Taking the long view

There’s a piece about algae-based biofuel firm Sapphire Energy on Xeconomy, it’s talking about the way that plunging oil prices require alternative fuel start-ups to take a long view.

I guess that more realistic valuations of biofuel companies and a shake out of some of the more highly leveraged and more recent entrants into the market will help the long-term viability of the industry.

One thing that I think would help the industry to become more robust would be integration  along the chain from source to fuel. Two things the oil business do well, but the biofuels  business doesn’t. Give value to shareholders irrespective of where the profit is between the ground and the wheels of the vehicle. 2 Distribute fuel efficiently over great distances.

New technology is a great story but unless it is used by firms that can do these things, it won’t make a meaningful contribution to gasoline replacement.  

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One Response to Taking the long view

  1. Pradeep 26 November, 2008 at 7:02 pm #

    Simon,
    I agree that integration will help the biofuels industry to lower its costs. But, let me digress a little bit about whether we need algal biofuels…

    I recently did a blog article on evaluating where current algal biofuel technology stands. The results ( link to my article ) indicate that claimed biofuel production varies from 100-1000 barrels of oil equivalent/hectare/year (BOE/ha/yr). On the other hand, Dr. John Benemann, who was a PI for the NREL research program on biofuels from aquatic species thinks that with the current technology and using non-genetically modified speices, the maximum yields one can get are ~100 BOE/ha/yr. What does this tell us?

    For one, it tells me that either the claims are more positive than they actually are, or that the upper limit (100 BOE/ha/yr) has somehow been surpassed. Algal oil production/unit area plays a large role in affecting the economics of the process. As mentioned in the article, lower oil prices will certainly play a positive role in promoting consolidation and helping in realistic process evaluations. In the U.S., there is legislation pending to provide tax and excise credits to algal biofuel.

    Once this is resolved, we need to figure what to do with the algal biomass AND the algal oil. The algal cake that is a by-product also has to be utilized to justify the economics of the process. A company (Cequesta) plans to produce fish feed using algal CO2 capture , this model is radically different from the mainstream algal biofuel companies.

    I think the most economical way to monetize algal CO2 capture is to produce chemicals from algae which have high value. Granted, the volumes will be low, but the process might be economical due to the specialty nature of the business. At the end, what a powerplant or a cement plant worries about is its bottom line, not how many tons of CO2 were captured, although this might change in a carbon-trading regime.

    {[$/t CO2 * t CO2 captured] + [$/t product(s) * t product(s) produced] = Total income}

    Given that in a carbon-trading regime, the initial “cap” would be relatively high (and the CO2 offset costs “relatively” low), I would argue that the project developers would get larger returns on their investment by targeting high-value product syntheses from algae. In the long-term, however, as the cap is decreased, project developers would need high-volume chemicals (fuels) to remain competitive.

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