It’s not cheap, but if you’re like me, you’ve gotten used to it. It’s only when my wife and I pack up the kids and leave Massachusetts to visit family in New York, which has higher gas taxes, that I get a frisson of price shock–gas on Long Island is 27 cents pricier.

This got me thinking–what is the chance that we’ll see fresh gas price shocks, driven by more than crossing over into another state with higher fuel taxes? Analysts at McKinsey wondered the same thing recently, and analyzed the market to see what lies ahead.

Over the past decade, world oil demand has grown about 8.5%, from 77,738 barrels a day to 84,200, according to the Energy Information Agency. The growing economies of China, India and Indonesia have been the primary drivers behind this increase. But while demand has grown, getting more supply out of the ground has been harder.

In fact, capacity has risen only a smidgen over 1% annually. According to McKinsey, there are about three to four million barrels of spare capacity in the world market. Under a “business as usual” scenario, in which the world is much like today and oil doesn’t average over $100 a barrel annually, by 2020 capacity and demand will be equal, at 100 million barrels. That might cause a lot of problems, either quickly or slowly.

The quick problem of nearly matched supply and demand is that any uptick in demand for oil, such as an economic boom, puts pressure on the marginal capacity of the oil industry and sends prices skyrocketing. Look at pre-crash 2008, when prices spiked to $147 a barrel and gasoline ended up at a record $4.11 nationwide that July.

A lack of excess production capacity also means that anything that slices off capacity has far more impact than it should, be it a hurricane in the Gulf of Mexico or saber-rattling in the Persian Gulf.

Then there are the slow problems. Even as gasoline prices have eased off their spring highs, we’re still paying a lot more at the pump, about 22% more than one year ago. The fact that I have adjusted somewhat to the new price of gasoline reminds me of the story of the frog and the hot water.

You’ve undoubtedly heard this before–drop a frog into a pot of hot water and it will jump out. Place the frog in tepid water and slowly heat it up and the frog will sink into a stupor as it eventually boils to death. It’s not true for the frog–which has a very small brain–but it is true of humans; our large brains sometimes fail us.

Under this scenario, slowly but steadily rising oil and has prices continue to commandeer more of Americans’ disposable income, leaving less money to spend on goods and services.

McKinsey (and others) project that energy prices will rise faster than Americans’ income, meaning gasoline could consume 7% of Americans’ income by decade’s end, up from 5.4% in 2008 and 3.1% in 1994. The extra $800 or so that the average person would spend on gas each year then would surely be better spent on something else–as long as it was discretionary.

Now just as the frog will eventually get the picture and jump out, we’re not condemned to slowly suffer from rising energy prices–we can do something about it. That includes discovering more oil, developing viable forms of alternative energy like wind and solar, and affecting the demand equation by boosting energy efficiency and energy storage. As editor of Cabot Global Energy Investor, I see three areas that are particularly worth keeping an eye on as a way to profit from the evolving energy market.

One is the boom in domestic oil and gas resources. I’m especially excited about the Bakken, the geological formation beneath the Dakotas and eastern Montana that may hold as much as 206 billion barrels of recoverable oil. If true it would equal 48 years of U.S. oil imports.

In our Energy Portfolio, we recently sold a producer that was focused on the region–Brigham Exploration–because it was acquired by Norway’s Statoil (STO) for 35.50 a share, giving us a 32% profit in four months. That’s nice, but the Bakken is too impressive for us not to continue to have a hand in it. We added a small, fast-growing producer to our Energy Portfolio this month (I can’t tell you the name because we give our subscribers at least two weeks to buy before we think about disclosing recommendations). We’ll likely add another, larger producer to our portfolio soon.

Another area I think has big potential is energy storage. In particular, lithium-ion batteries, which will play a key part in giving hybrids and electric vehicles even greater ranges and make even traditional cars more energy efficient.

Recently we sold out of a long-time favorite I have mentioned before, Polypore (PPO), which makes high-tech battery membranes. Its chart turned bearish and we decided it was time to take profits–a total of 135% return on our investment in 18 months. At the moment, I’m not thrilled with the universe of battery stocks besides Polypore, but I suggest that you take a look at the world’s largest miner of lithium, Sociedad Quimica y Minera (SQM), a Chilean company we’re had success with before. The trading chart isn’t terribly bullish, and it’s a little pricey at 22 times 2012 earnings but it’s been attracting very good institutional buying action of late–a positive sign.

