Fuels Forward Blog: Supply, Supply Everywhere

So how does the oil and gas boom cut into the competitive dynamics of biofuels?

Samantha Oller, Senior Editor/Fuels, CSP

Michael McAdams

Michael McAdams

OAKBROOK TERRACE, Ill. -- If you hadn't noticed, the United States is awash in oil and natural gas, thanks to breakthroughs in extraction technology that let producers pry hydrocarbons out of formerly impregnable sources at a lower cost. In fact, the United States recently surpassed Russia as the global leader in natural-gas production, and may soon leap ahead of Saudi Arabia as the largest oil producer.

So my question: How does the oil and gas boom cut into the competitive dynamics of biofuels? Remember, one of the biggest arguments in favor of biofuels, and a lynchpin of the Renewable Fuel Standard (RFS), was the need for the United States to wean itself off of imported oil and to become more self-sufficient. Well, we are more self-sufficient, but just not in the area we thought we'd be.

I posed the question recently to Michael McAdams, president of the Advanced Biofuels Association, which represents producers of advanced and cellulosic biofuels.

"There's no question what it has done is removed the security worries that advanced biofuels were benefitting from," he acknowledged. But …

"When you look at the world moving to nine billion people in 2050, none of that cuts away from the opportunity for cleaner, more sustainable fuels and another set of options," he continued. "What advanced biofuels do is bring a lower-carbon-footprint fuel as an option. It won't be dominant, but it gives new opportunities room to grow. It gives the world a set of options. Does it take away the immediacy? Probably yes. But does it take away the dream, vision and opportunity? Probably no."

"It certainly changes the calculus whenever there's more supply in the marketplace--if, in fact, you're focused 100% on the supply question," said Tim Zenk, vice president of corporate affairs at Sapphire Energy, which produces algal oil or "green crude" that has recently been under test at Tesoro and Phillips 66 refineries. "However, I would remind everyone that it's more rhetorical in terms of the impact to us in the United States than practical."

He pointed out that current supply projections for crude oil continue to show a 20 million to 30 million gap between supply and global demand. "We still face enormous demand for crude oil that is way beyond anyone's imagination," he said.

"Rhetorically it works great, politically for folks to say we've got all we need. On a global basis we don't, and it's a global market. "

Another person who argues taking a global perspective: Tom Kloza, chief oil analyst at GasBuddy. He expects the United States will experience the highest oil production rates since the mid-1980s--and says that it is to biofuels' advantage if that oil is allowed to flow freely, somewhere else.

"The more hydrocarbons available from the home continent, the more difficult it is to drop in renewable fuels, expense-wise," he explained. "The best thing for renewables is if the United States was more part of a world market. We are not the world. We have these discounted prices for oil and gas thanks to robust production, no real export opportunities with the exception of Canada.

"If I was a sneaky person, working for a renewables company, I would be pushing efforts now to lift the export ban and export crude to other countries, and rejoin the world," he continued. "It will be one of the biggest arguments of 2014: Should we be exporting oil?"

While there are rumblings in the government and industry to lift the export ban on crude oil, which has been in place for a decade, Kloza expects 2014 to serve more as a "Super Bowl pregame show" to the decision, in light of the mid-term elections making any big policy changes politically toxic. The real action, he said, is to take place in 2015. It's a curious example of how much the development of alternative fuels depends on the economic dynamics of petroleum.

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