RENEWED ENERGY: Sugar-Based Fuel Venture May Fly In Alabama

HOUSTON (Dow Jones)--In the fields of lower Alabama, sugar cane may soon become the new cash crop, harvested to fuel the U.S. Air Force.

State leaders and privately held Amyris Biotechnologies envisage a $500 million-$600 million venture that would not only grow sugar cane but also refine it to fill up military jets. Officials hope the first gallon could be sold by 2012 or 2013.

The current economic crisis coupled with the low cost of crude oil has hit alternative fuels companies hard with one of the largest ethanol producers filing for bankruptcy protection last year. Others have postponed construction and temporarily shuttered plants. However, a federal biofuel mandate and public interest in renewable fuels continues to fuel investment in the sector.

To that end, the Amyris project - still in its preliminary stages - is staking its success on the Air Force, whose entire fleet is mandated to have the capability of running on a 50-50 mix of petroleum and alternative fuel. Montgomery, Ala., is home to a large Air Force base. Amyris also aims to supply the Air Force with 30% of its alternative fuel needs nationwide, Chief Executive John Melo said this week.

Most biofuels made in the U.S. are in the form of ethanol distilled from corn, which can be grown over large swaths of the country. Sugar cane can also be used to produce ethanol, but Amyris uses centrifuges to separate the hydrocarbons from water, in much the same way that milk is separated in dairy farms. Amyris plans to find partners to build and operate a refinery that would convert sugar cane to jet fuel. Funding would come from partner firms, which have yet to be chosen.

At least one other company, Verenium Corp. (VRNM), has jumped into the sugar-cane business, which is dominated by firms operating in Brazil. Verenium opened a demonstration plant in Louisiana earlier this year to convert sugar-cane waste to ethanol.

Betting The Sugar-Cane Farm

In October, Alabama Gov. Bob Riley and Melo announced the planting of a sugar-cane nursery on 100 acres of state land. The field, which is being farmed by Auburn University researchers, is an experiment to see whether the right type of sugar cane can be harvested.

"We just think this is going to be a major renewable fuel initiative," said Bill Johnson, the director of Alabama's Department of Economic and Community Affairs. "We're a state rich in natural resources. I also know if it's economically profitable for our farmers to grow and deliver it, then they will deliver it."

Farmers in Alabama switch sugar cane into their crop rotations depending on what garners the most profits at any time.

Brazil To The U.S.

The project evolved out of trade trip Alabama officials, including Gov. Riley, took to Brazil this summer. Amyris is opening a pilot plant in Campinas, Brazil, in April and already operates one in Emeryville, Calif., where the company is based. At first Amyris wasn't interested in Alabama but liked the "entrepreneurial spirit" of Riley, said Melo, a former president of BP PLC's (BP) U.S. fuel division.

Relations between the U.S. and Brazil have been strained at times over the sugar trade, as the U.S. imposes tariffs on both sugar and ethanol imports. However, the project is good for Brazilian sugar producers, said Joel Velasco, the chief representative in North America for Brazil's Sugar Cane Industry Association.

"This jibes perfectly with promoting the various use of the crop," Velasco said. "We're hoping Alabama will break through this whole barrier that cane is only used for sugar."