The third area of great interest to me as an investor right now is alternative fuels. Primarily, I believe natural gas has the potential to be a viable alternative to diesel in the trucking and industrial equipment sector. Already many ports, such as Long Beach, California, require trucks and equipment to be natural gas-powered, because the fuel burns far cleaner than diesel. Natural gas is also abundant in the U.S., relatively low-priced and its price isn’t affected terribly by international oil prices.

A leading firm in the production of natural gas engines is Westport Innovations (WPRT), a Canadian firm that has a very profitable joint venture with truck engine maker Cummins as well as Volvo trucks, Weichai, the leading China heavy equipment maker, and others. While the company has focused on trucks and industrial equipment, it is now expanding into light trucks. Earlier this autumn, Westport inked deals to supply natural gas engines to the Ford (F) F-series trucks and also finalized a venture with General Motors (GM) to develop natural gas engines for GM’s light truck line.

The number of natural gas vehicles on the road worldwide has grown from about one million in 2000 to over 12 million in 2010, an annual growth rate of 26%. In North America, analysis firm Frost & Sullivan expects natural gas fueled trucks to grow to 8% of the region’s truck sales market by 2017, from 1% last year (currently, a natural gas truck costs 20% more than its diesel counterpart). According to the researchers, as long as the gallon equivalent of natural gas is $1.50 less than diesel prices, the extra upfront cost is worth paying. Of late, diesel has been averaging around $4 a gallon, while natural gas trucking firms have been paying $1.65 to $1.80 per gallon equivalent to fuel their vehicles.  That’s a good price dynamic, one that will continues to help Westport grow its $200 million annual sales.

P.S. You can learn more about the energy stocks mentioned above and many more leaders in the sector in Cabot Global Energy Investor. Don’t miss another recommendation! Learn how you can be an early investor in this high-potential area today by clicking here now.

The Toyota Prius has become the poster child of the hybrid car movement, leading a growing range of hybrid offerings–including the massive Cadillac Escalade– from nearly every manufacturer.

Pure electric cars are just beginning to emerge, with the Chevy Volt and Nissan Leaf targeting the mass market and Tesla aiming higher.

And as these technologies improve and gasoline and diesel-burning engines are gradually displaced from our roads, the result will be lower pollution, better health and lower oil prices, too.

But investing in automobile companies is difficult, not least because this is a mature industry.

More than four years ago, in September 2007, I surveyed all the publicly traded automobile manufacturers, asking if there were any that were attractive investments, based on either valuation or growth.

And I ranked them from best to worse.

Here’s a much-abbreviated version of my comments then.

“Nissan (NSANY) … having its lunch eaten by Toyota.

“Ford (F) … being killed by legacy costs, … by some measures, it’s a screaming bargain, but only if the company can find its way back to profitability.

“General Motors (GM) … also cheap … but earnings estimates have been cut … and the stock has been weak for most of this year.

“Honda (HMC) … a fine track record of growing both revenues and earnings … but the stock has only equaled the market’s performance over the past five years.

“Toyota (TM) … the most expensive major carmaker in the world, measured by price to sales ratio. Trouble is, it’s performed no better than the broad market over the past 12 years.

“DaimlerChrysler (DAI) … sells at just 58% of annual revenues … and it’s in an uptrend, so it’s probably a decent investment here.

“Tata Motors (TTM) … is a real growth story! … Not as cheap as the preceding companies … but it’s got great growth prospects.

“Volkswagen (VLKAY) … is hitting new highs … both revenues and earnings are on growth tracks … the most successful foreign automaker in China. In short, I like it.”

And how have these stocks done since?

Well, in the short term, Volkswagen was the top performer, climbing 255% from the time of my recommendation to its October 2008 peak as investors fled from American automakers that were nearing extinction. It’s now 27% below that 2007 point and not particularly attractive.

But in the long-term, the top performer has been Ford, which did find its way back to profitability (wisely passing up a government handout on the way), and is up 37% since that week in 2007 (after falling 88% along the way … could you have held on through that?). But the stock is weaker than Volkswagen’s and analysts are predicting reduced earnings in both 2011 and 2012, so it’s not attractive to me.

As to the others:

While all Japanese automakers were hurt by the March tsunami, there are bigger problems. Honda and Toyota are both having their lunch eaten by Hyundai/Kia of Korea. Revenues at both Japanese companies peaked in 2008 and their stocks are in downtrends. And investors in Toyota have lost 45% since 2007; that’s partly a consequence of the stock being the most highly valued back then.

Nissan is slightly better, having posted record revenues in fiscal 2011. But its stock is a yawn.

