Tuesday evening I was glued to the TV as President Bush gave his State of the Union Address. Here is what he had to say on energy.

"...Extending hope and opportunity depends on a stable supply of energy that keeps America's economy running and America's environment clean.

For too long, our nation has been dependent on foreign oil. And this dependence leaves us more vulnerable to hostile regimes and to terrorists who could cause huge disruptions of oil shipments and raise the price of oil and do great harm to our economy.

It's in our vital interest to diversify America's energy supply, and the way forward is through technology.

We must continue changing the way America generates electric power by even greater use of clean-coal technology; solar and wind energy; and clean, safe nuclear power.

We need to press on with battery research for plug-in and hybrid vehicles and expand the use of clean-diesel vehicles and bio-diesel fuel.

We must continue investing in new methods of producing ethanol...... using everything from wood chips to grasses to agricultural wastes.

We made a lot of progress, thanks to good policies here in Washington and the strong response of the market. And now, even more dramatic advances are within reach.

Tonight, I ask Congress to join me in pursuing a great goal: Let us build on the work we've done and reduce gasoline usage in the United States by 20 percent in the next 10 years.

When we do that, we will have cut our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East .

To reach this goal, we must increase the supply of alternative fuels, by setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017.

BUSH: And that is nearly five times the current target.

At the same time, we need to reform and modernize fuel economy standards for cars the way we did for light trucks and conserve up to 8.5 billion more gallons of gasoline by 2017.

Achieving these ambitious goals will dramatically reduce our dependence on foreign oil, but it's not going to eliminate it.

And so, as we continue to diversify our fuel supply, we must step up domestic oil production in environmentally sensitive ways.

And to further protect America against severe disruptions to our oil supply, I ask Congress to double the current capacity of the Strategic Petroleum Reserve.

America's on the verge of technological breakthroughs that will enable us to live our lives less dependent on oil. And these technologies will help us become better stewards of the environment, and they will help us to confront the serious challenge of global climate change.."

It was the talk about ethanol that sparked my interest. This week in Energy Central I talk about Ethanol. Here are a few excerpts taken from this week's edition.....

.......In Noam Chomsky's most recent book - Failed States - he makes reference to the intellectual brainpower that was Weimar Germany. And in fact 1920's Weimar Germany found itself to be coal rich and petroleum poor. Two researchers at the Kaiser Wilhelm Institute, Franz Fischer and Hans Tropsch set out to find a way to utilize this coal resource as a source of fuel. The result was the Fischer-Tropsch process.

The first step in this process is the gasification of Coal or biomass as follows: C + H20 = H2 + CO

As an alternative, the partial combustion of Natural Gas can also be used: CH4 + ½ O2 = 2H2 + CO

The produced Hydrogen and Carbon Monoxide are then reacted in the presence of heat, pressure and catalysts as follows: (2n+1)H2 + nCO = CnH2n+2 + nH2O to produce a synthetic fuel.

The Nazi onslaught in Germany put an end to these scientific advances but today the Fischer Tropsch process has been revived. Today there are 3 companies utilizing this process to make fuels. Two of these stocks trade for less than $5 per share and are sufficiently active that the aggressive trader can have a veritable picnic trading them. The other is larger cap and if one is alert can capture some interesting moves. Right now momentum is positive on this one and the stock has recently made a $3 move to the upside.

Ethanol is no great secret. Every time I brew a batch of my home-made beer I am making ethanol. Ethanol was recognized as a fuel as far back as 1860 when German inventor Nicholas Otto used it in one of his internal combustion engines. At the time, ethanol was primarily used as a fuel for lamps. But in 1862, Congress imposed a tax on ethanol to help finance the Civil War. It took 50 years to eventually have this tax lifted. Shortly afterwards, Henry Ford introduced his Model A Ford which was designed to run on - yes you guessed it - ethanol and gasoline both. By the 1930's retail gas stations across the nation were selling gas-ohol - a mixture of gasoline and 12% ethanol. But strangely enough, between 1945 and 1978 the price of fuel was sufficiently low that interest in blending it with ethanol fell by the wayside. In the mid to late 70's, attention came full circle again on ethanol when Congress started efforts to eliminate Lead from gasoline. It was thought that ethanol would act as an octane booster in unleaded gasoline. By the early 1980's, thanks to massive subsidies for ethanol producers, over 50 million gallons of the stuff were being produced each year to be blended into gasoline. With gasoline prices remaining relatively low, only 74 of 163 ethanol plants built remained in business by 1985 - despite heavy subsidies per gallon. Cheaper to make, MTBE (Methyl Tertiary Butyl Ether) came to dominate the fuel additives industry. This remained so pretty much through the 1990's. By 2000, concerns were being expressed that traces of MTBE were being found in drinking water as a result of underground fuel tanks leaking at service stations across the nation. Ethanol once again came into fashion and a vigorous campaign to get rid of MTBE started. Which brings us to today and we see the industry continuing on this expansionary phase thanks to massive subsidies from the Bush Administration.

The ethanol industry in North America is primarily focused around using Corn (and to a lesser extent - Wheat) as a feedstock. In 2003 the industry produced 2.8 billion gallons of ethanol. This figure rose to 4 billion gallons in 2005. We are for sure seeing price pressures on Corn and at this juncture the Corn growing industry in the US must "lure" some 7 million extra acres away from other grain products in 2007 and have those acres seeded to Corn just to meet the projected demands for Corn being created by the ethanol makers. But this is only the first part of the equation. Then, Mother Nature must deliver at least 152 bushels to the acre just to satisfy this demand and make sure carryover stocks into 2008 do not run too low. 2007 promises to be a dynamic year for those who follow Corn Futures. There is more to come so take advantage of it. Just be careful out there. Corn will not be a slam dunk money in the bank next day proposition. The hedge funds and commodity funds out there will take Corn on the wildest excursion you have ever seen this year. Get in at the wrong time and the whiplash will hurt. I will be doing my best throughout the 2007 growing season to keep readers apprised of the Corn technicals.

For the first time in perhaps the history of North America, we are seeing competition for the food supply being brought to bear by the energy industry. Such a major tectonic shift in thinking is bound to be full of money making opportunities. There are no fewer than 6 publicly traded companies that are leading the way forward in ethanol. During 2007 I will be keeping a close eye on these stocks and advising readers when to buy and when to sell. Stay tuned....

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