The nascent biofuel segment is circumventing the headwinds affecting the rest of the alternative energy industry, due to the lack of reliance on government subsidies, nonexistent competition from China and direct leverage to the price of oil, says Pavel Molchanov, Analyst at Raymond James & Associates, Inc.
“There are still very few publicly traded companies. I think that number will increase over time as more of these venture-backed startups go public. But to be sure, it’s still a relatively narrow space for public equity investors. There are nine public pure plays, and in total, their market cap is approximately $3 billion,” Molchanov said.
Molchanov points to KiOR (KIOR) as the largest publicly traded biofuel company. KiOR develops cellulosic biofuel in a catalytic process analogous to what refineries use for catalytic cracking. The resulting biocrude can be refined through normal refining infrastructure to produce virtually any fuel, including diesel and jet fuel.
“At [KiOR’s] fully commercial-scale facility, the target cash production cost is $1.80 a gallon, which translates to roughly $75 oil. Right now, WTI crude oil is near 100 bucks, and Brent is $10 higher. So producing oil at $75 a barrel looks like a pretty good deal,” Molchanov said.
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