UBS Sees Potential For Bio-Butanol, But Ethanol Makes More Financial Sense For Now

Butanol offers better mileage and has greater tolerance to moisture. Biofuels only account for about 2% of global  transportation fuels.

Following Wednesday's announcement of DuPont's partnership with BP pursuing the production of bio-based butanol, UBS Securities says that while the performance of butanol is better in many respects versus ethanol, the economics don't yet add up.

Analyst Jeffrey Cianci said in a research report that butanol offers 30% greater volumetric energy density (more miles per gallon), a better tolerance to moisture, which is a major weakness of ethanol, and cleaner emissions, all of which makes for better engine performance.

However, Cianci said that under the current process, the economics continue to favor ethanol.

"Generation II bio-butanol production aims to increase the microbial organisms ability to thrive in higher concentrations," he said. "If successful, this would enhance product yields and boost returns."

On Wednesday, DuPont and BP announced the creation of a partnership to develop, produce and market a next generation of biofuels to help meet increasing global demand for renewable transportation fuels.

DuPont and BP have been working together since 2003 to develop advanced biofuels with properties that can help overcome the limitations of existing biofuels. That work has now progressed to the point where they are able to bring the first product to market. The companies' joint strategy is to deliver advanced biofuels that will provide improved options for expanding energy supplies and accelerate the move to renewable transportation fuels, which lower overall greenhouse gas emissions.

Current projections show that biofuels, which today account for less than 2% of global transportation fuels,
become a significant part of the transport fuel mix in the future - possibly up to 30% in key markets.

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