Four bioenergy/natural gas investment themes for 2025

1. 2025 US Farm bill generously rewards ethanol producers, supports R&D and market innovation.  After delay past its usual 5 year passage due to the contentious US election, a 2025 Farm bill is passed with support for biofuels for aviation, support for biofuel reseach for national securiry, and authorization of the bioenergy program for advanced biofuels. The ethanol subsidy tradition continues, providing much needed support to US farmers whose profits have been decimated by low commodity prices and high cost inflation.

2. BioMethanol wins, BioButanol loses, BioEthanol loses.  Companies like Gevo Inc. (GEVO), have staked a significant portion of their business on conversion of ethanol plants to biobutanol.  Butanol’s energy retention properties and non-corrosive nature make it much more attractive as a drop-in fuel than ethanol.  BioButanol is also refined from non-food agricultural feedstocks, and is likewise not tainted by the corn-ethanol and subsidy stigma.  Companies with already heavy investment in ethanol feedstock and distribution will shift in the intermediate-term to biobutanol.  New entrants to the biobutanol production business will have a financial advantage over firms converting existing ethanol plants.

3a. Consolidation of Natural Gas pipeline operators, spurred by persistent low natural gas spot rates, and massive future supply outpacing demand under a Kamala Harris Presidency.

3b. Strategic US acquisition to integrate the LNG global distribution supply chain and capture market share to supply a conflict-laden Europe under a Trump Presidency.

Names we see as consolidation targets or initiators:

NiSource Energy (NI), operating the Columbia Gas Transmission pipeline, serving the Mid-Atlantic, and significant market share in Indiana

Some factors supporting: 3.8 million customers, and facing significant challenges from major players in the Northeast Market.  (Dominion, Chesapeake).  They have invested in building Marcellus shale infrastructure to source Marcellus gas, and may look to expand this network through acquisition activity.  Already there is some speculation about Exelon being interested in NiSource to enhance its own Rust Belt presence.  They’re in a “lead or get swallowed” mode in 2012.

Centerpoint Energy (CNP), operating 20,390 circuit miles of underground distribution lines, serving 6 states.

Some factors supporting: Only two major pipelines, insufficient network to compete against industry giants.  Kinder Morgan has made substantial acquisitions in their geographic service area.

4. Methanol demand increases in 2024, while prices remain constrained.  Expect methanol shipping companies, and producers with integrated shipping operations to benefit (see our upcoming post “How to Ride the Methanol Wave in 2024 to massive Profits and Growth” to learn how to benefit!