Ethanol war brewing

Grain alcohol is seen as the new gasoline. But which recipe is the one for investors to bet on?

SAN FRANCISCO (Business 2.0 Magazine) – Everywhere you look these days, tech and business world luminaries – like Richard Branson, Paul Allen, Steve Case, Vinod Khosla, John Doerr, and Bill Gates – are laying down big bets on ethanol, a substitute for gasoline that’s already finding its way into pumps.

The price of the stuff has shot up 65 percent since May from $2.65 a gallon to $4.50, largely thanks to the oil companies who have started to put small quantities of it in our gas as a clean-air additive (most cars can handle a blend of up to 10 percent ethanol in their tanks).

That means the fuel for our cars is now about 60 cents a gallon more expensive than it would be if it were just gas, according to analysts at JPMorgan. As drivers, ethanol is lightening our wallets; as investors, though, it could well fatten them.

But before you jump on the ethanol bandwagon, consider this: There is an ethanol format war looming that will make the Blu-Ray vs. HD-DVD tussle look like a schoolyard spat. If you’re making an investment for the long term, you have to ask yourself whether the future’s dominant fuel is going to come from corn, sugar, rape seed, or switchgrass – or if it’s going to be synthesized from scratch.

Business 2.0