reformed natural gas.

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            • By Ben G on March 11, 2017 at 10:10 am

              “….enormous use of ammonia based fertilizers produced from natural gas and the Haber process.” From a purely analytical standpoint, that appears an inefficient arrangement. Is this activity (ethanol production) largely a byproduct of bad policy, bad economics, a combination of both or neither?

              Ben G

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            • By AChemPhD on March 23, 2017 at 10:25 pm

              Probably both, the jury is still out.

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            • By Ike_Kiefer on March 13, 2017 at 8:08 pm

              Ethanol has had 5,000 years to compete as a fuel. It has lost out to straw, dung, wood, charcoal, coal, olive oil, whale oil, kerosene, natural gas, diesel and gasoline. What a monumental conspiracy.

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            • By fleeb on March 14, 2017 at 7:04 am

              Using that measure, crude oil has been sitting around even longer, within surface pools. Historically, biomass was mankinds most important energy source and one that was calculated as the largest contributor to man’s comfort. Ethanol is gaining popularity as third world fuel of choice for home heating and cooking needs. Non profits have engineered a low cost very small processing equipment that works to create much needed employment, decrease deforestation, lesson workload of housewives, and greatly improve home air quality. They can do this while increasing profits of farm community and decrease expensive petrol imports. It’s truelly a good thing.

              The gasoline vs ethanol history is a study in crony capitalism. The petrol advocates love to crow of open market competition, but the history of gasoline popularity is hardly such. Every step of the way was littered with payoffs of politicians and profits to wealthy few. You see the tenets of busisness has always been to invest within a protected harbor. Open market compeition is a bloody fist fight that takes wealth. No, ethanol is to readily available to, to many and upon to many sources. Large international corporations would have to invest and invent some sort of expensive process, hopefully within trade secret protections. Meanwhile crude oil takes big pockets, heavy equipment, and international clout to both pay off tyrants and politicians. Since the entire industry is just a harvesting process profits are high.

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            • By Ike_Kiefer on March 16, 2017 at 6:18 pm

              @Fleeb is not interested in having an accurate worldview, but in pushing a false one. For the sake of others who might be deceived, I will reply to the inane post above.

              Neither gasoline nor ethanol have ever been lying around on the surface of the Earth. Rather we have had millennia of access to starch and sugar crops, and to asphaltic bitumen in pools or sand formations. It takes some technology to transform either of these feedstocks into liquid fuels. Humans figured out ethanol from sugar and starches 5,000 years ago. Drunkeness is as old as recorded human history. Humans historically used bitumen mostly for mortar, waterproofing, and as a balm for sore limbs.

              Distillation technology is also ancient, but was not used to make bulk quantities of anything intended to be a fuel because the end product had less energy than the fuel required to boil it off. Distilled ethanol has always had a marginal to negative energy balance just distilling it to 95% water-free. And it takes even more energy and technology to dehydrate the last 5% of the water out of it to make it fuel grade.

              On the other hand, bitumen and crude oil are both suitable fuels to burn in their raw form for distillation energy, and they are also excellent feedstock from which to distill pure, anhydrous hydrocarbons such as naphtha and kerosene and gasoline. The Greeks are believed to have made naphtha as part of the formulation of “Greek Fire.” But bitumen feedstock on the surface was not plentiful enough for more than incidental uses. Once humans figured out they could drill and produce massive quantities of crude oil with even better fuel and feedstock properties than bitumen, they quickly scaled up their stills into cracking towers and produced a glut of refined petroleum fuels that were so high in energy-density and EROI and low in price, that they created their own demand by displacing lesser fuels in the marketplace.

              The Wright Brothers not only designed a novel wing and airframe for their Flyer, they also designed from scratch their own gasoline engine to power it. As engineers, they picked this new fuel option over readily available ethanol, or methanol, or vegetable oil, or coal kerosene, or batteries. They picked gasoline because of it’s high energy density, knowing it would enable them to make a lighter and more powerful engine, which was critical to heavier-than-air flight.

