Biofuels were supposed to have a great future.
Falling oil prices and new market participants have put this future into question.
We have noticed that investments have dried up. Biofuel production is losing market share to its competitors. There are several other technologies that have been introduced on the market, but among these, electric and hydrogen powered vehicles are the most promising. They are competitors and limit the expansion of biofuel production.
This raises a question: What are the advantages and disadvantages of using biofuels?
2. BIOFUELS PROS AND CONS
Biofuels actually have many advantages over oil and gas. They are virtually carbon neutral in direct comparison to oil and gas. Biofuels are virtually carbon neutral because the production of biofuels is energy-intensive and partly requires fossil fuels. This also depends on the exact process for producing these biofuels and their ultimate use. Beyond the level of carbon neutrality, biofuels can be harvested from a variety of crops such as sugar cane, miscanthus, algae, wood chips and organic waste. Fuel made from plastic is not really considered biofuel. One reason is that plastics-to-fuel emits as much CO2 into the environment as conventional oil and gas combustion.
This leads us to a central core argument in favor of biofuels. With regard to the advantages and disadvantages of biofuels we should keep the following in mind: Biofuels can be produced from various sources and they can be harvested in many places. What biofuels lack in energy yield, they make up for in terms of variety and diversity of location.
3. PROCESSING OF BIOFUELS
The production of biofuels is an energy-intensive process. In our opinion, this is a major reason why the sale of biofuels is so unaffordable. Therefore, biofuels cannot easily compete with fossil fuels, at least not without subsidies. To produce these fuels, we still need various inputs. If we look at the degree of difficulty in producing biofuels, we see that the process is as cumbersome as producing sweet crude oil. For this very reason, oil companies are not investing much capital in biofuel research. This further limits innovation and restricts the development of biofuels.
This could explain why new investments were directed to other research areas. There has been a surge of investment in and around the development of plastics-to-fuel technology. We know that plastics are carbon-based because all plastics are made from petroleum. This means that it is an end product based on an existing chemically related product.
4. SUPPLY CHAIN COSTS
Due to their logistics, biofuels have a very difficult time establishing themselves as an alternative to conventional energy sources. The supply chains for the collection of biofuels are also inefficient. The amount of biofuel is almost always far too small. Consequently, it is often not worthwhile to collect them at these locations for further processing. This is another important reason why biofuels are so expensive. In comparison, fossil fuels benefit to a large extent from cost advantages. They are found in large quantities at various locations. They enable more cost-effective transport. Fossil fuels are procured internationally, which is an enormous advantage. Once they arrive at a certain location, they are then transported to other locations around the world, which is possible thanks to economies of scale.
What we also need: We need to increase biofuel production capacities. This will reduce fuel costs per tonne. Lowering logistics costs will have a significant side effect: It will further expand the logistics network across many locations. In this case, biofuels will no longer be at a disadvantage compared to conventional fuels.
5. THE MARKET ENVIRONMENT
Although the biofuel market can be maintained almost indefinitely simply because biofuel production is self-sustaining, fossil fuels are still much more abundant than biofuels in terms of short and medium-term production capacity in tonnes. While it is true that fossil fuels are heavily concentrated in a few places such as the Middle East, the US and Russia, all these places have so much oil and gas that it is worth exploiting the oil and gas reserves first. Let us now draw a comparison with biofuels: Biofuel crops can be grown in cold and warm climates. Stables for biofuels can be found in almost all latitudes of the world. In most cases the processing does not necessarily guarantee a high energy yield, except in places like Brazil and Indonesia. Places like Indonesia have a very high energy yield for biofuels.
Without subsidies, biofuels will remain prohibitively expensive. This will not change in the near future. Developments in biofuel technology are certainly necessary. The market needs to expand sufficiently to allow economies of scale so that biofuel production can be further expanded. The high price is one of the biggest disadvantages for the further use of biofuels in our economy.
6. COMPARISON OF BIOFUELS TO OTHER FUELS AND TECHNOLOGIES
Biofuels compete with other renewable energy technologies. The main competitor of biofuel technology is electric vehicle technology. The main competitor of biofuel technology is electric vehicle technology. In contrast to biofuels, electric batteries are not an energy storage medium in the true sense of the word, as they are based entirely on electric charge.Why is this important? Because the main problem of electric batteries is that they are dependent on power supply. This poses a threefold problem:
First, the infrastructure, especially the distribution of electricity via low-voltage networks, is not sufficiently developed in the United States and Europe. Second, the batteries slowly lose power over time, even if the batteries are not used to power the vehicle. Third, people will have less money to invest in a brand new Tesla. The new Tesla would be a major purchase for households. For the majority of customers, electric vehicles with the current range would still be too expensive. This is especially the case when we compare the performance of the batteries with conventional diesel engines. The third reason mentioned applies in times like these, when the economy has collapsed.
