With the US election a little over a week away, one of the main topics being debated by both candidates is the future of the energy sector across North America and worldwide.
“Drill, baby, drill” is the most memorable catch phrase of the 2008 presidential campaign, and it captured Americans’ desire for cheap, reliable, domestically-produced energy. No slogan in the current campaign has matched it; however, energy has once again taken center stage as an issue linked to concerns about the environment, national security and even the country’s economic revival.
While in the past investors have primarily focused on oil and gas when discussing the future of energy resources, more and more investors are beginning to take notice of the potential attached to companies focused on renewable energy. While these companies might not be topping earnings lists just yet, many are gaining access to increased amounts of capital and are working to develop end products that will appeal to global markets well after fossil fuel reserves are depleted.
Ironically, the company leading the way in seeking out a clean and affordable US energy source is not an American corporation; rather, it is Finland-based Neste Oil (HEL:NES1V), a refining and marketing company focused on low-emission transportation fuels. The company made headlines recently when it announced that it had opened Europe’s first pilot plant aimed at producing microbial oil from waste and residues to be used as feedstock for its NExBTL renewable diesel product. Neste Oil produces clean diesel from renewable raw materials, and sells base oils and lubricants that reduce emissions.
The plant uses ”bioreactors similar to those used in the biotech and brewing industries,” and while commercial-scale production is still at least three years away, it is garnering more investor and media attention. Some believe it has the potential to be a game changer across the global energy market.
The plant, based in Porvoo, Finland will be responsible for converting the sugars contained in waste and residues into microbial oil. Microbial oil can be produced from a wide range of agricultural and industrial wastes including straw, as well as residue from the pulp industry. That is one of the most promising futures for raw materials, according to industry experts. The plant will also be used as a testing ground for gauging whether various agricultural and forest industry residues can be converted into oil with the help of microbes.
From an investor point of view, this type of project provides a potentially lucrative entry point into a market that many feel will long outlive traditional fossil fuels. The company’s NExBTL-diesel concept is turning heads among some of the energy sector’s elite, and if it is able to successfully mass-produce a product of this nature, its “green” approach may have the potential to alter global energy markets.
One indication of this took place in 2011, when Lufthansa Airlines conducted a fuel trial during which Neste Oil’s renewable NExBTL aviation fuel was used in one of the engines of the aircraft operating regularly scheduled service between Hamburg and Frankfurt.
In a market that is increasingly obsessed with environmental sustainability, and in an age where countries are putting billions of dollars into the search for cleaner fuel sources, the NExBTL renewable diesel product is bound to appeal in that as a hydrocarbon it corresponds to the chemical composition of traditional diesel, but outperforms both conventional biodiesel and fossil diesel in overall energy output. It is a sulfur-, oxygen-, nitrogen- and aromatics-free diesel and has been proven to reduce greenhouse gas emissions by 40 to 90 percent over the product’s entire life cycle when compared to fossil diesel.
With North American investors becoming increasingly concerned by the market volatility associated with traditional fossil fuels, the future of projects such as this seems to be a lot more positive than it was a few years ago.
The shift towards green energy development was underlined when an analysis undertaken by The Pew Charitable Trusts found that in 2011 the United States overtook China to lead the world in clean energy investment. Pew’s Who’s Winning the Clean Energy Race? 2011 Edition shows that the United States invested $48.1 billion in clean energy in 2011, 21.4 percent of the overall investment among the G-20 nations. This trend is also clearly not limited to North America as global clean energy investment rose 6.5 percent from 2010 to $263 billion in 2011.
Potential investors are certain to be skeptical when viewing an opportunity as untested as this one; however, the long-term potential of companies focused on cleaner energy production offers diversification within the energy sector, which has seen unprecedented price volatility over the past two years.
There is also, of course, the realization that investment aimed at this sort of concept will not necessarily reap rewards in the short term. The global energy market is finely balanced, and with trillions of dollars already invested in oil and natural gas production, one cannot expect a sudden shift away from tried and true resources. This view was highlighted when Neste Oil’s research and technology vice president, Petri Lehmus, told a Finnish media source, “[t]he volume of renewable oil is sure to increase, but there will be enough fossil oil for some time to come. The most important thing is to get started working on it now.”
Deriving energy from waste is not a new concept; however, for the first time the investment community is beginning to see the result of decades of technological and scientific research. While it is foolish to expect the market to shift its focus overnight, it is just as foolish to expect the investment community to continue to ignore a business model aimed at a sector desperate for innovation and sustainability.
Will the phrase “waste, baby, waste” be the catch phrase of future elections?
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.