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Big Oil hedging their bets

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Pop Quiz time: Name the the number 1 oil refiner in the US. Exxon/Mobil? BP/Amoco?

The correct answer is Valero. Surprise! They are also the #3 corn ethanol refiner, and they are investing in second-generation [non-food based] ethanol technology. It isn’t headline news, but a bunch of oil companies are buying into the “Boondoggle” of bio-fuel alternatives.

Some people are critical of this investment, claiming that these companies are only interested in ethanol for the federal tax credits. In fact, Valero says the use of ethanol would continue without the subsidies. Enough oil companies invested in alternative in the past to prove that the idea isn’t new, and isn’t about making nice with politics.

Like the town preacher sneaking out for a rendezvous with the town tramp, the oil companies might publicly condemn bio-fuels, but privately, it makes sense to hedge their bets. North America’s oil sands and oil shale don’t have actual liquid oil in them, militant Islam has enough of our money to tell us they don’t want us around anymore, China and India are growing an appetite for motor fuel, and the idea of rechargeable electrics threatens the whole refueling industry. With all the political, military, environmental, and economic concerns attached to the global petroconomy, bio-fuels begin to look much better to the savvy investor.

Sure, for a brief while, there was a bio-fuel bubble, spawned by enthusiasm and fear the new one-party administration was going to crack down on oil. Since that didn’t happen, though, the market has calmed down. Bio-fuels are back to serious business. Besides, it was never bio-fuels that the oil industry was against, they used them when they needed to. What bothered them was the potential for a lot of competition. When any two farmers could make racing fuel from sorghum or corn, or a diesel substitute from soybeans, it was a business mogul’s nightmare. Now that technology is proving able to make those same fuels in larger quantity, the savvy oil company investor has to consider getting a toehold in that industry.

They’d better hurry.

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