The Hottest Ethanol Play Just Got Hotter!

Written by Brian Hicks
Posted October 11, 2006

Yesterday afternoon we received news that one of our hottest ethanol plays—Ethanex (EHNX.OB)—just landed one of the biggest deals the entire ethanol market has seen all year.

I do hope you bought shares of Ethanex when I first brought this company to your attention. But if you didn’t, don’t worry. There’s still a small window of opportunity left on this one.

Because right now, both the market and the US government are...

Dispelling the Ethanol Myth

A few weeks ago, Consumer Reports ran an article entitled “The Ethanol Myth.”

In the article, the ethanol/gas blend E85 was slammed for being less efficient than regular gasoline. Consumer Reports tested a flexible-fuel Chevrolet Tahoe and found that the fuel economy dropped 27 percent when running on E85.

According to the report, based on the average retail price of E85 in August ($2.91 per gallon), a 27 percent fuel-economy penalty meant drivers would have paid an average of $3.99 for the energy equivalent of a gallon of gasoline.

While the efficiency issue for E85 is a real one, cost analyses that compare it to gasoline rarely take into consideration the real cost of gas. In other words, what you pay at the pump is not necessarily a true representation of the actual cost.

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Let me explain...

In 2003, the National Defense Council Foundation found the true cost of gasoline was more than $5.20 per gallon.

Figuring in the loss of 828,400 jobs in the US economy; the loss of $159 billion in GNP annually; the loss of $13.4 billion in federal and state revenues annually and nearly $49.1 billion in annual defense outlays to secure the flow of Persian Gulf oil...the total economic penalties range from $297.2 to $304.9 billion annually.

Of course, this study was conducted in 2003—when oil couldn’t break the $40 mark.

Today we’re at $60 a barrel!

Listen: The fact is, when you look at just the military costs that are directly related to our dependence on imported oil from the Persian Gulf, we’re spending tens of billions of dollars for the US Navy to protect shipping lanes and potential chokepoints and to defend oil tankers from pirates.

Though the cost doesn’t get passed to you at the pump, the American taxpayer subsidizes the military protection of oil. So the real cost falls somewhere in the neighborhood of $5 to $6.

Now is the true cost of gasoline being figured into any of these equations that disparage the potential of ethanol? Of course not!

Granted, this still doesn’t address ethanol’s few remaining obstacles.

Yes, the E85 mix is less efficient. But let’s recalculate Consumer Reports' findings using the true cost of gasoline.

With gasoline going for a minimum of $5.20 per gallon, E85 goes from its August average of $2.91 per gallon to 3.69 per gallon. (Remember, 15% of E85 is gasoline.) Add in the $1.08 fuel-economy penalty that Consumer Reports highlighted, and you find that drivers would have paid an average of $4.77 per gallon for E85.

This cost difference, including the fuel-economy penalty, puts E85 ahead of the game by $0.43 per gallon.

Now, while consumers don’t see $5.20 at the pump, investors who understand all the pieces of the oil puzzle know that energy independence is less about flag waving and more about economics.

Washington knows it...and the market continues to expose it.

The only question is—do we look for every possible reason to suppress its growth, or do we kick our American ingenuity into overdrive and foster the development of an industry that can help strengthen our energy infrastructure...provide more American jobs...and lessen our dependence on a resource that’s now being provided by those who seek to destroy us?

The choice is ours.

But while the average Joe may not even be considering these options yet, savvy investors are already starting to buy up shares in all those ethanol stocks that were beaten down over the past six months.

Take a look...

Verasun Energy Corp.

Aventine Renewable Energy Holdings

Pacific Ethanol

Of course, the most impressive ethanol play we’ve seen in the last few weeks is Ethanex (EHNX.OB).

Don’t Sleep on Ethanex!

I already told you about Ethanex a couple of weeks ago. This is the company that developed the fractionation technology that allows for the production of 17% more ethanol without adding an extra dime to feedstock, water or energy costs.

Since I first brought you this company, the stock has steadily moved upward. But yesterday afternoon, something major happened...

Ethanex, this tiny little ethanol company that hardly anyone on Wall Street could see from behind their computer screen fortresses and extra-large lattes six weeks ago, just scored a deal that most ethanol producers would kill for.

Yesterday afternoon, Chevron Energy Solutions (a division of Chevron Corporation) announced that it will conduct preliminary work to prepare a proposal for the development of highly efficient ethanol production plants with Ethanex.

This is huge!

Under the agreement, Chevron Energy Solutions (CES) will perform engineering, geotechnical studies and site and civil design work in order to prepare a detailed proposal for developing and building ethanol plants that use advanced technology to maximize the plants’ efficiency.

The proposal will include details necessary for CES to negotiate contracts to engineer, procure and construct at least three biofuel plants for Ethanex by 2008.

I’m telling you—Ethanex is nothing short of a potential goldmine. And it’s literally only days away from being all over Wall Street’s radar.

Do not sleep on this one!