Are biofuels still economically feasible?

December 17, 2008

Are biofuels still economically feasible? Several months ago when gas was over $4 a gallon and lines were long at gas stations across the country, biofuels were heralded as the next best thing to sliced bread.  Now the price of gas has fallen below $2 a gallon in many places and is flowing freely again.  What does this mean for the biofuels industry?

The New York Times reported that major oil projects have been placed on hold because of the large drop in oil prices over the past several months.  Oil exploration and new refineries have been postponed because these projects are no longer cost effective.

This is a trend that is not confined to fossil fuels but also carries over to green fuel technology.  The momentum to find fossil fuel replacements has also dropped dramatically.  Once gasoline dropped below $2.00 a gallon, biofuel could no longer remain cost competitive.

Right now the world is experiencing an oil glut.  Shell is using oil tankers for storage.  This situation could become even worse if the Chinese economy contracts like the rest of the world economies.

How long this oil glut will last is anyone’s guess.  This past year has seen the sharpest increase and the steepest decline in oil prices ever experienced in one year.  The swing in the price of oil has rivaled the abrupt and severe changes in the Stock Market.

While the abundance of fuel and decrease in gas prices has been a welcome relief to most people in this awful economy, it has also lowered the perceived need for immediate fossil fuel replacements.

Improving our air quality is a marvelous goal as long as it doesn’t inconvenience people too badly or cost too much.  When gas prices were high, switching to cleaner cars and fuels was not only seen as good for the environment but patriotic.  Now, it costs to much for people reeling from the collapse of our economy, massive job losses, and uncertainty over what lies ahead.

A year ago, Biofuels Digest reported that 86 of 91 approved biofuel plants in Malaysia shut down due to the high price of palm oil and the low profit margins.  Fast forward to November of this year, and the situation has not improved even though the price of palm oil has dropped dramatically.  The drop in the price of palm oil was actually caused by low biofuel production resulting from low biofuel demand.

Although the Union of Concerned Scientists has determined that biodiesel and other biofuels are much cleaner than fossil fuel counterparts, the growth in the use of these greener fuels has been slow due to their higher cost.

A week ago, Biofuels Digest reported that German biodiesel producer, EcoMotion, was no longer able to be “price competitive” with fossil diesel due to falling oil prices.  This current turn of events could cause the company to cease production of biodiesel.  Currently, EcoMotion produces 300 tons of biofuel a day.

The biofuel picture in America is not much better.  Not only have declining oil prices hurt the biofuels business but the credit crunch resulting from the financial sector meltdown has affected the business as well.

A day after the report that EcoMotion was having trouble, Biofuels Digest broke the story that Altra Biofuels was shutting down its Ohio and Indiana biofuel production plants.  The two factors blamed were the falling price of ethanol, due to the falling price of oil, and the credit crunch.

The closure of the Altra Biofuels plants not only sends a negative message to potential biofuel investors but also to communities that have been courting biofuel companies to build in their towns.  The closure of Altra’s plant has meant the indefinite layoff of plant workers and a further hit on the local economy.

Minnesota’s Department of Agriculture has been offering a $300,000 grant to help gas station owners convert retail pumps to biodiesel.  The State  extended the grant because there had been no applicants for the funds.

Portland, Oregon has found itself in trouble for agreeing to use locally produced biodiesel at a cost of $7 per gallon versus the much lower cost for regular diesel.  Portland has defended the decision by stating that using locally produced biodiesel supports that local economy.

From an environmental standpoint, $7 price tag for cleaner fuel emissions is worth it, but during this time of economic turmoil, that price is more than the city can afford.

No one disputes that biofuels can be part of the answer to cleaning up the environment.  Unfortunately, the decline in the price of oil and the paralysis of the credit market looks like it may stall what looked to be promising growth in this sector.

As dire as the current situation is, it will improve.  Part of that improvement can occur with the much ballyhooed injection of money into green technology by the incoming Obama administration.  The infusion of cash may keep biofuel technology from falling by the wayside during this time of oil glut and low prices.

On Monday of this week, Reuters reported President Elect Obama’s picks for Energy Secretary and environmental team.  He chose Steven Chu, “who won the 1977 Nobel Prize in Physics and heads the government’s Lawrence Berkeley National Laboratory in California.”  Chu will work closely with Carol Browner who headed the Environmental Protection Agency (EPA) during Clinton’s presidency.

Lisa Jackson will lead the EPA under Obama’s administration.  The President Elect’s final choice  for his team is Nancy Sutley, “a deputy mayor of Los Angeles, to head the White House Council on Environmental Quality.”

