Propane is an interesting fuel that touches a number of industries. Producers like Exxon Mobil Corp. (NYSE: XOM) and Chesapeake Energy Corp. (NYSE: CHK) extract oil and natural gas that provide the liquids necessary to make propane. Midstream companies like Energy Transfer Partners L.P. (NYSE: ETP) own processing facilities to convert the liquids to propane fuel. Then wholesalers and marketers such as Suburban Propane Partners LP (NYSE: SPH), AmeriGas Partners LP (NYSE: APU), and Ferrellgas Partners L.P. (NYSE: FGP) sell it to end-users.

The propane industry has issued a report supporting a propane subsidy of $0.50/gallon through a fuel excise tax credit for propane-powered vehicles for five years through the end of 2016, as well as an extension of other breaks that were included in the ethanol subsidies but weren’t renewed and have now expired.

The report, as all industry reports do, claims magical benefits if the subsidy is approved. Not the least of these benefits is the creation of 30,000-42,000 net new jobs by 2016

directly related to the production, sale, and utilization of propane vehicles, propane refueling facilities, and propane production and distribution, and between 16,000 and 23,000 indirect and induced jobs in other industries created by the increase in demand for services by the industries directly affected, as well as the impact of reduced expenditures on fuel on demand for other products.

Those jobs are going to be created by the sale of an average of $2-$2.9 billion worth of subsidized propane vehicles between 2012 and 2022. To get to 30,000 jobs by 2016, then, might take sales of $2 billion, the low end of the range. That’s a cost of $666,666 per job. To create 42,000 jobs with $20 billion in subsidies would cost more than $475,000 per job.

Whether or not the propane industry can, in fact, generate that many new jobs is certainly arguable. Whether or not the cost is worth it is an exercise left to the reader.

Paul Ausick

Some of the companies we have looked at in this sector are Altair Nanotechnologies (NASDAQ:ALTI), privately held A123 Systems Inc., Active Power Inc. (NASDAQ:ACPW), Beacon Power Corporation (NASDAQ:BCON), Exide Technologies (NASDAQ:XIDE), EnerSys (NYSE:ENS), C&D Technologies Inc. (NYSE:CHP), and Axion Power International, Inc. (OTCBB:AXPW).

Certainly the interest in hybrid electric cars has generated publicity about battery and fuel cell development. The financial stimulus package before Congress includes $2 billion in grants for advanced battery development. For the transportation sector, advanced batteries need to be lighter and last longer. Current lithium-ion technology, though state-of-the-art, is hampered by the rising cost of the raw material and the relatively short life span of Li-ion batteries. Altair Nanotechnologies (NASDAQ:ALTI) and privately-held A123 Systems Inc. are both working on improving Li-ion performance.

By focusing on batteries for transportation applications, the stimulus package ignores a potentially more important use for advanced batteries: storage for electricity generated by wind and solar power plants.

If solar-generated power created during daylight hours could be stored and put on the grid during non-daylight hours, the impact of large solar installations would essentially double. Similarly, if wind-generated power could be stored for use when the wind isn’t blowing its popularity would soar.

Such batteries would need to be very large and able to respond to requests quickly to meet peak generation demand. Much of the development of this type of battery has been in the uninterruptible power supply space. For example, Active Power Inc. (NASDAQ:ACPW) uses a flywheel technology to build systems that provide up to 3600 kVA as a bridge to firing up a stand-alone generator in the event of a power failure. The flywheel technology can be scaled up to 2000 kW of storage, but that’s at least an order of magnitude too small to be useful in wind/solar storage project. Beacon Power Corporation (NASDAQ:BCON) is also a pure-play flywheel company, but its technology is still very much in the development phase.

