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Biofuels 2010: Spotting the Next Wave

30 December 2009

The Prometheus Institute has turned from solar energy to biofuels in a new study by Joshua Kagan and Travis Bradford that gives an economic analysis of all current and proposed generations of biofuels. The report charts a clear path forward for future biofuels over the next 13 years, with forecasts for a firm establishment of a diverse biofuels industry globally and significant growth for algae biofuels.

Biofuels have been in existence since the 1970s. Prior to 2010, every global commercial biofuel plant was either for first-generation ethanol or biodiesel. Biofuels are an inherently local proposition. The US is the largest ethanol producer in the world. In 2009, the US produced 10.5 billion gallons of ethanol (seven billion gallons of gasoline equivalence) using corn as a feedstock while the second largest producer, Brazil, created about eight billion gallons of ethanol (5.5 billion gallons of gasoline) using sugarcane. Europe is the most important biodiesel producer in the market, with European rapeseed accounting for 58 per cent of the global biodiesel produced in the world.

Although biofuels have been a resounding success in Brazil where they displace 50 per cent of gasoline consumption and do not use rainforest land, the US and European experience has been more controversial. The “food vs. fuel” debate, land and water-use constraints, questions about whether the energy and carbon savings of biofuels are grossly overstated, and the reality that most forms of first-generation biofuels are uneconomical without generous government subsidies have tainted the perception that biofuels are a worthy alternative form of energy.

The next few years will witness the commercialisation of “advanced” biofuels. In 2010, the first commercial “cellulosic” ethanol plants will go online. Known as a “second-generation” technology, cellulosic ethanol is produced via bio-chemical or thermo-chemical means from the non-food component of biomass.

The US government has mandated that 100 million gallons of cellulosic biofuel be blended into the nation’s gasoline supply in 2010 increasing to 16 billion gallons in 2022. Large players like BP, Shell, Chevron, POET, ADM, INEOS, Abengoa and smaller companies (with large backing) like Coskata, Range Fuels, and Verenium are all relentlessly pursing cellulosic biofuel.

Success for cellulosic biofuel producers will depend on many variables including:

  1. access to consistent supply of affordable feedstocks,
  2. ability to access project finance and/or government loan guarantees
  3. improved economies of scale with production methods.

While second-generation cellulosic ethanol remains a major priority among policy-makers and venture capitalists, serious attention is being paid to third-generation algae biofuels. Known as a “drop in” fuel, algae can potentially serve the gasoline, diesel, and aviation markets (whereas cellulosic ethanol only displaces gasoline).

Certain strains of algae grow quickly and up to 60 per cent of its body weight can be lipids, which are easy to transform into petroleum replacements. Algae consume CO2, can thrive in brackish or salt water, and do not require cropland. Although there are significant economic and logistical constraints affecting the commercialization of algae, this report provides an in-depth explanation of those constraints and the likelihood that unsubsidized algae will become cost competitive with petroleum prices.

This 307 page report provides a thorough examination of the liquid transportation market. Through understanding the key supply and demand side drivers for petroleum, we created oil price scenarios through 2019.

Since biofuels are attempting to replace petroleum, any discussion about the future of biofuels must be grounded within the context of the economics of petroleum. We find that by 2015, cellulosic ethanol will be the largest “advanced” biofuel, comprising 2.4 billion gallons of the estimated 50 billion gallons of global biofuel produced.

By 2022, algae biofuels are the largest biofuel category overall, accounting for 40 billion of the estimated 109 billion gallons of biofuels produced.

December 2009

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