One of the most damning myths about ethanol has been the suggestion that it takes more energy to make it than what you get from it.

(Never mind that critics cite a study from 2005 - produced by an oil company, and that that study has since been rebuffed by at least five others showing net energy gains in ethanol production. But we digress.)

Now, critics watch out. Ethanol could be poised to become vastly more energy-efficient to make, and potentially less expensive to produce than gasoline if two companies are to be believed.

Panda Ethanol and E3 BioFuels are both aggressively pursuing the use of biogas derived from farm manure to power ethanol distillation. It only makes sense - if building biofuel plants in farming areas to be close to corn and other crops, there's no lack of energy-rich, albeit aromatic, manure.

Panda today announced that it intends to build a 100 million gallon-per-year ethanol plant near the city of Muleshoe in Bailey County, Texas. When finished, the facility will refine 38 million bushels of corn a year into ethanol by gasifying a billion pounds of cattle manure a year to create steam. Once complete, it could be one of the most fuel efficient ethanol refineries in the U.S., and equal in size to a Panda facility in Hereford, currently under construction, which the company believes will be the largest biomass-fueled ethanol plant in the United States.

By-products from the process are being reclaimed and used where possible. "Material that's left from the manure gasification process is an ash, and that ash can be used in cement, paving and cattle bedding," said Panda Ethanol spokesperson Bill Pentak.

In addition, the wet distiller's grain by-product created in the distillation of corn for ethanol is repurposed as cattle feed. "We're taking from one end of the cow and putting food in the other," said Pentak.

The Muleshoe facility is the sixth 100 million gallon ethanol project announced by Panda, and the fourth to be powered by cattle manure. The company has received air permits for three of its six announced ethanol projects.

Panda plans to go public via a reverse merger later this year.

While smaller in scale, an initial project by E3 BioFuel is pushing efficiency and cost savings even further. The company is to begin production next month at a facility it owns in Mead, Nebraska with what it calls a patented "closed-loop" system.

Not only is manure from some 28,000 head of cattle on site being gasified by digesters for the production of ethanol, but the processed manure is being run through a nutrient recovery unit, where ammonia and other fertilizers are being collected for reuse, not unlike Organix's peat moss project in Washington state. Like Panda, the wet distiller's grain is being repurposed as cattle feed - and because the animals are on site, the feed doesn't need to be dried or transported, resulting in even more savings.

"We're even recovering the waste heat from the ethanol refining to keep the manure digesters warm," said E3 spokesperson Nathan Dayani. "In total, we're making 23 times more efficient use of fossil fuel than conventional ethanol refining."

And that's poised to make ethanol even cheaper and efficient. "This plant will make ethanol more than twice as energy-efficient as any other method of producing ethanol or gasoline," said Dennis Langley, Chairman and CEO of E3 BioFuels.

To the issue of scale - ethanol refineries less than 100 million gallons a year aren't normally significant - Langley says E3's 25 million gallon capacity is only constrained by "the input to the anaerobic digester. Cattle manure is one source. With other sources, like offal, we could take this to 150 million gallon production and only require small amounts of fossil fuels, if any."

E3 plans to build 15 more such plants near feedlots and dairy farms, of increasing size, within the next five years.

Investors in E3 include several well known high-worth individuals that have historically been concerned about minimizing greenhouse gases. The company wouldn't name any, but Vinod Khosla of Khosla Ventures has written glowingly of the company, calling it "a potential gusher of renewable, energy-efficient transportation fuel."