INSIGHT: Biofuels - cutting through the hype

17 July 2006 19:50  [Source: ICIS news]

LONDON (ICIS news)--Some talk of a tipping point others of a bubble about to burst.

The biofuels business has, without doubt, acquired a life of its own.

That is hardly surprising. Politicians have encouraged the use of renewable resources to produce transport fuels. The market has begun to react big time.

Yet there are growing fears of a biofuels bubble, inflated to potential bursting point by less well-informed investors simply following the crowd.

Some believe the business is about to take off while others believe it will take a long time to fully develop.

Biofuels encompass a range of blendstocks and some will perform better than others. In this young business biodiesel offers the greatest short-term promise. Wider use of bioethanol is expected but difficult questions are being raised about its production and use. 

Biodiesel can soak up supplies of unwanted animal or vegetable oils and fats, either of vegetable or animal origin, to produce a low emission, self-lubricating blend for petroleum derived motor fuels.

The big ethanol push is underway – consultants McKinsey forecast global demand for bioethanol more than doubling between 2005 and 2012 to 24bn gallons.

Yet serious questions were raised in the US last week about the thermodynamics of bio-ethanol production.

To this heady mix can be added growing concerns about potential hurdles to biofuels trade and technology transfer.

It is noteworthy, however, that the energy giant BP says it won’t build any large-scale bio-refineries or plants in the near future. The technology, it adds, still has a long way to go.

The oil industry has lifted its spending on bio-products but largely on research into the alternatives and what role they might play in the fuel mix of the future.

At current oil prices, many alternative technologies become viable, Chevron, for example, believes. For this big oil player, biofuels is but one of them.

BP’s Justin Adams, who is director for long term technology strategy, warned delegates at the Third World Annual Congress on Industrial Biotechnology and bio-processing in Toronto last week of over-hyping what we really have. Biofuels can play a role in displacing oil but the cost of making them is still very high, he said.

The oil industry needs low-cost abundant feedstocks and cost-effective technologies to convert ligno-cellulosic materials into transport fuels. In this respect, BP particularly believes it is important to move beyond ethanol. It has its eyes set on biobutanol which it will produce first in the UK using technology developed by DuPont.

The energy sector has experience of dealing with the hype surrounding hydrogen technology. That bubble has been deflated as the industry has begun to see the challenges associated with its use.

Biofuels hold out great promise but without doubt not all biofuels are equal. The developing technology and developing market is attracting a lot of new capital and a great deal of it will be well placed. But some of it will be lost when the winners in the great biofuels race become clearer.

By: Nigel Davis
+44 20 8652 3214

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