Gaga for ethanol

Janet Babin Jun 27, 2006


SCOTT JAGOW: Everybody’s talking about alternative energy these days and some investors have that crazed look in their eyes — you know, kind of like during the dot-com boom. They’re really hot for ethanol producers going public. Janet Babin explains.

JANET BABIN: Ethanol producer VeraSun Energy’s IPO started the trend earlier this month. It’s stock jumped 30 percent in one day.

The positive results have many investors bullish on Aventine Renewable Energy’s IPO. The company’s the fourth-largest ethanol producer in the US.

Barbara Shook is Houston Bureau Chief at the Energy Intelligence Group. She says the fervor over ethanol IPOs is unsustainable.

BARBARA SHOOK: “If you’re investing in one of these IPOs, as soon as the stock goes up a bit, take your money and run, because it’s not going to be a long term investment.”

Shook says most ethanol is made from corn. It can requires a lot of fertilizer, and that’s made from natural gas. So, Shook says, it takes more energy to produce ethanol than the fuel generates when it’s burned. Shook says in the long-run that inefficiency makes it unlikely that ethanol will replace gasoline on a large scale.

I’m Janet Babin for Marketplace.

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