Pacific Ethanol (NASDAQ: PEIX) $56M (MarketCap) an Overview of the Future of Energy Consumption

Pacific Ethanol (NASDAQ: PEIX) $56M (MarketCap) an Overview of the Future of Energy Consumption

Pacific Ethanolcould be emerging from bankruptcy in June 2010, contingent on a plan that has been approved by the board of directors and to be filed with the SEC on form 8-K, that will establish working capital and a stronger balance sheet. The news today sent the shares of Pacific up as high as $.12 per share or 15% on strong volume. The company produces and sells ethanol and its co-products, including wet distillers' grain and provides transportation, storage and delivery of ethanol through third-party service providers in the Western United States. Pacific Ethanol is a holding company that owns Pacific Ethanol Holding Co., a wholly-owned subsidiary that also provides transportation, storage, and delivery of ethanol through third-party service providers.

Ethanol has been gaining popularity its early development before 2002 in the Mid West as a biofuel and fuel additive and recognized for its low-carbon emission qualities. Production of ethanol in the US is largely based on corn, but not the corn we eat livestock feed corn. The company is not as susceptible to the price swings in the commodity because of that, but was crushed in the high-leveraged commodities and oil boom and bust of 2007-2009. Demand for biofuel exploded between 2003 and 2007 as cheap credit and low barrier to entry created sprawling competition in the face of skyrocketing crude oil prices. When the oil market popped and fizzled, so too did the ethanol sector and demand among buyers, as more than 25% of the industry idled and more than 10 companies suffered complete bankruptcy. The limited new equity and access to capital particularly crushed Pacific, but now we'reentering the new age of biofuels.

The industry has been maturing in the wake of the boom as bust of the first decade of the new millennium. Despite the entire sector getting off on the wrong foot to say the least, long-term demand and industry growth seems to be inevitable. The demand for boifuels and alternative energy has almost always grown faster than supply, and the federal and governmental research and development interest are becoming more and more focused on independence from foreign oil. Perhaps even domestic oil; last month's oil spill by BP has sent shivers down investor's, economists, and lawmaker's spines, and most people seem now more than ever willing to uncover and commercialize alternatives to ensure the prosperity of American energy consumption and environmental protection.

Pacific Ethanol Holding filed for Chapter 11 bankruptcy protection on May 17th, 2009, while the other subsidiaries, Kinergy Marketing and Pacific Ag Products who sell the ethanol, was not forced to file. The plants are still operational and the company has been continuing targeted project development. The plan announced today has called for the option for Pacific Ethanol to purchase a 25% equity interest in production facility subsidiaries and the elimination of approximately $290M in liabilities. This could be just the restructuring Pacific needed to get back on its feet and at full capacity.

Currently, 23 states mostly in the middle to northeast territories of the US demonstrate a 75-100% penetration of ethanol mixed gasoline products, and all US states have at least 10% market penetration. California was the first state in the nation to regulate C02, the beginning of lawmakers giving ethanol and biofuel the credit the company believes it deserves. Pacific owns four operational plants and a 42% equity interest in a fifth, all located in the northwest territory of the US. Oil's demand has been slowing losing momentum since its peak in 1984 and the popularity of low carbon fuels began to be considered as being the next millenniums source of consumption. This restructuring of Pacific Ethanol coupled with a regulated and increasing demand in biofuels and ethanol as environmental protection becomes increasingly important could put its stock price back where it once was: $42 a share on May 6th, 2006.

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