BlueFire Ethanol, Inc.'s (PINKSHEETS: BFRE) CEO, Arnold Klann, provides the following letter to its shareholders.

I would like to take this opportunity to wish each and everyone of you a very Happy New Year and provide an update on BlueFire.

The company has positioned itself to exercise its competitive advantages to cause a fundamental change in the transportation fuel marketplace. Since going public six months ago, BlueFire has focused on putting the fundamentals in place to drive the business forward. During the year, we have forged key relationships that will put us on a leadership position in the cellulose to ethanol marketplace.

Design and development are underway for the first cellulose to ethanol facility in North America by BlueFire engineers, JGC (a leading global engineering company based in Japan) and MECS (formerly Monsanto). The resulting activities allow us to utilize experience gained at Arkenol's pilot facility in California operated in the late 1990s and JGC's operating experience with the process over the last five years at their plant in Izumi, Japan. As the only technology of its kind that has been demonstrated by an independent party, we can show greater confidence that production facilities can be designed to perform as predicted.

During 2006, BlueFire began deployment of its strategy, which focused on replicable and sustainable production platforms such as location in landfills and existing power plants. Our Southern California Biorefinery, under consideration by the U.S. DOE for grant funding, provides a model that can easily be replicated across multiple regions of the United States to bring ethanol to the fuel markets. Use of urban wastes provides for bountiful ethanol production. These plants can be located in the markets with the highest demand for ethanol while extending the life of the landfills upon which they sit. Locating ethanol production facilities adjacent to power plants, as proposed by BlueFire in an application for loan guarantees to the U.S. DOE, allows for more efficient, clean and reliable approach to generating power and thermal energy from on-site facilities. Heat that is otherwise discarded from conventional power generation could be used to produce the thermal energy for the ethanol plant.

Concurrent with the development of our own facilities, BlueFire plans to enter into strategic Partnerships, with candidates who have demonstrated experience and exhibit a qualified business model into which the BlueFire technology will form a key business component. Several such opportunities are currently under consideration by the Company. As these joint ventures are finalized, we will announce them to our shareholders and the market.

The industry currently has received a lot of attention from Wall Street; this leads to momentum that must be embraced. In striving to eliminate the commodity risks that presently plague the traditional ethanol producers, we are focused on two key elements of our development plan. BlueFire, by using waste as a feedstock, has eliminated the risk of traditional price volatility, corn and sugarcane-based ethanol producers encounter in their operations. The other key element of our plan is to decrease the volatility of our end product sales by developing contracts to "lock-up" the price variances on produced ethanol. Under agreements such as with Petro-Diamond, a wholly owned subsidiary of Mitsubishi Corporation, we mitigate price-based financing risks associated with the ethanol product.

We are encouraged by the developing policies at the federal, state and local levels which accelerate support for cellulose to ethanol. Since our congressional briefing in September, we have remained active in policy and legislative discussions aimed at the continued expansion of the renewable fuels market. BlueFire production facilities are responsive to President Bush's Executive Order that sets a national goal of replacing more than 75% of our oil imports from the Middle East by 2025 and Governor Schwarzenegger's Executive Order for production of a minimum of 20 percent of California's biofuels within the State by 2010, 40 percent by 2020, and 75 percent by 2050. Ethanol production from cellulose is also responsive to the landmark piece of legislation recently signed by Governor Schwarzenegger to reduce greenhouse gas emissions to the 1990 levels by the year 2020. Ethanol has a positive benefit in greenhouse gas (GHG) emissions reduction. U.S. Department of Energy estimates that on a per gallon basis, ethanol reduces GHG emissions by 18% to 29%. However, cellulosic ethanol production technology such as BlueFire's, has an even greater benefit with an 85% reduction in GHG emissions.

These are exciting times for the Company, and we are working on several fronts to deliver enhanced shareholder value. We have announced the filing of a Form 10SB to begin the process of listing on the OTCBB and are working rapidly towards meeting eligibility requirements for joining a national trading market by mid 2007 to continue to grow the Company and enhance shareholders' value.

I am truly pleased with the progress the Company has made in just six months. Management is working hard to ensure that the first BlueFire cellulose to ethanol plant is built in North America within the next twelve months.

Thank you for your continued support and look forward to fulfilling the promise of cellulose to ethanol to wean us from our addiction to oil.

Sincerely

Arnold R. Klann President and CEO