Daimler looks terrible. Revenues peaked way back in 2005 and the stock is down 52% since 2007.

General Motors looks no better. Revenues peaked in 2006, and the stock has been steadily underperforming the market since the government sold it back to the public a year ago.

In short, the stocks of all well-known automakers are unattractive.

You shouldn’t buy them for the dividends. The biggest payer is Tata, which pays 2.2% per year.

And you shouldn’t buy them for value. None of these companies qualifies for the Top 250 Value Stocks list of Cabot Benjamin Graham Value Letter.

But in the case of two companies, you might invest for growth!

The first is Tata Motors, whose stock has been weak in the recent difficult market, but may have turned the corner. The company has seen revenues grow every year of the past decade, and analysts are looking for record revenues and earnings in 2012. Tata’s after-tax profit margin is a healthy 5.9%. Additionally, the company’s Indian labor force is cost-competitive, and Tata’s ability to sell into that market as the middle class grows is tops. Finally, Tata has a broad product line, ranging from the tiny Nano–the world’s cheapest production car–to luxury cars made by Jaguar and LandRover, which Tata bought from cash-strapped Ford in 2008. So the stock is worth keeping an eye on.

The second, and most exciting company, is Tesla (TSLA), which came public in June 2010 at 17, and is now trading at 34, just 6% off its all-time high.

If you’re into cars, you probably know more about Tesla’s electric cars than I can tell you here, but if you’re not, you should pay attention.

I’ll give you the main points right up front.

While Toyota has blanketed the U.S. with milquetoast hybrid Priuses, following the standard old automakers’ game plan, and the Chevy Volt and Nissan Leaf are uninspiring “appliances,” Tesla has done something different. It has built cars that are thrilling to drive. And from its headquarters in Silicon Valley, it’s been acting like a high-tech company!

And why not, considering that co-founder and current CEO Elon Musk made his fortune by selling PayPal to eBay for $1.5 billion?!

While there are five official co-founders of Tesla, Musk looms large in the story because he used much of his own money to bankroll the project, supplemented in time by money from private investors–as well as $465 million from the U.S. Department of Energy. Last year’s IPO was just the latest chapter of financing, and possibly the last.

From the beginning, the goal of the company has been to create and sell affordable mass-market vehicles that would have a material impact on oil consumption. But Tesla hasn’t yet targeted the mass market!

Its first step was to build and sell two-seat electric sports cars costing $109,000. It’s sold more than 2,000 of these Roadsters (in 30 countries) and will stop after 2,500.

The revenues from that effort are driving work on the company’s next car, the Model S, a sedan that sells for $57,400. Tesla has already taken reservations for more than 6,000, and will begin deliveries next year. It also expects to offer an SUV (Model X) based on the same platform, and begin deliveries of those in 2014.

Photo courtesy of www.teslamotors.com

And the profits from those cars will fund development of a mass-market car, priced around $30,000, that will compete with the likes of the Toyota Camry, Honda Accord and Ford Taurus.

This strategy mimics the way successful Silicon Valley companies launch products; hit the rich early adopters first, then drive costs down to serve the mass market.

Furthermore, Tesla has boosted its cash flow by inking major deals with Daimler and Toyota for its proprietary powertrain systems … which tells me these components are the best!

The company’s revenues were $15 million in 2008, $112 million in 2009 and $117 million in 2010. Next year could bring in $550 million, as the Model S hits the streets. And Musk promises a profit in 2013.

In conclusion, Tesla looks like one of the stars of the evolving automotive revolution.

While recent history has left the roadside littered with old names (Mercury, Plymouth, Pontiac and Saturn are dead, and Saab is comatose), Tesla is a fast-growing young company with minimal debt burdens and no retirees with costly pensions!

So what to do? You could simply buy the stock today and hope for the best. Or you could take a no-risk subscription to Cabot Top Ten Trader, which recommended the stock back on September 26, when it was trading at 26, and continues to update subscribers in each issue.

I recommend the latter, because this stock could be very big, and having expert guidance will help you make the most of it.

For more details, click here.

In a market like this, great setups for growth stocks are thin on the ground, and some of the old leaders are springing leaks left and right.

So it’s a good time to get in touch with your inner value investor, and that’s what I’m doing with Tata Motors (TTM).

Tata Motors is an Indian car and truck builder that manufactures an astonishing variety of vehicles, from the Tata Nano, the world’s cheapest, fully enclosed four-passenger car, to Jaguars and Range Rovers. The company sold just over one million vehicles during its 2010-2011 fiscal year that ended in March. That’s up from 870,000 the previous year.

