“If you grow it, biofuel will come,” isn’t much of a slogan. So let me be blunt: Biofuel is important because we need it.

My current prediction: Oil prices will hold fast and end 2011 above $100, and this will keep biofuel an important ongoing business and investment sector.

Whether the economic recovery is slower than expected or OPEC raises its production, ultimately it’s a moot point — gasoline is finite and we now have affordable technology to “create” gasoline.

And while oil supplies won’t dry up today, the next day or for a generation, it’s not going to get any cheaper to find oil, refine it and distribute the finished product.

Leaner government means higher fuel prices
And while it might seem odd, I think a coming budget fight will help boost oil prices — and by extension, gasoline. Federal spending and the deficit will be the single most important issue going into the campaign season.

The less the federal government spends, the better. This is not politics, this is just business.

The answer from a practical, economic and even political standpoint is a greatly streamlined budget with far more disciplined spending. I think this will invigorate the economy, which will in turn push up the price of gasoline.

But don’t think for a moment that thousands of scientists, engineers, and companies will sit idly by as they watch a market grow for a gasoline alternative.

Biofuel — renewable because it comes from plants — is an obvious solution, but not an easy one. Corn-based ethanol, which makes up 10% or so of the gasoline in your tank, hasn’t been a resounding success, and some would argue it’s becoming a boondoggle.

At this point, the United States can’t meet the 15% maximum ethanol blend with corn-based ethanol alone and feed people for a reasonable price at the same time.
But other forms of biofuel change the game entirely.

Cellulosic ethanol is a strategic alternative
Current federal law (and more and more states) calls for a dramatic rise in sugar-based ethanol, which I refer to as cellulosic ethanol because it comes from the sugar trapped in the cell walls of plants. Other biofuel, including plant-based diesel, algae-based fuel and even higher-tech cellulosics like isobutanol, are chock-full of potential.

What matters here? The science, the process, scalability and, of course, the economics matter. A few technologies look to have mastered all these elements, and these are the ones investors must keep an eye on.

The market recently welcomed two cutting-edge players, Gevo (Nasdaq: GEVO) and Solazyme (Nasdaq: SZYM), and the stage could well be set for more.

Gevo derives isobutanol from cellulose. Isobutanol is a replacement for gasoline, with no special parts or engine modifications needed — something that ethanol is not. Solazyme has created a method to make algae-based fuel on a huge scale quickly, efficiently, and increasingly economically.

Action to Take –> The bottom line is the strong the recovery, the higher the price of oil, and the more interested Wall Street will be in a piece of the biofuel pie.

And while the future will no doubt be volatile, I renew my call on this sector. Biofuel has as much potential as anything I’ve seen.

Note: You can tell I’m excited about the investment opportunity in biofuels, but there are a number of game-changing ideas in the market. From tiny power plants that can be buried in your lawn, to revolutionary pain killers made from cobra venom, there are more game-changing ideas I think could be “the next big thing.” To get briefed on these opportunities, and several others that I think could return many times your money, please watch this video.