Last week I told you about Alternative Energy Sources (AENS.OB) – a new ethanol company that has the ability to work the volatility of commodity price risk to its advantage.

In other words, while a good number of ethanol producers do know how to make the renewable fuel – few know how to work the commodities angle. And that means the inclusion of brokers, which can drain millions from the bottom line.

AENS, with its former ADM management at the helm however, doesn’t have to utilize outside sources – and can thereby minimize overhead and maximize dollars…to the tune of between $10.8 million and $24.5 million a year!

But this potential ethanol giant also has another trick up its sleeve – and it’s worth another $7 to 10 million for starters – and the potential for massive increases in market share.

More and Faster

As the ethanol industry continues to mature, so will the level of competition. And this means sooner than later, many of the smaller producers are going to get squeezed out or gobbled up by the biofuel behemoths…like ADM, for example.

Of course, the potential for investors with a company like Archer Daniels Midland (ADM) is minimal at best. It’s old news!

But Alternative Energy Sources isn’t. In fact, this one’s hardly made a peep. But it just went public – and by the end of summer, I suspect it’s going to have a conga line of investors chasing after it.

Here’s why…

Despite the fact that the ethanol industry is growing at a rapid rate, for the most part, it’s still operating inefficiently.

You see, a lot of ethanol producers still have inefficient logistical operations that are leaving them vulnerable to a level of competition the ethanol industry is only now starting to see.

As it is, a number of the smaller ethanol producers that set up shop before the ethanol boom, did so without considering a crucial component of their logistical planning.

They didn’t set up their facilities near operational rail lines!

And of the other ethanol producers that do utilize rail lines, nearly all are doing so inefficiently because they simply don’t have the capacity to ensure discounted costs and expedited and reliable delivery.

But that’s not the case with Alternative Energy Sources.

The company is currently planning three, 110 million gallon facilities – two of which are to go online by fall, 2008. These facilities will not only be some of the largest facilities strategically located adjacent to mainline railroads, but they will also produce enough ethanol to utilize unit train shippers as opposed to single car shippers.

Here’s why this is big deal…

Many of the smaller, 40 - 60 million gallon plants operating in the Midwest can only produce enough ethanol to utilize single car shipments. And this is costing them a fortune.

However, because AENS’ capacity dwarfs that of the smaller plants, it can utilize 100-car shipments on every run. And the cost savings on this is astronomical. We’re talking about $7 to 10 million a year!!!

And…because the single car shipments that smaller facilities use are starting to become more of hassle than a money maker for rail companies, some railroad execs are now talking about stopping the single-car shipments altogether.

That could leave many of these smaller facilities with a whole lot of ethanol – and no economical way to ship it. So the company also plans to partner with these smaller firms by acting as somewhat of a terminal for them.

So now you have some of the largest ethanol production facilities going online that will be able to secure unit train shippers as well as additional ethanol supplies from the smaller facilities – thereby increasing its ability to supply a reliable, continuous supply to the end user.

And that’s going to make all the difference!

Because with more and more state-level mandates going into effect, as well as an increasing demand for E-85 (which you can be sure the automakers will support since they’re now pumping out all those flex-fuel vehicles), a reliable, continuous supply of ethanol is quickly becoming a ‘do or die’ situation for ethanol producers.

At the National Ethanol Conference last February, I listened to Dan Nelson, VP of Exxon Mobil tell a crowd of ethanol producers that in order for the company to continue as an ethanol blender, there must be reliable quality and deliverability. Selling 30 million gallons of gasoline per day and in times of mandates (which we’ll continue to see more of on the state level), if ethanol has not arrived by tank car to their ethanol blending facility, they cannot sell the daily gasoline demanded by consumers.

The simple fact is that in the very near future, ethanol producers that can’t deliver quickly, reliably and economically will disappear. Playtime is over, the stakes have been raised – and in this situation, the ‘little guy’ is done.

Now granted, Alternative Energy Sources isn’t a household name. But the guys running this show have the bite to back up their bark! And this is providing us with an opportunity to get in on the ground floor of a company that could be in direct competition with ADM in less than four years!

The Student Becomes the Teacher

Because the company’s management team has been founded with extensive ADM experience, the company:

Can facilitate direct negotiations with large petroleum companies and feedlots thereby eliminating brokerage and consulting fees.

Can operate all aspects of the business model with extremely low overhead and minimized cost structures.

Has extensive knowledge in the difficult Dried Distillers Grain markets throughout the southwestern U.S. (Numerous customer relationships already exist)

Has grain trading experience in markets where plants would be constructed to minimize input costs of corn

Has a management team in place with competencies in logistical economics and location selection.

Boasts senior executives involved in substantial ($100 million) acquisitions while at ADM

Has vast collaborative experience negotiating with railroads on: industrial site selection; buy-in from railroad operations, marketing and industrial development departments.

Has extensive personal contact with many of the key managers in all railroads. (Railroads are essentially their partners)

It all boils down to this, folks.

The days of practically every new ethanol company delivering for investors is over. And pretty soon, there will only be a few major players running the show. This could be one of the last ground floor opportunities in this arena that has the potential to become one of these major players.

For more on Alternative Energy Sources and the current state of the ethanol industry, visit Green Chip Stocks now.

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