Compared to electric vehicles, biofuels have the additional advantage that they can be used in existing diesel engines with minor adjustments and changes in fuel composition. They do not require an extension of the utility services. Furthermore, biofuels require only a minor adjustment of the downstream oil business. Some changes in the supply chain will be necessary, but they will not change the overall picture of what is possible. In addition, biofuels are an energy store and their high calorific value is quite consistent over the years. Biofuels retain much of their chemical viscosity and can be used years after their original production. Biofuels can be stored for later use, which is their trump card.
Tesla and other companies are expanding the market for electric vehicles. The success of Tesla (and other car manufacturers) in reducing prices will determine the future of biofuels in the transport market. But biofuels could have a bright future in both the aviation and shipping industries. The aviation industry is looking for new ways to reduce the emission of CO2 and other particles emitted into the air. For the aviation industry, biofuels are still a much better proposal than electric batteries. This will not change in the near future. The shipping industry is also trying to reduce emissions as much as possible, as their industry is subject to stricter regulations.
Algae biofuel research has suffered a blow and is unlikely to recover in the near future. There are two reasons for this: One reason is that oil prices have fallen steadily. This is to be expected, since oil prices fluctuate strongly. Historically, periods of low to medium prices have been interrupted by sudden oil price jumps. This is mainly due to supply shortages. The current situation is unique and striking. The current situation is somewhat unusual and different from what could have been predicted on the basis of peak oil theory. We will probably not see any peaks in the oil market in the coming years. The fall in oil prices that began in April is partly due to demand.
This also has to do with the pandemic, although the steep drop in prices began much earlier and began before the coronavirus pandemic. The other reason may be that there has been relative stagnation in biofuel research. We have to look at this problem from the perspective of the investors. Investors have to decide which energy technology they want to invest in. Practically all energy technologies are compared with each other. The comparison is absolutely crucial for investment decisions, especially if the energy technologies fall into the same energy category. This means that solar and wind energy are compared with other renewable energies. This explains why solar and wind energy are generally easier to obtain loan financing than nuclear power plants. Investments in nuclear power plants are adjusted to the risk of operational failures or construction delays. Solar and wind energy appear more attractive in the short to medium term investment horizon.
Investors are also looking at investment horizons in renewable energy projects. Renewable energy projects are compared with each other. In terms of investment horizon, solar and wind energy projects often perform better than nuclear power plants. It is often clearer when investors get their money back. Biofuels compete with electric and hydrogen-powered vehicles and, to a certain extent, with gas-powered vehicles. Currently, electric and hydrogen-powered vehicles have taken the lead. Currently, electric and hydrogen-powered vehicles have taken the lead. They are considered absolutely crucial for a future with much less dependence on fossil fuels. In the aviation industry, biofuels perform very well. For short-haul flights, biofuels are much more attractive for investors due to current legislation at EU level.
Research funding for algae biofuels has dried up. But there is another reason that has more to do with the biomechanics of biofuel production. This applies in particular to algae biofuels, which were once considered the great hope of the biofuel industry due to their considerable potential for biofuel production. The main problem with algae biofuels is that the growth cycle of the algae cells is at the expense of fattening the cells. This is a problem that is not easy to solve. The process of producing algae biofuels and algae cultivation is also quite energy intensive. Algae cultivation for biofuel production can be carried out in energy-rich coastal waters and desert locations with sufficient solar radiation. At equatorial locations this is easier to do.
8. INVESTMENT IN BIOFUEL TECHNOLOGIES
We have seen a significant reduction in investment in biofuels over the last 10 years. This is partly due to the current economic crisis, but not only that. It also has to do with the strong competition from electric vehicles and hydrogen-powered vehicles. A lot of capital has been invested in these competing solutions, which have been specially developed for the transport sector. If oil prices rise again, we will probably see an increasing interest in biofuel technology. When oil prices rose sharply in the short term in 2007, interest in biofuels also increased. For the same reason, we have seen less interest in sugar cane production in the United States, which was previously a booming industry. Only a few years ago, the interest in sugar cane production was very high in the USA. There are simply better fuel alternatives in the United States at the moment. Tight oil and tight gas have had a significant impact on biofuel production in the United States. In contrast, Brazil has continued to expand its sugar cane production.
Biofuels can be used in combination with other renewable energy sources such as solar and wind power. Biofuels are particularly attractive for use in decentralized locations that do not have access to a full national power grid. Biofuels are also suitable in remote locations that are not easily accessible for downstream and midstream oil operations. If regions need the fuel to expand trade and industry, biofuels can be an attractive proposition. For countries with abundant oil and gas reserves, biofuels are not an attractive option. If these locations opt for renewable energy sources, solar and wind power are often a more attractive option. This is also because solar and wind energy compete much less with agricultural use. Biofuels most often compete with food production.
The use of biofuels should be assessed on a case-by-case basis. Biofuels are not always appropriate and should be considered on a case-by-case basis for each country. In many countries different sources of biofuels are available. In Canada, wood chips are useful for biofuel production. In Canada, wood chips can also be used in CHP plants. In Brazil, due to the equatorial latitude of Brazil, it makes more sense to use sugar cane in the energy mix. In countries like the United States and especially in the Middle East, the production of biofuels makes little sense. There are better alternatives out there.