星期三, 4月 14, 2021
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Future of Biofuels Expected to Remain Bright

Only a year ago, biofuels were blamed for soaring prices of vital food commodities like corn, wheat, sugar and vegetable oils. Riots in more than 30 countries and warnings from environmental groups, governments, the United Nations and the World Bank triggered a global debate over public support for the expanding biofuel industry.

Then, as credit dried up and the global recession took hold, the burgeoning industry imploded — which at least silenced the outcry. Commodity prices tumbled even faster than crude oil as global fuel demand evaporated. The bursting of the biofuel bubble left dozens of plants idle and forced some of the biggest names in the industry to file for bankruptcy.

Among the casualties, the biggest ethanol plant in Spain halted production in September 2007, barely a year after starting operations. Jointly owned by a unit of Abengoa, a Spanish company that is one of the top biofuel producers in the world, and Ebro Puleva, a food-processing company, the €150 million, or $200 million, distillery, with an annual capacity of 200 million liters, or 50 million gallons, stood idle for 11 months amid cereal fields in the flatlands near Salamanca, about 220 kilometers, or 140 miles, northwest of Madrid.

Production resumed only in August 2008, as cereal prices dropped from their record highs and the Spanish government mandated compulsory blending requirements for transport fuel — a law that took effect at the start of the year.

Despite last year’s setback, Javier Salgado, chairman of the plant’s operator, Abengoa Energia, is optimistic for the future.

“We have the fortune of working in a European regulated market,” Mr. Salgado said. “We are living a crisis; it’s hard; we are under cost control; but the horizon is one of growth. I can envision in 10 years that Europe’s ethanol market will multiply by five, by four in Brazil, and triple in the U.S.”

Abengoa, the biggest ethanol producer in Europe — and a recent entrant to the biodiesel business — has a global annual fuel production capacity of 1.9 billion liters, with another 1.15 billion liters under construction. It is currently building the biggest ethanol plant in continental Europe, in the Netherlands. The European Union has set a 2020 target of supplying 10 percent of its transportation needs with renewable sources, which includes biofuels.

Industry analysts and producer companies say they expect government policies to continue to underpin biofuels expansion. Despite that, commodity prices should stay low for much of this year, depressed by the economic crisis; but next year, if global energy demand recovers along with the economy, there could be a repeat of last year’s spike in global food prices.

Less than 5 percent of world cereal production will go to biofuels this season, according to the Food and Agriculture Organization of the United Nations. But that share is expected to rise steadily, at least until technology to process alternative raw materials is deployed on a global scale, a distant prospect.

Rising biofuel use, together with surging human and animal consumption, will continue to put pressure on global food supplies, mostly because cereal production is not keeping up with demand. “There is not enough money being devoted to agriculture. Long-term trends are pretty dire,” said Francisco Blanch, head commodity analyst for Bank of America-Merrill Lynch, in London. “We are setting ourselves up for another big rally.

“Prices are set by marginal changes in supply; biofuels are still biting into overall agricultural production, and there is a risk of another price spike in as little as a year. All we need is a bad crop.”

The ratio of world grain stocks to consumption — a measure of spare food capacity — is likely to remain historically low through 2010 and beyond, at around half its level at the start of the century, according to data from the U.S. Department of Agriculture and the United Nations.

Food demand this decade — driven by population growth and rising protein consumption in emerging countries like China and India — has outpaced production gains. And strategic cereal reserves built in earlier years have largely disappeared. As a consequence, crop prices are expected to remain well above 2004 levels through 2015, according to a World Bank report.

And although the current economic slowdown has shriveled consumption, it is also expected to bite into grain and oilseed output next year, as cash-strapped farmers plant less and cut back on fertilizers.

Record cereals harvests this year and last, coinciding with falling demand, have bolstered current supply and will offset the expected production drop in the season ending in 2010. But economic recovery will eventually put new pressure on stocks.

Reflecting concerns over global food security, agriculture ministers from the Group of Eight leading industrialized nations last month agreed to study holding common food stocks.

Highlighting the tight supply and demand balance, the G-8 nations also pledged to monitor commodity markets to avoid last year’s price volatility.

Still suffering from the recession, biofuel margins, which collapsed around the middle of 2008, are expected to remain weak for much of 2009, capped by low crude oil prices. At current crop prices, biofuel refineries will need oil to stabilize at $60 a barrel to break even without government help, according to a Bank of America-Merrill Lynch report.

In Spain, at current oil prices, most biofuel capacity remains idle. In the United States, VeraSun Energy, the second biggest ethanol producer after Archer Daniels Midland, filed for bankruptcy last year: in Brazil, where government policy has driven a massive investment in biofuels, with a blending rate now approaching 25 percent, planned investment in new capacity is being cut back.

In Germany, subsidy reductions and tax increases on biofuel in the past three years have also weighed heavily on hundreds of small refiners.

Bank of America in March lowered its global biofuel production forecast for this year to 1.9 million barrels a day from its previous figure of 2.1 million barrels.

Refineries will operate at less than 50 percent capacity in Italy and at less than 60 percent in Germany, while U.S. and Brazilian ethanol plants will operate at 80 percent capacity, it said.

Still, Abengoa’s managers say a turnaround is only a question of time, thanks to official support.

Biofuels already account for 2.2 percent of global fuel supplies and about half of all growth in fuel production outside the Organization of the Petroleum Exporting Countries. U.S. renewable fuel production should almost triple by 2020 to meet blending targets. By 2050, according to projections by the International Energy Agency in Paris, 26 percent of the world’s transport fuel will be renewable.

The Bank of America-Merrill Lynch report expects government biofuel blending targets in 2010 to continue supporting growth: it notes that the administration of President Barack Obama and the Democratic Party-controlled Congress support increasing ethanol blending levels from their current 10 percent.

In the Salamanca plant, there is cautious optimism. Spanish legislation requires 3.4 percent of the country’s overall fuel mix this year to come from biofuels, increasing to 5.83 percent in 2010. Since the 2009 target has already largely been met, full recovery is not expected until next year. Most demand in the past two years has been met by importing much cheaper biofuels from the United States — but that trade has now been curbed by E.U. anti-dumping measures.

Public concern over food supply and cost is fully shared by the biofuel producers. High cereal prices lower their margins, for one thing, and the ability to use food as their primary raw material is constrained by the same factors holding back agricultural production.

“Making fuel out of first-generation sources has natural limitations,” Mr. Salgado said, referring to the growth in global food production. Abengoa, like many in the sector, protested last year’s attacks as unfair, blaming its competitors in the oil industry for inflaming the debate. Abengoa defends its track record and points to its strategic decision to develop second- and third-generation fuels.

Industrial-scale second-generation biofuel plants that use mostly cellulose, like corn stalks and hay, are not expected to come online at least until 2012, while third-generation technology using algae might not be commercially viable until 2015. But they are certainly the future.

The Salamanca plant has just started running the world’s first demonstration unit using second-generation technology to process hay. Abengoa already has a small pilot plant in the United States and plans to start building the world’s first industrial-scale second-generation ethanol plant early next year in Hugoton, Kansas. The United States has allocated $800 million to research second-generation biofuels. Abengoa hopes to get some those public funds for its $400 million Kansas plant.

“We know it’s not the best of times, but we also know about the future,” said Abengoa’s Salamanca plant director, Gonzalo Curiel. “It makes a big difference to work in a nascent industry, not one which is on the way out.”




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