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Huge capacity for biofuels |
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 The current federal Renewable Fuel Standard requires the use of 36 million gallons of biofuels, including at least 21 billion gallons of advanced biofuels by 2022. Advanced biofuels are defined as fuels other than corn-based ethanol and with greenhouse gas (GHG) emissions half that of the fuel they replace. This creates a gigantic market, so large that some industry observers doubt if it can be met.
With so many variables, I find it's often better to take a step back to see what impact the development of the advanced biofuels market will have on the larger economy. Will there be impacts on the broader economy which will be independent of the eventual mix of products and processes in the advanced biofuels market?
We can learn from the experience of first generation biofuels.
Biodiesel feedstocks (Palm oil, rapeseed oil, and soybean oil) typically follow diesel prices. There is a massive overcapacity for biodiesel production in the EU.
With this excess capacity, if biodiesel feedstock prices were to fall relative to diesel prices, biodiesel producers would purchase feedstock either until they fill their excess capacity, or until feedstock prices rise again to a point where it is no longer profitable to run additional biodiesel capacity. Put another way, biodiesel producers cannot be more than marginally profitable (and may be unprofitable) so long as there is significant excess capacity. Excess capacity can only be filled if additional feedstock can be found, or plants permanently shut down.
What does this mean for advanced biofuels? As advanced biofuel technologies advance, feedstocks prices are likely to rise.
Investors who expect advanced biofuels to be successful should pay close attention to feedstocks. Just as supply constraints for batteries will shape the electric and hybrid electric auto market, limited supplies of biomass will shape the advance biofuels industry.THE END
Source: Altenergystocks.com |
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