Under terms of a letter of intent, Ace will produce and market NGBF's biofuel to the manufacturing sector in Puerto Rico. Ace Biofuels will pay NGBF a licensing fee per gallon of biofuel produced and sold.

Puerto Rico, a self-governing US territory, has potential consumption of 30 million gallons a year of biofuel, according to a study by University of Puerto Rico.

The agreement is contingent on successful completion of a biofuel test in a boiler at a manufacturing site in Puerto Rico, and completion of technical due diligence by 30 November this year.

NGBF will then jointly manage the project with a goal of producing biofuel in Puerto Rico sometime in the first half of 2010.

Initial targets for the biofuel are boiler applications in locations with no access to natural gas and limited opportunity beyond fossil fuels to switch to a clean renewable energy source, says Edgardo Fabregas Rios, president of Ace Biofuels.

Rios says the agreement is timely, as Puerto Rico is exploring a number of alternative and renewable energy options to decrease dependence on fossil fuels. As well, the island is vulnerable to rising sea levels and other negative effects of global warming.

Crude oil represents 98% of energy consumption in the territory.

"We have been working with Ace for some time now and see this opportunity as a key to opening up new markets and growing the licensing side of our business," says Cary Claiborne, chief executive of NGBF.

The company says that its renewable biofuel, which looks like milk, contains almost no sulfur and minimal carbon. It is a mix of feedstocks including animal fat, vegetable oil and waste grease, along with proprietary ingredients.

The company is based in Columbia, Maryland, southwest of Baltimore.