              No sane person would go through all the trouble of distilling alcohol only to burn it, when they could have burned the dry grain and gotten more heat energy for a lot less effort. Ancient farmers and modern scientists worth their salt both have a practical understanding of EROI, and both know ethanol is an inferior fuel choice.

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            • By Ike_Kiefer on March 17, 2017 at 9:55 am

              @Fleeb is not interested in having an accurate worldview, but in pushing a false one. For the sake of others who might be deceived, I will reply to the inane post above.

              Neither gasoline nor ethanol have ever been lying around on the surface of the Earth. Rather humans throughout history have had access to starch and sugar crops, and to asphaltic bitumen in pools or sand formations. It takes some technology to transform either of these feedstocks into liquid fuels.

              Humans figured out ethanol from sugar and starches 5,000 years ago. Drunkeness is as old as recorded human history. Humans historically used bitumen mostly for mortar, waterproofing, and as a balm for sore limbs. The ancient ziggurats in Mesopotamia dating from 3500 BC were made from clay bricks mortared with bitumen.

              Distillation technology is also ancient, but was not used to make bulk quantities of anything intended to be a fuel because the end product had less energy than the fuel required to boil it off. Distilled ethanol has always had a marginal to negative energy balance just distilling it to 95% water-free. And it takes even more energy and technology to dehydrate the last 5% of the water out of it to make it fuel grade. On the other hand, bitumen and crude oil are both suitable fuels to burn in their raw form for distillation energy, and they are also excellent feedstock from which to distill pure, anhydrous hydrocarbons such as naphtha and kerosene and gasoline. The ancient Greeks are believed to have made naphtha as part of the formulation of “Greek Fire.” But bitumen feedstock on the surface was not plentiful enough for more than incidental uses. Once humans figured out they could drill below the surface and produce massive quantities of crude oil with even better fuel and feedstock properties than bitumen, they quickly scaled up their stills into cracking towers and produced a glut of refined petroleum fuels that were so high in energy-density and EROI and low in price, that they created their own demand by displacing lesser fuels in the marketplace.

              The Wright Brothers not only designed a novel wing and airframe for their Flyer, they also designed from scratch their own gasoline engine to power it. As engineers, they picked this new fuel option over readily available ethanol, or methanol, or vegetable oil, or coal kerosene, or batteries. They picked gasoline because of its high energy density, knowing it would enable them to make a lighter and more powerful engine, which was critical to heavier-than-air flight.

              No sane person would go through all the trouble of distilling alcohol only to burn it, when they could have burned the dry grain and gotten more heat energy for a lot less effort. Ancient farmers and modern scientists worth their salt both have a practical understanding of EROI, and both know ethanol is an inferior fuel choice.

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            • By fleeb on March 17, 2017 at 11:01 am

              I didn’t read much of the Wright Bros evaluating ethanol or gasoline. They needed more hp from typical engines of the day. It was a very crude heavy engine, but just met their minimal needs. No one before was worried of excess weight. Efficiency wasn’t a need just raw power and lower weight.

              The refinery’s primary tool to improve quality and seperate products is the distillation process. Are they fools too? Besides, the heat required for ethanol distillation is low quality heat that is cheap, even a waste product for most power plants. That being said modern ethanol process plants are tooling up for power production as the machinery fits very well within increasing plants efficiencies. The CHP process provides abundance of low quality heat and powers distillation, basically, for free. Don’t forget the opportunties upon by a continious processing like ethanol that recouping every ounce of heat for a cooler process need. Funny, I read of a Scandinavian company (I think?) that was awarded a patent for their alcohol refining process. Basically, they utilized water and gasoline to phase change the low alcohol “beer” to E85 in one step with no heat of distillation required.

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            • By Ike_Kiefer on March 17, 2017 at 1:05 pm

              Pretty sure RR will have something to say about alcohol dewatering.

