2011 saw 30 billion gallons of biofuel produced worldwide – or 136.4 billion liters or 4 billion cubic feet.  It’s a huge tank if it all was stored on one enormous site.

Pike Research has looked into the commercial efforts of 10 independent “Big Oil” firms to see what’s going on.  As you can imagine from the numbers above, Big Oil is sure to not be left out.

Click image for the largest view.

Crude oil over $100 for an extended period is also a strong motivator for capital investment.  Today the biofuels come mostly from common crops like corn and sugar cane, palm oil, soya and others.  States and national governments have put mandates on fuels to include renewable, i.e. biofuels into the market.

As regular readers know, there is a veritable stampede to discover, research, develop and scale up advanced conversion pathways that rely on low cost, non-food feedstocks.  The best ideas are getting quite sophisticated now and include planning about securing the feedstocks and getting control on the costs.  Logistics have become very important because the feedstocks are quite bulky.

Big Oil has a situation that is easy to grasp.  They need raw materials, currently almost entirely crude oil, to make products to sell.  They are competitive and work at mass scale driving to ever lower prices and reduced costs.  A major problem is the perception of the public and consumers over the profits – the profit numbers are big – but the dividends are spread over a vast stockholder pool.  On the whole oil stocks aren’t so great, but they are quite reliable.  They’re great for pension investing.

Like everyone, especially our kids, like plants and animals, and even bureaucracies, Big Oil wants to grow.  Its natural, growth is a natural part of life. No growth is a serious problem.

People tend to think Big Oil is opposed to biofuels, and if the PR is to be believed, it sure looks that way. But when you look, like Pike Research did, at the budgets, biofuels get a lot more money than the PR departments.

Pike looked at only 10 of the world’s Big Oil companies who have sunk billions into developing the industry over the last 5 years.  A few are already working at near-term production via proven, first generation pathways, all acknowledge that advanced biofuels must play a strategic role in the future energy mix.  The 10 firms Pike examines have established strategic partnerships and invested in innovative startups in an effort to build out integrated supply chain delivery networks.

Meanwhile in the biofuel community there is a looming $336 billion estimated cost of meeting emerging mandates over the next decade.  For the biofuel community and consumers, getting access to the oil industry’s expertise and capital will be critical to scaling up biofuel production.

No one is more acutely aware of the crude oil resources situation than Big Oil or enduring more cumulative stress.  Fuel use is down, taxes are up, regulations are an avalanche, and public perception is appalling.  Growth in home markets without crude prices counted is off, requiring export sales at wholesale.

Big Oil explicitly understands they’ll need advanced biofuels to protect existing market share and grow future revenue.  So far 31 countries mandate a biofuel component in their fuel markets.

There’s about $2 trillion of world fuel market.  Big Oil wants a healthy vibrant and growing economy for their market, their employees and the shareholders.  30 billion gallons annually in a daily crude oil market of about 3 ½ billion gallons is only a film on top.

That’s why commercial scale is so critical. Technology has to scale up to worthwhile amounts to get serious attention.  In biofuels the pricing will hinge on the cost of feedstock, logistics and processing all together.  In the mind of a big oil company a good oil field would make say 100,000 barrels a day – a worthwhile endeavor, real commercial scale.  That would be roughly equivalent to an annual 1.5 billion gallon biofuel project.

There are no credible proposals from biofuels at that scale – yet.  Only ethanol in the U.S. and Brazil has credibility so far and it makes money.

Of the 10 firms Pike chose to consider (see graphic above)  the top four are all well into ethanol primarily in Brazil.  The next three have plans working to meet imminent demand and are working on ideas outside of ethanol.  The last three seem much more conservative, and are working outside of ethanol.  No commercial scale investments yet, its more of a research into research sort of thing with investing that looks to outsiders – as haphazard.  But the wide net policy has a far better chance to catch the next biofuel wave that can scale up.

A few words about Pike Research: Pike’s business model is different from what one usually sees – the firm paid to research and write a report.  Instead, Pike asks the questions and writes a report or runs a seminar, etc. for astonishing prices.  That gives them a more objective reference point.  It’s also a very busy place.

Like your humble writer you too can register with Pike and get the announcements of reports and other services.  On this topic there is an executive summary and brochure available. There seems to be one every business day.  They are worth the few moments for a review because Pike survives by asking a lot of good questions.  Regular observation of what they’re offering is quite insightful.

Big Oil is the economic black sheep for now – essentially because people don’t or won’t understand the circumstances.  Fundamentally the oil industry is just like us, trying to grow, make some money, and build out security for our progeny and ourselves.

The independent oil firms will roll into biofuel when it’s possible both in scale and economics.  Just like us they want the business, it won’t matter if the source is crops, algae, artificial photosynthesis or crude oil.  They would like nothing better than everyone to be able to afford a nice car and drive it with great pleasure.


5 Comments so far

  1. Alfred Holzheu on March 26, 2012 11:56 AM

    If you truly want to get real, you must separate the conversion efficiency of solar energy into food from the the conversion of solar energy into mechanical motion. Although plants are indispensable for the production of food (even us omnivores know that), they are very poor at making that transition from solar nuclear froth into making the wheels of the bus go round and round. Both are important, but both have their place. To digress a little, there are probably seas of methane on Titian, ergo hydrocarbons are probably a gift from the GOD, and we can use that gift to produce modern life. Consequently we can produce food, or produce solar cells (assuming that you don’t buy into the CO2 is bad hypothesis) from that energetic bounty. Each has its proper place and efficiency coefficient, but to take the inefficient process of growing a plum and making fuel from it is just stupid, when the same expenditure of effort can produce 15 times the energy with solar cells. I am ignoring nuclear for the moment as we do not have a environmentally acceptable process to extract energy from the true source. If someone comes up with a solution to this conundrum, all bets are off. But until then, we need to drink reality tea, not fantasy koolaid.

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