Energy Investment in Sugarcane as a Fuel Substitute for Oil


INSIGHT


  • THE FUTURE OF SUGARCANE DEPENDS ON WHERE IT IS GROWN. THE LOCATION HAS A MAJOR IMPACT ON THE ENERGY YIELD OF SUGARCANE.
  • WHILE IT MAKES A LOT OF SENSE TO GROW SUGARCANE IN COUNTRIES LIKE BRAZIL, THIS IS NOT NECESSARILY THE CASE IN OTHER LOCATIONS LIKE THE UNITED STATES. THIS HAS TO DO WITH THE INTENSITY OF SUNLIGHT AND THE IRRIGATION OF SUGARCANE, AS WELL AS THE SHORTER GROWING SEASON IN THE USA.
  • GROWING SUGARCANE AS AN ENERGY CROP CAN ONLY MAKE SENSE IN COUNTRIES THAT IMPORT HYDROCARBON FUELS AND WANT TO BECOME MORE ENERGY INDEPENDENT. THEREFORE, BRAZIL MAY BE BETTER SUITED FOR SUGAR CANE PRODUCTION THAN THE UNITED STATES.

1. INVESTMENTS IN SUGARCANE PRODUCTION AND REFINING ARE DEPENDENT ON THE PRICE OF OIL.


Investments in sugarcane production have to be evaluated on a case by case basis, because they depend on various factors such as the actual geographic location of the production site, production method, available transport links and distance to consumer markets, as well as the energy market where sugarcane is produced and where it is consumed.


We should include other alternative fuels in our analysis on sugarcane production. The goal may be to produce substitutable fuel from biogenic sources.


In addition, the usefulness of sugarcane as an oil substitute primarily depends on the oil price, because if both commodities have the same price tag on them, most customers would choose oil to transport goods and services. But sugarcane not only competes with oil as the main choice of consumers for transportation.


When it comes to deliveries in the transportation market, sugarcane is also in direct competion with natural gas deliveries in countries that do not have the option to exploit fossil fuel reserves in their home country. That is especially the case in the European Union, where there is a battle going on between LNG deliveries on the one hand, and natural gas send from Russia on the other hand.


Sugarcane also competes with other biofuels in the transport market. In fact, there are a lot of new innovative developments in the energy industry, one promising solution to our energy dilemma could be the use of algae as an oil substitute. I will deal with each point of critique one-by-one to assess if sugarcane is a suitable investment opportunity.


2. COST COMPARISON


There has been recently a lot of criticism of sugarcane to be used as an oil substitute, and many critics are positioning themselves against using sugarcane as an oil substitute. These critics are pointing out that sugarcane is just too costly as an oil substitute, given the fact that oil reserves diminish over time, we should opt for other types of fuels, such as natural gas which will remain relatively abundant geologically-speaking for the next 20 to 30 years, and which allows the conversion of diesel engines that are using oil to switch to natural gas as transportation fuel, which appears to be a cleaner fuel than oil.


But on a cost-by-cost basis, it really depends where you are geographically located to see if sugarcane makes economic sense to use as an alternative to LNG and oil. If you are located in Brazil for instance, it does make good economic sense to use sugarcane as an oil substitute, whereas natural gas imports from the U.S. in the form of LNG not necessarily means lower production costs. The fundamental nature of Brazil’s geography makes the country much more suited to producing sugarcane at an industrial scale, and given the nature of Brazil’s geographic pivot in South America close to the equator, there is abundant sunlight available for the growth of sugarcane plants.


In addition, only a few ports in Brazil are capable of processing LNG. The extensive road network on the eastern edge of the country near the Atlantic Ocean, where most major cities such as Rio and Sao Paulo are located, makes LNG deliveries to urban centers cumbersome. Each step along the way adds costs. However, sugarcane production is much more evenly distributed throughout Brazil. In Brazil, sugarcane availability is not hindered or limited by a few port locations on the Atlantic Ocean. The availability of sugarcane in the central parts of Brazil is virtually guaranteed and probably much cheaper than LNG.


As far as oil is concerned, every dollar per barrel of oil can make the difference how far inland one can transport oil to the inner parts of the South America. Currently, Brazil receives a significant amount of its oil supply from Venezuela, which until recently was able to fulfill its end of the bargain and deliver oil to Brazil. Although the recent political turmoil makes one question the continued availability of oil supplies to the Brazil home market.

In India, the situation is rather different. Due to the fact that the majority of the population works in agriculture and the fact that India has a fertile, sunny climate that supports the growth of sugar cane plants, it would make good sense to increase production and thereby reduce energy imports to India, according to Chandra Prasad B S, Venkatesh Reddy D M and Sunil S, as well as Dr. Shrishail Kakkeri. India also stands in competition with China for cheap energy resources.