Q2 results extended the company’s string of quarters with double-digit revenue growth to seven, although earnings dipped a tad (down 3%) during the quarter. So this is a growing, solidly profitable company.

There are two killer numbers for TTM. The first is its P/E ratio of 6, which is absurdly low for a profitable manufacturer in a high-potential home market that also has significant overseas opportunities in its Jaguar and Range Rover lines.

The second number is 318, which is the number of institutional investors who are onboard with the stock. That number was 214 a year ago, and has increased steadily every quarter since the beginning of 2009.

Tata’s management has shown both its ambition in taking on two international prestige automotive lines and its competence in managing the integration of those brands.

After a drop from 38 in late 2010 to a sloppy triple bottom just below 15 last month, TTM isn’t a growth investor’s poster child. But for those with patience (and who appreciate the stock’s 2.2% forward annual dividend yield), TTM offers a solid opportunity.

You could buy TTM here and hope for the best or you could check out Cabot China & Emerging Markets Report, the top source for the best stocks in the world’s fastest-growing economies. The Report has been named one of the top-performing newsletters since its inception in 2004 and there’s a lot more where that great growth came from! Get started today.

So what happened to solar? In short: China. In 2007 and 2008, when hopes for solar were running high along with the performance of solar stocks, the supply of polysilicon, the primary feedstock for solar panels, was in short supply. That made companies like Evergreen, which had a novel way of manufacturing cells to maximize use of polysilicon attractive–as late as February 2008, Evergreen’s shares were over $100. The shortage of polysilicon also made investments in manufacturing facilities for SpectraWatt and Solyndra seem reasonable.

Make no mistake: no one in the energy industry was expecting the shortage of polysilicon to persist (it is made from readily available sand, after all). But no one expected the reversal from shortage to surplus to happen so swiftly. The number of polysilicon producers in China, for instance, increased from just seven in 2008 to 70 by 2010, according to research firm Trefis Group.

China, with its artificially weak currency, was able to hammer down polysilicon prices and, in turn, solar panel prices. For the typical Chinese-based manufacturer of panels, production costs fell by half in just three years, helped by low labor costs. Even with all of that, it is quite possible SpectraWatt and Solyndra (Evergreen having a larger issue with it’s unique technology) may have survived the much swifter-than-expected price drop, but for the persisting recession.

For the first time in memory, the steep drop in solar prices in 2011 has not generated the leap in solar demand that usually occurs. Last year for instance, demand shot up over 100% after the steep drop the industry saw in 2010, according to the cleantech group at Jeffries & Co. This year, demand is still weak even as prices soften.

This doesn’t mean solar is dead–its falling prices have made it a more viable option to grid-generated power. The demon isn’t necessarily government subsidies either–an International Energy Agency report out this week notes that most government subsidies go to petroleum.

There are still plenty of advantages that mean solar will rebound eventually: for one, its energy source is free. Plus China and Germany, two of the world’s main solar markets, will almost certainly boost their solar usage–China to meet its seemingly insatiable energy demand, and Germany to help fill the void left by retiring its nuclear plants by decade’s end.

And the simple fact is that as any industry becomes more competitive, companies are going to lose, while others will win. But will solar manufacturing have a U.S. base in the future? That’s more difficult to say. Perhaps one indication came from the SpectraWatt asset auction last week. The winner of its full solar panel production line for $5 million: Chinese manufacturer Canadian Solar, which reportedly plans to ship the production line lock, stock and barrel, to China.

Inevitably, when a once-favored sector of the market or a particular stock has been beaten down, I get emails from subscribers asking if now is the time to buy. No doubt some of you are wondering if now is a time to buy into solar. I think that no matter what form the solar market rebound takes, it will require time, as the charts of even the best solar stocks are firmly bearish. Even once solar stocks start recovering, there will be a lot of pent-up selling from those who bought and held when solar was exceptionally strong in late 2007 and 2008.

As editor of Cabot Global Energy Investor, I’ve been out of solar stocks for nearly a year. Our last solar stock in the energy portfolio was sold in November 2010 (Renesola (SOL), at a 54% profit). To get back into solars, I’m going to need to see both a turnaround in the alternative energy sector–which we may be seeing glimmers of as I write–and then a bull move in specific solar stocks. We’ve generally done well with energy investments thanks to our approach of finding fundamentally sound companies that have bullish trading charts. Rather than bottom feeding, we wait for a confirmation that a specific stock has bottomed and turned higher.