To reach the scale needed for big wind and solar projects, the old stand-by lead-acid battery probably offers the most potential. The basic technology is more than 100 years old, but it has the advantage of being less expensive and scalable. Companies such as Exide Technologies (NASDAQ:XIDE), EnerSys (NYSE:ENS), C&D Technologies Inc. (NYSE:CHP), and Axion Power International, Inc. (OTCBB:AXPW) are all working on improving lead-acid technology and scalability. Axion has patented lead-carbon technology that significantly decreases the amount of lead needed in a battery and is currently working on a couple of utility-scale demonstration projects.

The $2 billion in the US economic stimulus package is a huge amount by the standards of the battery industry. The interesting thing to watch here will be how the Department of Energy divvies up the money. The battery companies, with a couple of exceptions, are very small with very low share prices. They employ few people, and won’t employ many more even with new federal money.

By virtue of its authority to make grants, the DOE could decide which companies win and which companies lose. That has never proven to be the best way to develop a market. It does, however, have the advantage of making things happen quickly.

Remember the ethanol boom following the government’s requirement for increased ethanol content in gasoline? Fortunes were made off this.  Ethanol promised to be so big that even Bill Gates jumped into the ring very early via an investment in a company no one ever heard of before he got in.  But the winners are not always winners in the end.  Think of where ethanol stocks are now. That kind of market distortion could happen with advanced battery technology as well.

The good news about the sector is that there are very large companies who have their eyes on the arena.  The world’s largest conglomerate has its hands tied right now, but it has shown some interest recently in battery technology.  We all need power.  Whether we all need ethanol is something we don’t care to debate, because we are firmly entrenched in our own thoughts there.

Paul Ausick
February 13, 2009

It’s pretty hard to believe that Valero actually wants to buy these facilities. We’ll know soon, though. Bids for these and other VeraSun properties are due March 13th.

Paul Ausick
February 9, 2009

His first theme is agriculture.  He thinks agriculture is being thrown through the roof because of ethanol.  Cramer thinks that corn goes $16 and wheat goes to $16.  He has been very positive on this one over and over and here were his last picks.  He wants to switch gears and you should go into Potash of Saskatchewan (NYSE: POT) because of severe pricing power.  He loves the high barriers to entry and lack of competition.  We also had a recent IPO get filed in this sector.  He noted that consensus estimates are 107% in 2008, and with a fair earnings multiple that stock could see significantly higher prices.  If you are still unsure about picking individual stocks in this sector, we would note that you can look at the ETF for the agriculture play that is the Market Vectors Global Agribusiness ETF (AMEX: MOO).

Cramer is also talking up some new picks he has for gold and also in higher gas prices. 

Jon C. Ogg
March 3, 2008

• Aventine Renewable (AVR) current year cut from $0.95 EPS to $0.76 EPS; next year cut from $0.55 EPS down to -$0.15 EPS.
• Pacific Ethanol (PEIX) current year cut from $0.16 EPS to $0.05; next year cut from $0.35 EPS to -$0.35.
• Verasun (VSE) current year cut from $0.46 EPS to $0.35; next year cut from $0.70 EPS to $0.15 EPS.

The cut estimates reflects a continued cautious rating on the sector as Goldman Sachs believes a long anticipated oversupply has arrived.  They note that ethanol capacity growth needs to come to a halt and existing capacity needs to run at lower utilization rates.

Goldman Sachs says its earnings projections are now significantly under First Call estimates.  Does that mean even more downgrades on the way from other research firms that have already cut them?  We have had a serious concern for some time about corn-based ethanol in the US.  Other ethanol is profitable elsewhere and without the subsidy this sub-sector of the industry would likely have some viability issues.  This is also a very political topic and the argument could be tossed up that if Iowa primaries weren’t so important that this would be deemed as snake oil.

Articles of interest:

• Yesterday in  "The Business of Global Warming"
• T. Boone Pickens still an oil and alternative energy bull
• Goldman Sachs recently lifted its oil super-spike price to $135 per barrel
• Ethanol Stocks Drowning in their own tanks
• Other ethanol stock downgrades

Jon C. Ogg
September 27, 2007

Pacific Ethanol (NASDAQ:PEIX) is trading down 6% at $9.30, well under the $9.73 close.