If, by comparison, Germany would have to make the same choice between LNG supplies, and sugarcane, and adding a third choice in the form of piped natural gas deliveries from Russia, to stay true to Germany’s energy security interests and geopolitical considerations one necessarily opts for piped natural gas from Russia due to its relative abundance and good transport links to the Leningrad region and Russia’s northwestern oblasts. Even LNG would not be as competitive in the long-run, due to the geographic distance to the U.S. market.


That does not mean that LNG is not a good substitute for oil supplies, but it simply means that even though Germany has port sites that could handle LNG deliveries, it would not be cost-effective given the nature of Russia’s cheaper energy delivery and very reliable energy supplies. Sugarcane, which cannot be produced at an industrial scale in Europe due to land availability, population density, industrial use and diversity of different energy sources, is unlikely to increase its fraction of sugarcane admixture for diesel fuel in the near future, simply because alternatives are readily available, even though domestic energy resources are diminishing rapidly.

For the United States, in comparison to Brazil and Germany, it is a balanced argument. The fact that the U.S. still has relatively abundant energy resources available in its home market means that the need to switch to biofuels and sugarcane in particular is not as urgent as it is in Brazil.


The U.S. also receives energy deliveries from countries in the Middle East, Africa and Venezuela, as well as Canada, which means the diversity of energy supplies greatly diminishes the actual usefulness of sugarcane in the U.S. In addition to that, sugarcane production makes more sense in the southern portion of the United States, and it makes a lot less sense to grow sugarcane in the northern portion of the United States. This partly explains why some regions in the U.S. are so strongly in favor of handing out subsidies to grow more sugarcane and other U.S. states see no need to do that.


This in effect explains why the U.S. is also a leading producer of sugarcane, even though it has plenty of energy substitutes, even in the form of coal deposits readily available, but shows strong political preferences for granting these subsidies to sugarcane producers.


3. ALTERNATIVE BIOFUELS ON THE MARKET


In a previous article I have mentioned that algae is one of the latest newcomers to the biofuel industry, but that algae is unlikely to gain significant market share until 2030 simply because the commercialization of algae biofuel has not succeeded at an industrial scale so far, and algae biofuel is not cost competitive just yet. A lot of research has to go into genetic engineering to fatten algae in very little time, to produce more fuel from it.

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4. THE NEEDS OF THE TRANSPORTATION INDUSTRY


The transport industry strongly prefers to use oil instead of biofuels. It has been shown that biofuels have a corrosive effect on engines when used excessively. This partly explains why Brazilians are reluctant to buy new cars. We can increase biofuel admixture, but biofuels will never completely replace diesel for diesel engines. 

One of the biggest problems facing oil-importing countries is that they need to reduce their dependence on oil exporters like Saudi Arabia. For oil-importing countries, it may make sense to expand the production of biofuels. At the same time, oil importers must remain flexible and continue to explore various options to reduce fuel demand. Energy importing countries should continue to look for alternative fuels to meet their transport needs. Sugarcane could play a role for some countries.


It is crucial to strengthen research to commercialize electric and hydrogen-powered vehicles. But there will always be industries that rely on fuels rather than batteries to meet their transportation needs. The aviation industry is particularly vulnerable to any CO2 legislation.


We need fuel as an energy source. Only kerosene (with a biofuel blend) gives us enough power for take-off and landing. Kerosene is also energy-dense, suitable for long travel times, and not as heavy as electric batteries. This will probably not change any time soon. It is unlikely that sugar cane will play a significant role in the aviation industry in the medium term.


5. THE FUTURE PROSPECTS OF INVESTING IN SUGAR CANE AS AN ENERGY CROP


The biofuels industry has not fully matured. Algae biofuels will take a long time to mature commercially, and haven’t even been proven to work on an industrial scale. Sugar cane for ethanol production may be the only exception. The reason is that sugar cane has been fully commercialized in Brazil and to a certain extend in Indonesia.


Over time, sugar cane will compete with other renewable energy sources that may have a higher energy yield, such as algae biofuel. Currently, sugar cane is one of the leading biofuel crops. In the United States, we have seen slower growth in sugar cane production due to the shale oil boom. Sugarcane production has grown in other parts of the world, especially in Southeast Asia and Africa.


6. CONCLUSION


  • Sugarcane has a relatively low energy yield. The production of sugarcane implies a relatively high water consumption. Sugarcane production takes up agricultural land that could be used for growing food. Supply chains are complex. Sugarcane processing is now an industrial process. The complexity of the operations further reduces the energy yield.
  • Sugarcane can only be used as an admixture in the fuel mix. This places limits on fuel consumption.
  • Please follow the link should you be interested in the biofuels market in general and its growth potential in the years 2020 – 2030. We have another interesting analysis on the CHP biogas market potential and growth in the years to come.

Many thanks for the shared interest in the energy world!



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