Inevitably, oil will become scarce again.  When that happens the biofuels industry needs to be ready to quickly, efficiently, and cheaply fill that void.  Without government help, that is not going to happen.  The current economic climate and oil scenario is not conducive to the development and growth of the biofuels sector.

Obama has already expressed his administration’s intention to promote the growth and development of green technology.  He has acknowledged the danger our dependence on foreign oil has created for our country.  The President Elect also voiced his understanding of how the current situation could hinder us in his goal of America becoming energy independent.  Previous administrations have vowed to stop our reliance on foreign oil only to be defeated. He pledged:

This time has to be different. This time we cannot fail, nor can we be lulled into complacency simply because the price at the pump has for now gone down from $4 a gallon.

Growing our green energy industries, including the biofuel industry, is part of Obama’s strategy to bring the U. S. out of the economic doldrums.  In order to do that, he has to make sure that companies like Altra Biofuels can reopen its plants and provide secure jobs for its employees.

The biofuels industry is experiencing a set of circumstances that threatens to destroy it before it ever finds solid footing.  At least in America, there is a determination to rescue the industry from collapse.

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18 Responses to “Are biofuels still economically feasible?”

  1. DaveBG:

    It’s not an oil glut, the bottom has just fallen out of the market as the global economy tanks so badly for the next year (and some say well beyond).

    Bio fuels are an interesting one, they could be very useful (the recent tales of a new process to extract fuel from basic greenery) but it could also be a horrific curse (as food production gets swapped to a more profitable fuel production).

    Whatever happens the global economy needs to ditch it’s oil addiction and move to being based upon a sustainable, clean and ‘low or no’ CO2 production.

    Until that change happens the these relatively short-term fluctuations in the price of oil don’t really tell us anything.

    If the global economy were to pick up again soon then it’s pretty clear that the price of oil would rocket again.

  2. Ken:

    The exact same thing happened in the early ’80′s. If you accept the premise that the price of crude was artificially driven up by speculation, then it doesn’t necessarily follow it will shoot back up with the economy.

    Oil producing countries realize they have a finite resource and it seems every 20 years they are reminded that driving the price up by cutting production or other manipulation isn’t in their best interest.

    Opening up the Alaska pipeline had a big effect in the late ’70′s at tamping down prices. Our best bet is to allow more aggressive exploration so we aren’t a decade from production if there is an interruption in supply. It remains our biggest national security item.

    We should continue to aggressively explore alternative

  3. Simon:

    The drop in oil prices represents likely deflation; the potential profitability of biofuels is probably reduced but still competitive if adjusted for deflation.

    Beyond the economic question, however, alternative energy sources are becoming of critical importance no matter what their cost: first, in terms of global warming (this will soon become a national security issue when whole populations starve or are displaced due to weather- and sealevel-related changes); second, in terms of energy independence (the U.S. could be keeping money at home as a part of a domestic alternative/green energy industry); third, in terms of undermining the undue geopolitical power and influence that oppressive, unstable, or arguably immoral or at least problematic governments like Iran’s, Russia’s, Saudi Arabia’s, and Venezuela’s have on the world scene.

  4. Russ:

    Algae is the future of biofuel and food production. Developing the means to grow and harvest it is just engineering. Imagine what it will do to power and money on the planet when anyone with sunshine can grow all the oil and food they need…

  5. wackoae:

    So we destroy a food source just to fuel a very inefficient vehicle …. sure that is the best solution … for idiots.

    With biofuels you get:
    - 30% of the millage you get with the regular gas. This means you have to fill up the gas tank 3 times more than before. And bip-idiots call that efficient.
    - Increase in the cost of FOOD. Since biofuels are more profitable (specially if subsidized), more farmers will switch from food to fuel farms.
    - Higher pollution. Since the plants are no longer for food consumption, farmers can use what ever chemicals they want to “make more fuel” … polluting the local water supply.

    That is just a few cons of biofuels …. I still can’t figure out what is are the pros.

  6. jojo mcbean:

    Biofuel never seemed like a good idea to me. The amount of land it occupies could be easily occupied by plants that could feed people or cows that in turn feed people. I think that once solar panels become economical (they follow a moore’s law type curve for $/watt vs date) then they will become the energy source. Even countries like Saudi Arabia will use solar panels, where deserts are perfect for solar panels! Unfortunately, Canada doesn’t get any sunshine, so the tar sands projects will likely continue…

  7. ari-freedom:

    Nuclear energy makes the most sense. Lots of cheap energy, no problem with CO2 and doesn’t affect the food supply.

  8. huh:

    @wackoae

    Yup, that’s all true plus the added benefits of barely reducing emissions when you consider the entire biofuel manufacturing process.