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            • By Alex Johnson on March 16, 2017 at 4:57 pm

              Well thats one way to look at it. Heck, if you want to get technical alcohols have been detected in galaxies millions of light-years away which means that they’ve been here since shortly after the big bang so technically ethanol has had BILLIONS of years to become the fuel of choice. It must be really bad!

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        • By Ike_Kiefer on March 10, 2017 at 8:15 am

          “Ethanol, on an energy return beats gasoline by a huge margin. First you do know that gasoline has a negative return, right? The processing of crude oil is a take away energy process. The inputs including the feed stock is much higher then the output energy.”

          These statements reveal a misunderstanding of energy lifecycles. Every step in every process that converts any feedstock to a finished fuel consumes useful energy. True, refining crude oil into gasoline is a negative energy balance process, but so are ethanol fermentation and distillation and dehydration processes. But the EROI of gasoline as finished fuel is more than 10:1 in comparison to all the energy inputs required to extract and transform crude oil. The embodied energy of the feedstock is so high, that most of it survives all the losses.

          Not so for corn ethanol with an EROI of less than 2:1. The EROI of cellulosic ethanol is much less than 1:1 because the processing is much more energy-intensive. The EROI for algae biodiesel is way upside-down at less than 1:7 because the energy to circulate the pond or bioreactor water and the energy required to individually burst each of the microscopic algae cells and extract their diffuse 15% lipid fraction dwarves the energy in the faint sheen of oil you can harvest off the water each day. If you add on the advanced chemistry required to upgrade ethanol or biodiesel into true hydrocarbon blends that are gasoline and diesel equivalent “drop-in” fuels, the energy hole gets many, many times deeper.

          Economics follows EROI and EROI follows chemistry and thermodynamics. Biofuels is the attempt to transform carbohydrates to hydrocarbons, and this is very hard to do unless you are 100 km underground at temperatures of 1500 deg C. For crude oil, the Earth has already provided the energy for this transformation.

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          • By Forrest on March 12, 2017 at 7:36 am

            I read that EROI calculations have many variants and controversy on what to include. Taking the calculations from the well head seems grossly unfair considering crude oil expends much energy on test boring, drilling, exploration and finishing the well. A farmer can see the field from his window and walk to it. Transportation should always be included for a fair comparison and will suggest as ethanol is a relatively young industry the best practices of ethanol should be the measure. Petrol has hundreds of years to put their pipelines in position and build super tankers. It is very impressive, however, to chart local farm corn to local process plant and the 100 mile radius of E85 delivery. Compare that with Venezuelea shipping their heavy crude half way around the world then back.
            The latest energy return on ethanol is 3x. Petrol advocates like to use the oldest data. EPA has very old data. Citizens probably care most of the societal cost of energy return as that is the bottom line. This would include stability of energy price. This is why the nations was put to work with renewable fuel as citizens got tired of being held up at the gas pump with every petrol hiccup. Also, the cost of military, health, and clean environment are very important.
            Since more than 80% of ethanol energy is used at processing plant the industry has high opportunity to become very efficient. Utilizing CHP, digesters, solar, wind, liquid to liquid heat transfer, and a wide array of very attractive developing technology. The trend line for ethanol gain on efficiency is steep while petrol is headed south.

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        • By Ike_Kiefer on March 10, 2017 at 8:29 am
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      • By Ike_Kiefer on March 9, 2017 at 9:28 am

        @Ben G,
        Thank you for the compliment and the question. I use the acronym EROI out of personal preference because my mentor on the subject, the person who essentially invented the concept, Dr. Charles Hall, uses it. When properly used, both are the exact same thing. There are many other computation such as external energy ratio (EER), fossil fuel ratio (FFR), edible energy efficiency (EEE), that are indeed different computations. And many people fudge the math on EROI (e.g., the Brazilians computing sugarcane ethanol).

