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.