This isn’t a new or particularly clever approach. Other newsletters from Cabot have been doing it for decades. I first learned it from some savvy commodity futures traders who rightly recognized that waiting for bullish confirmation of a turnaround was a way to dramatically cut the risk of buying a security. Sure you give up the lottery ticket of buying a stock at its all-time low and enjoying an eye-popping profit. But then again, very often what you think must be the bottom isn’t.

So how do I bottom feed for stocks? I don’t. Let others take the high risk of bottom feeding; I prefer to wait until it’s clear that a rebound is underway. This system got us into that profitable Renesola position last year and kept us from ever getting into Evergreen Solar even as it seemed cheap at 50 just a few months after it fetched 100 a share. My rule of thumb is that you can still capture 75% of the profits, while surrendering 75% of the risk, simply by waiting for the stock to get going before you hop on.

While we wait for solar to rebound, we’ve been selectively investing in strong fossil fuel stocks and a couple of alternative energy stocks in the Cabot Global Energy Investor. But recognizing the dangers in the market, we’ve kept a good deal of our capital in cash (right now, we’re at 60% cash).

Even as we keep our powder dry, there are some macro developments I’m following to guide our featured stocks and recommendations for the next issue of Cabot Global Energy Investor. The most immediate trend we’re is seeing the push toward more efficient and cleaner cars, trucks and industrial equipment really starting to generate some exciting stock investments, at least two of which will be in our October newsletter, available for subscribers only.

One related auto stock that still looks good–although its chart is showing some weakness now–is Polypore (PPO). Best known for making the high-tech battery membranes used in the iPad, its main business is membranes and separators for high tech automobile batteries–and it has been a market leader for the past year.

More broadly, the biggest trend I see is that despite all of the troubles we’ve had and are having–from the European debt crisis, which is roiling the continent’s economy, to the sluggish, perhaps stalling, recovery here in the U.S.–energy demand continues to grow. It may surprise you to know oil prices are well up, on an average price year-to-date, over 2010, and even this week are just about where they were one year ago, around $80 a barrel.

That price strength reflects the reality that world energy demand continues to grow. The U.S. Energy Information Agency released a report last week projecting that world energy demand will rise 54% by 2035, compared to the 2008 benchmark. Projections can be squirrely things, but such growth isn’t out of line with the past. From 1990 to 2008, world energy demand grew about 42%. Because you and I are likely conserving energy and driving more efficient cars, Western world energy demand isn’t going to rise very much in the next two decades.

It’s the developing world, China and India in particular, that will drive this next leg of growth in energy demand. According to the U.S. Energy Information Agency, those two countries alone will drive half the world’s growth in energy usage by 2035. And unlike the past decades of growth, the future will be heavily reliant on new forms of energy, like solar, as well as unconventionally tapped natural gas and oil from places like North Dakota, the Arctic, western Africa and probably some places none of us have heard of by companies that have yet to go public.

The oil shocks of the 1970s revived the idea of ethanol as an alternative fuel, and the corn-based version is now blended into 90% of the gas Americans use every day. Ethanol received a further boost when it was discovered in the mid-1990s that MTBE, a gasoline additive meant to raise gasoline’s octane as an anti-knocking solution, was found to have widely contaminated groundwater when it spilled.

The U.S. government has stimulated ethanol’s use with a hearty 45-cents per gallon subsidy that it grants to ethanol refiners, and a 54-cent tariff imposed on imported ethanol. Under the renewable fuels standard that is in place, gasoline refiners must blend at least 12.6 billion gallons of ethanol into gasoline this year. The taxpayer tab in 2011 for ethanol subsidies? $6 billion.

Ethanol has an indirect cost too: This year, 40% of the U.S. corn crop—which in turn represents 5% of the world’s grain crop—will go to ethanol. This is one of the factors that contributed to corn hitting its highest price ever—$8 a bushel in June. There are other complaints about ethanol too: Antique car collectors tend to believe the presence of ethanol accelerates the corrosion of their engines (newer cars are designed to deal with the ethanol mix just fine). More than one pipeline owner refuses to allow ethanol to be transported through its pipelines because of fear that ethanol will corrode pipes.

No doubt there was a place for ethanol subsidies at one point, but I think it’s foolish to pay billions of dollars to support a fully developed industry when we’re suffering from a fiscal crisis. There are many arguable downsides to ethanol supports, not the least is an effect on raising food prices (although other factors like an awful world crop year last year and booming Asian demand for cattle feed are also significant in corn’s price rise too).

