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Wall Street JournalAviation Biofuel Stocks Take Flight on $3 Billion DOE Loan
Biofuel stocks Gevo (NASDAQ: GEVO) and Calumet (NASDAQ: CLMT) received a substantial boost today following the announcement of conditional loan guarantees from the US Department of Energy (DOE). The two companies, both focused on sustainable aviation fuel (SAF), were awarded a combined total of nearly $3 billion in loans to fund key projects aimed at revolutionizing renewable energy.
For Gevo, the DOE’s conditional loan guarantee of $1.46 billion marks a critical milestone in the development of its highly anticipated Net-Zero 1 (NZ1) project in Lake Preston, South Dakota. Similarly, Calumet’s subsidiary, Montana Renewables, secured a $1.44 billion commitment to expand its renewable fuels facility, positioning it as a leader in SAF production. News of the financial backing from the DOE sent both stocks soaring, with shares of Gevo and Calumet surging as much as 38% and 15% today, respectively.
Watershed Moment for Sustainable Aviation Fuel
The DOE’s investment reflects a broader push to transition the aviation industry toward greener alternatives. SAF has emerged as a critical solution for decarbonizing air travel, an industry notoriously difficult to decarbonize. Both Gevo and Calumet are at the forefront of this transition, with the support of the Biden administration’s ambitious goal of meeting 3 billion gallons of SAF production annually by 2030 and completely replacing conventional jet fuel with sustainable alternatives by 2050.
Commenting on the news, Patrick Gruber, CEO of Gevo, stated:
“This marks a watershed moment for the Net-Zero 1 project and a critical step forward in Gevo’s mission to transform the aviation industry. The DOE’s commitment should also attract other capital investments, helping us scale sustainable aviation fuel (SAF) commercialization.”
Gevo’s NZ1 facility is designed to produce 60 million gallons of SAF annually, alongside significant amounts of animal feed and corn oil as byproducts. The facility’s focus on sustainability doesn’t stop at fuel production—it’s built to run on renewable energy, including wind power, and integrates carbon capture technologies to achieve a net-zero carbon footprint.
Calumet’s First-Mover Advantage
Meanwhile, Calumet’s Montana Renewables project aims to become one of the largest SAF producers in the world, thanks to the DOE’s $1.44 billion loan guarantee. The facility is expected to increase its SAF output by 300 million gallons annually, with plans to also produce renewable diesel and renewable hydrogen, further reducing its carbon emissions.
Calumet CEO Todd Borgmann commented:
“Through our collaboration with the U.S. Department of Energy, we are thrilled to continue forward on the leading edge of our nation’s Sustainable Aviation Fuel transition. This investment will allow us to leverage our first-mover advantage and unique renewable hydrogen and pretreatment technologies to transform Montana Renewables into a world scale SAF producer.
Calumet’s project will utilize a variety of feedstocks, including vegetable oils, fats, and greases, to produce biofuels. The expansion will not only contribute to the company’s growing SAF output but also help reduce the facility’s overall carbon footprint through the integration of renewable electricity and water recycling systems.
Investor Confidence Gets Major Boost
The market responded enthusiastically to the DOE’s announcement, with both Gevo and Calumet seeing significant stock price increases. Gevo shares jumped by as much as 38% today, reaching a two-year high of $3.10.
Meanwhile, Calumet stock saw an increase of as much as 15% today, buoyed by investor optimism about the long-term profitability of its SAF project. In addition, analysts at TD Cowen also adjusted their outlook on Calumet, raising their price target on the stock from $22 to $27, citing the expected financial impact of the DOE loan.
Despite this optimism, both companies face challenges ahead. Gevo’s NZ1 project is tied to the controversial Summit Carbon Solutions pipeline, which aims to transport and sequester carbon produced by ethanol facilities, including Gevo’s. The pipeline has faced opposition from South Dakota landowners and remains stalled due to regulatory hurdles. However, Gruber remains confident that the project will move forward.
“The Summit pipeline is critical to our business plan. Without it, the profitability of SAF production could be jeopardized. But I’m confident we’ll find a solution,” added Gruber.
The Future of SAF
The biofuel industry is poised for significant growth as governments and corporations worldwide push for cleaner energy solutions. The DOE’s nearly $3 billion in loan guarantees underscores the US government’s commitment to achieving ambitious climate goals, particularly in the aviation sector.
SAF is seen as a linchpin in reducing carbon emissions from air travel, which accounts for about 2.5% of global CO2 emissions. Unlike electric vehicles, airplanes face significant technical challenges when it comes to transitioning to renewable energy. SAF offers a scalable solution, as it can be blended with conventional jet fuel and used in existing aircraft engines without modifications.
According to the US Energy Information Administration, domestic biofuel production is expected to increase by 50% in 2024, with SAF leading the way. Both Gevo and Calumet are well-positioned to capitalize on this growth, thanks to the DOE’s financial backing.
In addition to the economic benefits, these projects are expected to create thousands of jobs in rural areas. Gevo’s NZ1 project alone is projected to generate 1,300 construction jobs and 100 permanent positions, with a total annual economic impact of over $100 million. Calumet’s Montana Renewables expansion will also support local infrastructure development and create 450 construction jobs, along with up to 40 permanent roles.
Conclusion
The conditional loan guarantees awarded to Gevo and Calumet mark a major step forward for the biofuel industry, particularly in the production of SAF. These projects not only align with national climate goals but also promise substantial economic benefits, from job creation to regional development.
As the aviation industry continues to grapple with its carbon footprint, companies like Gevo and Calumet are paving the way for a cleaner, more sustainable future. With strong government backing and growing investor confidence, the future looks bright for SAF—and the companies leading its charge.
“This investment will allow us to transform the aviation sector and solidify the U.S. as a leader in renewable energy. We’re just getting started,” added Borgmann.
Gevo and Calumet Price Action and Stock Chart
After rising as much as 38% early in the day, shares of Gevo (NASDAQ: GEVO) stock closed Thursday’s trading session up 17.78% at $2.65 per share. YTD, GEVA stock is up 126.5%.
Updated: Friday, October 18, 2024
On Friday, GEVO stock continued its surge higher, rising another 18.11% to close the day at $3.13 per share.
GEVO stock is now up 167.52% YTD.
View Gevo Interactive Stock Chart on Barchart
Meanwhile, Calumet (NASDAQ: CLMT) stock climbed as much as 15% today, but could not hold its gains as CLMT stock ended the day down 0.27% at $21.87.
YTD, CLMT stock is up 24.62%.
Updated: Friday, October 18, 2024
Shares of CLMT stock did not follow Gevo’s lead on Friday, as Calumet saw its stock drop 8.28% to close Friday’s trading session at $20.06 per share.
Calumet stock is now up 14.3% YTD.
View Calumet Interactive Stock Chart on Barchart
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