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        • By Ben G on March 9, 2017 at 12:30 pm

          You’re quite welcome and, more importantly, thanks for your honorable naval service in support of our national security
          Dr. Hall (SUNY-ESF emeritus) is a very thoughtful man whose scholarship I’m familiar with via an old friend on faculty at neighboring Syracuse University. I understand he’s now fishing the wilds of Montana and, hopefully, continuing EROI research/writing in support of much needed public debate.

          Likewise, I hope you will consider publishing on the subject, as
          energy independence may be experiencing less urgency in light of current market conditions, a longer-term prognosis remains unclear and vulnerable to external supply shocks representing economic and security risks to America. We must resist today’s comfort choosing instead the wiser course of preparing for tomorrow’s certain challenges.

          So-called “analysis,” such as that advanced by Fleeb, below, is part and parcel of the shibboleths that have too long fueled ethanol log-rolling in Washington through disingenuous manipulation of pro-agrarian sentiments and Farm Belt political calculation. Fortunately, the decline in fossil fuel costs introduces a new phase of scrutiny about the net-benefits (financial, energy output and employment) resulting from onerous fiscal expenditures and regulatory burdens.

          Let’s keep up the march!

          Ben G

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  3. By Forrest Butter on March 3, 2017 at 4:52 am

    SeekingAlpha has a post “Snap IPOs” that explains the financial investment hype. A small core group of technological savvy insiders can hype up the purchase price and future value. The Press is a willing accomplice. An IPO has insiders and moppets

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  4. By fleeb on March 3, 2017 at 7:16 am

    One of the more competent well managed alternative fuel companies, with actual hands on experience of solving industry problems and making money, is doing so for their private investors. ICM. Why would they go public? They are currently building a state of the art processing plant as the time is right with cost, capabilities, and available equipment.

    Yes, the ethanol industry appears to have accepted Roberts strategy of processing in house available cellulosic feed stock and to distribute more of the fuel locally. However, the often read claim that corn feedstock was a horrible choice as compared to sugar cane as the cane had on site available cellulosic feedstock and the sugar juice was a simpler process, was a bit off. Such evaluations read with common sense wisdom, but have little value since the industry has so many varialbes, complexities, and possible solutions. The variables are dynamic and set upon competing technology that work to provide solutions and opportunities to move ahead. For example what to make of all the common sense hype of the limits of crude oil and unlimited solar and wind? The same for boundless nuclear or the end of coal. Inexpensive hydro or dangerous nuclear. Same for expensive cellulosic. It does come down to hard work of so many that solve the problems.

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    • By TimC on March 3, 2017 at 3:41 pm

      ICM Element projected cost will be $175 million, for only 5 million annual gallons of capacity. $35 per annual gallon is some pretty steep CAPEX, even by cellulosic biofuels standards. Also, corn fiber will never be a significant biofuel feedstock, because there just isn’t enough of it. But you’re right about ICM’s expertise. Unlike other renewable energy developers, if they say Element will cost $175M, it will probably cost that, give or take 10%.

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      • By TimC on March 3, 2017 at 3:55 pm

        My mistake: $175 million will be the total project cost for the plant, which will have capacity of 70 million gallons per year, 5 million gallons of which will be cellulosic. That makes more sense.

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  5. By TimC on March 3, 2017 at 3:33 pm

    It does seem crazy that the NASDAQ allows companies to remain listed after repeated large reverse splits. On a split-adjusted basis, GEVO’s post-IPO share price from 2011 was over $6,000. Ridiculous. So why didn’t I short them back then? For one simple, fundamental reason: Because I’m an IDIOT!

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  6. By ADW on March 8, 2017 at 4:46 pm

    Give Chesapeake Energy a thumbs up, the OKC campus looks like a mini-Duke University, don’t see that every day in a corporate campus.

    If you find “The Frackers” a good read on money and greed, then be sure to check out “The Big Rich: The Rise and Fall of the Greatest Texas Oil Fortunes”. This has some epic tales of ‘poverty to wealth to poverty’.

    I wonder how much Exxon and other Super Majors have burned on various ideas for alternative fuels that have lead to nothing.

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