    @ari-freedom

    That’s crap! Beyond the bad idea of switiching to a new finite resource, beyond the massive amount of pollution, beyond the questionable health hazards, and beyond all the emissions associated with plant manufacturing and waste disposal, nuclear isn’t even the cheapest alternative. If anyone is serious about the crisis – and most aren’t, they’re only looking for profits – solar, geothermal, and wind would be the new sources of energy.

    It wouldn’t even be that tough, these things could produce power on par with oil in a matter of years, and the investment would have innumerable positive consequences.

    Biofuels… what a fucking demonstration in propaganda.

  9. DaveBG:

    Nuclear is not a viable clean alternative.

    If you only focus on the day to day (safe) running it is but that takes no account of the huge CO2 output in their
    - construction (they are hugely expensive & complex installations),
    - fuelling (despite the illusory fast-breeder plutonium claims – a cover for justifying weapon materials production – most still use imported uranium) ,
    - waste management (a hugely expensive, complex & CO2 intensive ‘industry’ in itself)
    - and lastly but probably most significantly (and the one element some nuclear countries are now encountering) their decommissioning is an enormously expensive & extremely protracted process.

    Nuclear is far from a sensible option when all the elements to it’s operation over it’s entire life-cycle are taken into account.

  10. DaveBG:

    …..oh, and don’t forget the security arrangements you’re committed for for at least 100yrs to cover all the obvious elements

    (and then there’s the ultra high security installation for all the most dangerous by-products which you’ll be committed to keeping secure for several hundred years)

    Like I said, not cheap, not clean and certainly not environmentally friendly.

  11. JakeS:

    We have got to take a long-term approach to energy use. The answer to the author’s question about economic feasibility obviously changes dramatically as the price of oil changes.

    I read a blog this morning that suggested “minimum energy prices” which could fuel longer-lasting conservation efforts and alternative energy projects.

    http://www.firstcapital.com/blogs/mark_sunshine/?p=217

    The question goes beyond just biofuels as to whether any alternative fuels are economically-feasible when oil prices fluctuate so much. And who says we only have to have one source of energy, anyway? But we have to give the alternatives a chance and not just during the times when oil prices spike.

  12. JakeS:

    Any alternative fuels might not be economically feasible so long as oil can fluctuate the way it has. Consider “minimum oil prices” as was mentioned in this blog I read this morning:

    http://www.firstcapital.com/blogs/mark_sunshine/?p=217

  13. Roland Latour:

    A year from now this article, and the situation it describes, will be considered ridiculous or even comedic. People are very short-sighted. Things change. Get used to it. You don’t need a crystal ball to see that the future will be different from the present. All you need are facts, and they are bullish for alternatives. But corn ethanol probably is not financially viable long-term. Wind & solar are.

  14. Ugly American:

    Algae already yields over 10,000 gal/acre/year of refined oil in multiple locations and as high as 30,000 g/a/y in a couple of vertical farming tests.

    Algae can be grown where regular food plants can’t and both livestock and people can eat it both before and after the oil is squeezed out.

    Algae oil seperates from water on its own while ethanol has to be boiled out. The algae oil yields high grade diesel & jet fuel that works in existing trucks, aircraft & generators. It can also be used to make plastics with existing technology.

    Algae oil has more energy per gallon than gasoline while ethanol, methanol & hydrogen have less. Hydrogen has more energy per mass but per volume it’s 1/3 the energy of gasoline. Once you include the fuel cell hydrogen systems have less energy density than existing batteries.

    Algae oil can be produced most places in the world – even in floating ocean bins. That means economic freedom and increased standard of living for everyone.

  15. Ken:

    It’s always interesting to hear people talk about the waste issue caused by nuclear power, and in the same post talk about the danger of global warming because of the waste of our current energy sources that spew themselves across the globe.

    If we wouldn’t have gotten side tracked by the China Syndrome and environmental extremists and had the 30 years of development in the technology we would be better off.

  16. Steve:

    Chu won the Nobel in 1997 not 1977.

  17. DaveBG:

    Ken I’m all ears for why you think decommissioning nuclear power stations today with todays technology has been hampered by your “China Syndrome” or “environmental extremists”.

    It hasn’t.

    Decommissioning old worn-out nuclear power stations remains a dangerous, nasty, unavoidable and horrifically expensive long-term fact that the pro-nuclear lobby cannot now just ignore & avoid.
    Just like the rest of us now stuck with paying the enormous on-going bills for it.

    What on earth is “extreme” about recognising the whole life-span cost of nuclear power?!

    The truth is that those whole life-span costs were kept from the people at the time.

    Had we know back then the legacy of the dangerous filth and security risk we were leaving to our kids and grandchildren (and beyond) ‘we the people’ would most likely have never gone along with the idea of largescale nuclear power in the first place.

    Nuclear power? No thanks.

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