US BioEnergy (NASDAQ:USBE) hit $9.09, under the old $9.14 lows but stock is currently just above old low.

Verasun Energy (NYSE:VSE) hit $10.95 today, under the old $11.00 low but stock has recovered almost 2%.  Shares are still down close to 3%.

The issue here is not the relative cost to oil with oil over $80.00 per barrel.  We are not alone in this assessment, obviously with these hitting 52-week lows almost more frequently than they don’t, but there are some serious questions about the validity of ethanol as a business in the manner it is being done today.  Ethanol itself is not bad, but without the government subsidy these companies might not be viable.  In fact, there are some that even argue that ethanol in a "purely on its own" model is not even worth the "pollution savings" because of the energy that has to be used to make it and to transport it.  That is even before the corrosive arguments com into play.

When these how up daily on the 52-week lows it begins to feel like they are being overly picked on.  But 2008 is an election year, and ethanol is arguably somewhat of a political issue.

• Recent downgrades in the sector are adding to this malaise.
• T. Boone Pickens is bullish on oil and on his alternative energy company.
• Recently it was Aventine Renewable Energy Holdings (NYSE:AVR) leading these lower.

Jon C. Ogg
September 24, 2007

Aventine Renewable Energy (NYSE:AVR) was cut to Underperform. Closed at $11.68; 52-week range $10.61 to $26.49.
Pacific Ethanol (NASDAQ:PEIX) was cut to Underperform. Closed at $11.17; 52-week range $10.29 to $19.80.
Verasun Energy (NYSE:VSE) was cut to Mkt Perform. Closed at $12.02; 52-week range $11.00 to $26.90.

This follows another sector downgrade from Soleil just on Monday September 17.  We have maintained that Ethanol in the manner the current system is set up is not all that economical and not as green on a net-net basis as it is intended to be, and this business got more crowded than it might have because of government subsidies.  This is also a political issue and 2008 may be another volatile year for ethanol.

Jon C. Ogg
September 20, 2007

The company is one of the fuel-grade ethanol producers in the U.S., and it shows up on the 52-week lows list as frequently as Pacific Ethanol Inc. (NASDAQ:PEIX).  The key difference is Aventine would fit the bill of many value screens based on its P/E ratio.  Pacific Ethanol would not because its profitability is so much lower.  But Aventine is expected to have a decline in earnings in 2008, so its "value term" may be somewhat voided out.

Soleil also downgraded VeraSun (NYSE:VSE) and US BioEnergy Corp. (NASDAQ:USBE) to "Sell" from "Hold" pre-market, but those shares are actually up on the day along with Pacific Ethanol.

While legislation is expected that may boost prices, ethanol is quite apolitical situation right now and man are on both sides of the argumentif ethanol as an industry in its state in the U.S. right now is profitable without a government subsidy and even if it is environmentally sound or helping in dependence on foreign oil.  With 2008 being an election year and with Iowa out of the way early on, ethanol (and the stocks that live off it) may see even more volatility in 2008.

Jon C. Ogg is a partner in 24/7 Wall St.; he does not own securities in the companies he covers.

According to CNNMoney, American farmers are ready to grow their biggest corn crop ever, an astonishing 12.8 billion bushels. The ethanol industry will need it. CNN figures say "ethanol production is forecast to double by the end of 2008 to more than 13 billion gallons."

Fear of lack of corn has hammered stock prices. VeraSun hit $30 a bit over a year ago. It now trades at about $14. Shares of the company and its peers have recovered slightly. Part of this is due to a the House of Representatives beginning to amending an energy bill expected to call for greater use of alternative fuels. But, that is could comfort if the cost or materials stays high.

VeraSun’s revenue has been fairly flat for the last three reported quarters, at around about $145 million. But cost of revenue has gone up from $88 million in the September 2006 quarter to $135 million in the March 2007 quarter.

That trend may finally move into reverse.

Douglas A. McIntyre