Des Moines Register
01-11-07
Hansen: Is biofuels bandwagon safe to ride?
By MARC HANSEN
REGISTER COLUMNIST
The friendly stranger on the phone wanted to talk about biodiesel fuel and other
alternative-energy "opportunities."
I rarely talk about alternative-energy opportunities with loved ones, much less
friendly strangers. Everybody knows those opportunities are out there, though.
Biodiesel is all the rage, especially in the heartland. The next big thing.
In case you haven't heard, biodiesel fuel is made from soybeans, chicken fat or
other organic compounds. You don't drink it, though. You pump it into your car.
Mixed with petroleum diesel, it's easier on the environment. It makes us less
dependent on foreign oil. It might even keep us out of places like Iraq.
Biodiesel production plants are sprouting like, well, biodiesel production plants.
They're either popping up or showing up on the drawing board in places like
Huxley, Newton, Marcus, Storm Lake, Manilla, Washington.
Which is one reason Bill Northey, Iowa's new agriculture secretary, calls this
state "the epicenter of renewable energy in the world."
But biodiesel mania goes beyond the epicenter. Wisconsin has four plants, with
six others in the planning stage. Illinois is looking at 16 plants over the next three
years.
Willie Nelson, of all people, has a biodiesel company in Texas, of all places.
"Put a B20 biodiesel blend in your tank," Willie's Web site says, "and hit the road
again with a clean-burning, renewable fuel grown right here in America."
The Renewable Fuels and Energy Independence Promotion Act of 2007 would
permanently extend tax breaks for ethanol and biodiesel production. If the bill
passes, the National Biodiesel Board says, look out. Go long soybeans, baby.
It's an exciting time. Who can't get excited about expanding alternative energy
sources? Besides oil company executives, that is.
But here's the question: How can average citizens with a few bucks to spare
board the biofuels bandwagon? Should they even try?
The other day, an interesting invitation appeared in my mailbox. It was from the
president of a new company that wants to "build a 60 million-gallon- per-year
biodiesel plant, 80 million-gallon-per-year refinery, and retail biofuels station"
near Storm Lake.
The board of directors was eager to "introduce the project" to me in an "investor
information" meeting, which would also serve as "an equity drive."
The plan was to produce fuel from mostly soybean oil and sell the product with
ethanol products.
What sets this venture apart from other projects, the letter said, is the retail
station. Drive up. Fill up with home-grown fuel. Make the world a better place.
It was a tempting proposition. Eighty million gallons. Impressive.
I thought about calling (712) 213-8381 for a prospectus but decided to do what
full-fledged amateur investors usually do: Wait until the easy money has been
made, and then jump in - at the peak of the market, when the smart money is
taking profits.
But first I sought professional advice. Was the friendly stranger making any
sense?
John Miranowski, a professor of agricultural economics at Iowa State, said
people should always proceed with caution in making any kind of investment. So
proceed with caution here.
"As long as the company is using good technology, as long as the price of crude
oil stays in the $60-a-barrel range and as long as the biofuel incentives are in
place, this kind of investment should pay off. But if those factors start changing,
you could see some definite losses," he said.
A financial adviser in town said it didn't sound like the most liquid investment.
David Swenson, an Iowa State economist, seemed to sense a creeping dotcomish, gold-rush mentality settling in.
"The level of enthusiasm does not necessarily equate to the potential for
profitability," he said. "People who got in early with ethanol made extraordinary
profits. With biodiesel, the size and profitability has yet to be determined.
"Anytime you see this much enthusiasm, as an analyst or an investor, you're
obliged to step back and say, 'How much is market-driven and how much is
driven by cheerleading?'
"How much is flat-out hooey, I don't know. ... Hooey is an economics term."
I knew that.
Columnist Marc Hansen can be reached at (515) 284-8534 or
mahansen@dmreg.com