Surprisingly, it seems Congress, long the defender of ethanol, is prepping to end the subsidies. Maybe.

In June, various reports indicated that Congress had reached a bipartisan deal to eliminate the subsidies in July in a bid to narrow the current deficit by a billion or two. True to form, Congress didn’t end up actually doing anything on the deal, opting to go on August vacation instead. But ethanol industry players expect that Congress will let the subsidies and tariffs expire as scheduled at year’s end. There’s good reason to: Under rising ethanol blending mandates, it is estimated the subsidies as structured will cost taxpayers $54 billion through 2015. Don’t bet on it just yet—there was a lot of expectation that Congress would let the subsidies would expire last year too.

Setting subsidies aside, there is a strong argument to be made that ethanol’s inclusion in the fuel mix lowers U.S. gasoline demand and therefore gasoline prices. A 2008 University of Iowa study estimated ethanol kept gas prices 20 cents a gallon lower (or more) by lowering gas demand. Removing the tariffs on imported ethanol should also lower ethanol prices and allow cropland to be used for food—not fuel—in turn easing global food prices. A federal study last year found a net savings in carbon impact versus gasoline (albeit relatively small), which in turn has environmental benefits.

Of course, the uncertainty of subsidies places a big question mark before those looking to invest in the biofuels industry. Somewhat surprisingly, the major ethanol refiners in the U.S., Archer Daniels Midland (ADM), Valero (VLO) and The Andersons (ANDE) haven’t suffered much: ADM and The Andersons have actually performed slightly better than the broad market since June (both have notable non-ethanol business lines benefitting from corn’s price strength), while Valero, which is a significant gasoline refiner, has been weaker than the market of late because gasoline refinery maintenance has taken some capacity off line this month.

While each would take a hit from the elimination of ethanol refining subsidies, they still have the financial heft to stay afloat and meet the growing ethanol blending mandates that don’t appear to be going away. Earlier this year, the Environmental Protection Agency approved using a 15% ethanol blend in gasoline for cars made in 2001 or after.

But younger biofuel stocks haven’t fared nearly as well. Codexis (CDXS), which makes catalysts for ethanol and biodiesel production and for pharmaceutical production, has fallen from 11 in May to 6 at the beginning of August. Amyris (AMRS) and Gevo (GRVO), which each make renewable substitutes for petroleum-based fuel products, have each fallen 50% since the early spring. There is a lot to like about each of the three companies, but they are better watched than bought right now. My suggestion is to wait for the market—and especially oil prices, which hold sway over the business models of alternatives—to find their equilibrium.

If you’re looking to build a watch list of stocks to buy sooner rather than later, I suggest looking at some of the companies that are performing well in Brazil’s robust ethanol market. As the world’s second-largest ethanol producer after the U.S., Brazil producers would benefit from removal of the three-decade old 54-cent per gallon tariff on ethanol imports. Cosan (CZZ), in particular, is worth taking a closer look at.

Cosan is one of the larger, more established companies in Brazil, was founded in 1936 as a sugar cane producer. In 1976, when Brazil jumped headlong into ethanol production by requiring a blend of up to 22% of ethanol in gasoline, Cosan became one of the leading makers of the fuel. Today, many Brazilian vehicles can run on pure ethanol, helping cane-based ethanol now command 50% of the auto fuels market in the country. Cosan has expanded with ethanol’s influence, buying up ExxonMobil’s (XOM) retail filling stations business in 2008.

Last year, Cosan entered a 50-50 partnership with Royal Dutch Shell (RDS) in a new company, called Raizen, to produce ethanol, sugar and power (by burning cane husks) from sugar cane. In its latest quarter, reported last week, Cosan’s sales grew 25% to 5.19 billion reals (equal to $3.3 billion) with a net profit of 2.3 billion reals ($1.5 billion), although the bulk of that eye-popping net profit came from accounting for the merger of a number of company assets into the Raizen venture. Setting that aside, profit would have been a lot less, at $106 million.

It is Raizen that makes Cosan worth considering. The new company will produce 528 million gallons of cane ethanol a year, 9% of Brazil’s demand, and distribute them through Shell’s retail network in Brazil. Shell expects the global demand for low-carbon biofuels like ethanol (and cane-based ethanol is believed to have a lower carbon footprint than corn ethanol) to triple worldwide by 2030 … and for Raizen to grow with it.  Should the ethanol tariffs expire at year’s end, it’s a good bet that a lot of Cosan’s and Shell’s growth will come from exports to the U.S.