Few topics seem to garner as much interest these days as the idea of moving past the gasoline-based transportation economy and onto something better. Several candidates for "better" have risen and fallen in recent years - fuel cells and ethanol seem to be yesterday's news - and advanced batteries are the belle of the "better" ball right now.

IN PICTURES: 20 Tools For Building Up Your Portfolio

Investors should keep an eye out for biobutanol. While there are several significant challenges to surmount before biobutanol could be commonplace, this is an alternative fuel that may actually give us a real alternative when it comes to fueling our cars. That, in turn, could deliver real rewards for companies like DuPont (NYSE:DD), BP (NYSE:BP) and Total (NYSE:TOT) down the line.

What Is It?
Like ethanol, butanol is an alcohol, but where ethanol has two carbon atoms per molecule, butanol has four. In practice, butanol is more similar to gasoline than ethanol, and some people have managed to use butanol in a gasoline engine without modification. It also happens to be more energy-dense, more tolerant of water, and less corrosive than ethanol.

What makes butanol interesting is that is possible to produce biobutanol; that is, butanol derived from biological (not petroleum) sources. The same feedstocks that make ethanol (sugarcane, sugar beets, corn, other grains, etc.) can make biobutanol and the process is technically similar. Like ethanol, there is also talk of harnessing algae to produce biobutanol. (For more, see Clean Or Green Technology Investing.)

If It's So Great, Where Is It?
As promising as biobutanol is as a fuel, there are a few problems. Using it as anything more than a 10% blend-in to gasoline will likely require cars built with the intention of burning butanol as fuel. That is not such a big deal, really - Ford (NYSE:F), Honda (NYSE:HMC), Toyota, General Motors and many other automakers already sell flex-fuel cars in Brazil that can run on 100% ethanol, and it would not be a difficult conversion to biobutanol.

The bigger problem for now is the actual production of the biobutanol. Biobutanol is pretty nasty to the organisms used in fermentation, so it is difficult to get a high concentration from a batch. Beyond that, the distillation and separation of the alcohol can be tricky, and it has high energy and water demands. In other words, biobutanol is just not that easy to make in commercially viable quantities with today's technology.

Big Players Showing Interest
The good news, though, is that the challenges facing biobutanol do not seem insurmountable. Relatively modest improvements in yeast cultures and the separation/distillation process could lead to pretty significant gains in yield and commercial viability.

DuPont and BP have already teamed up to tackle some of these difficulties. Given the relative areas of expertise for each company (DuPont has ample experience in genetically-modified organisms and fermentation biology, BP is a major refiner), it seems like a natural match. French energy company Total is also in the game, with an investment in Gevo. Other private companies like Cobalt Technologies, Butalco, and ButylFuel are also developing their own systems and technologies to deliver biobutanol in economically useful quantities. (For more, see Peak Oil: What To Do When The Wells Run Dry.)

The Bottom Line
Unfortunately, investors looking to play this idea as the next big thing will find their menu of choices to be rather limited. Certainly there are large companies with serious interest in this field - in addition to the names mentioned, there are companies like Cosan (NYSE:CZZ) and Archer-Daniels-Midland (NYSE:ADM) with interests in this field.

On the other end of the spectrum are several names that are basic bulletin board stocks and suitable only for highly risk-tolerant investors. But even if investors cannot find an ideal pure-play, it is a good idea to keep an eye on biobutanol as leadership in this field could ultimately move the needle for even these large companies. (For related reading, see Five Companies Leading The Green Charge.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    The Biggest Oil Producers in Asia

    Learn which Asian countries deliver the most crude oil to market, and discover what companies are the biggest producers in each country.
  2. Stock Analysis

    The 5 Biggest Russian Oil Companies

    Discover the top Russian oil companies by production volume and find out more about their domestic and international business operations.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Stock Analysis

    3 Solar Stocks to Add to Your Portfolio

    Understand the growth and challenges of the renewable energy market and its success in 2015. Learn about the top three energy stocks to add to a portfolio.
  6. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  7. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  8. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  9. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  10. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!