Biofuels compete head-to-head with fossil fuels.
Their future success depends 1) on the price of oil and 2) on the successful commercialisation of biofuels.
We would like to take this opportunity to show you that biofuels will be able to replace or partially offset global supply reductions of oil and gas. We can only state this as a fact if we can be sure that biofuels can be commercialized in the future. In the first part of the series, I will examine curent trends in oil markets, and how they relate to biofuels. In the second part of the series, I will go into more detail regarding biofuels and their future prospects.
1. WHAT HAPPENS IF WE CROSS THE PRICE BARRIER FOR OIL?
This depends above all on the price of crude oil, which currently stands at over 75 US dollars per barrel of oil. According to James Howard Kuenstler, this price for oil can be taken as a benchmark, although we generally find that a price of less than 75 US dollars a barrel of oil leads to consumers spending more and this boosts economic growth, but leads to oil companies no longer making a profit. In the case of peak oil, it can even lead to the oil companies not being able to sell their production to the market when producing shale oil or shale gas and going bankrupt.
2. IN THE OIL INDUSTRY, THE LOSS OF ONE IS THE PROFIT OF THE OTHER.
At a price of over 75 US dollars per barrel of oil, this leads to the oil production companies making a profit, but the consumers can no longer afford many goods and services. This inevitably leads to many oil production companies being able to produce more oil, but at the same time demand is falling. So it comes to an interlude in which the price drop constantly continues, because consumers can no longer afford the products and services in which oil is contained, but the phases of the long-term price drop are based on the decline in oil production and the falling demand for crude oil on the world market, although here too must be taken into account that the demand for crude oil in the Far East and especially China will still increase significantly. Nevertheless, these phases of the oil price decline are interspersed by phases of short-term enormous price increases, because it comes to more and more difficulties to extract the oil.
3. A MARKET SHIFT DRIVEN BY PEAK OIL LEADS TO AN UNRELENTING COST INCREASE
This has the following reasons: on the one hand, there are fewer and fewer geological formations available in which petroleum can be extracted through less complex technical interventions. this leads to the fact that more and more financial resources have to be used to extract petroleum, in the form of CAPEX and OPEX, through ever deeper layers of rock, in ever less favourable geological formations, which are ever less productive, and which dry up ever faster. For shale oil deposits in the United States, for example, it is often the case that there is a rapid increase in production after the start of crude oil production for a few years. However, a new phase is quickly emerging in which crude oil production is rapidly declining and being produced at a low level, under high pressure, with enormous use of water and chemical admixtures, and at high cost.
4. THE LACK OF INVESTMENT IS INCREASINGLY RESTRICTING OIL PRODUCTION IN OIL-PRODUCING COUNTRIES
Furthermore, there are enormous geopolitical tensions in the area of fossil fuels, especially in the production of crude oil and natural gas. In fact, the geopolitical distortions between countries and social alliances in the field of energy policy and military policy are leading the best oil-producing countries to suffer from a chronic lack of investment, especially Iran and Venezuela. Here it can be seen that enormous reserves are left untouched by the decades-long decline in investment, and the investments ide in the 1960’s and 1970’s flowed into the oil refineries and production sites have long since become serious technical shortcomings unprofitable. It can be said that Iran’s oil production facilities are becoming more unprofitable, due to this mismanagement and the lack of modern technical machinery. Iran, as well as Venezuela, are dependent on oil production in order to finance their state expenditures through exports, but it is so that they accumulate an operational loss through reduced investments over time.
5. LACK OF INVESTMENT IN OIL PRODUCTION LEADS TO LOW COMPETITIVENESS AND DECLINING REVENUES IN OIL REFINING BUSINESS
This will inevitably lead to an enormous increase in future reinvestments to maintain refineries and crude oil production facilities, because the technical infrastructure for crude oil production, which was initially affected by low investments, will require even higher investments in the future in order to enable a balanced crude oil production over hours, days, weeks and months. This will inevitably lead to an enormous increase in reinvestments for the maintenance of refineries and crude oil production facilities, because the technical infrastructure for crude oil production, which was initially affected by low investments, will require higher investments in the future in order to enable balanced crude oil production over hours, days, weeks and months. It is increasingly the case that many refineries are located abroad when it comes to the production of higher quality products of the oil industry, whereby countries like Iran and Venezual increasingly become suppliers of primary energy, whereby their real expertise is only the production of crude oil, partly also natural gas.
6. LOW INVESTMENT IN THE OIL INDUSTRY AND GLOBALISATION LEAD TO AN ENORMOUS CONCENTRATION PROCESS IN THE OIL INDUSTRY; TO THE DETRIMENT OF OIL PRODUCING COUNTRIES
Another reason why petroleum producing countries like Venezuela and Iran are becoming more and more disadvantaged in the global market place for energy resources, and may even become suppliants in the future, is the fact that bigger and bigger tankers are crossing the oceans, causing ever larger volumes of oil and LNG to be transported in bigger tanks, which on the one hand concentrates the actual competence in the production of petroleum-containing products in specific locations such as Texas, and on the other hand leads to a shift away from petroleum and towards LNG, whereby the global market is pervaded by more market participants then ever before. Small market players like Qatar benefit greatly from military protection by the United States, and from a shift to LNG. Let’s remember that the price of oil is linked to the price of natural gas.
7. THE NOW TO BE EXPECTED COLLAPSE OF THE OPEC
As a result of this process, the oil-producing countries, in particular the OPEC countries, lose their ability to determine the price of oil and this heralds the collapse of OPEC. Various geopolitical interests of the OPEC member states cannot and will not promote the cohesion of that institution. Last but not least, heading off in different directions as far as energy policy is concerned will not promote the interests of oil-producing countries. Indeed, it will benefit the oil consumer countries, in particular china, because china is increasingly sourcing its oil from various oil-producing countries, including Russia. The geopolitical interests of Russia are very different from those of Saudi Arabia. This is especially the case because Russia formed an alliance with Iran, which undermines Saudi Arabia’s geopolitical interests.
8. ONE WAY TO GET OUT OF THIS ENERGY DILEMMA IS TO REDUCE THE NET CONSUMPTION OF PETROLEUM
The reorientation of oil producing countries when it comes to their global energy policy depends primarily on their ability to reduce their net consumption of oil and natural gas, with more crude oil and natural gas remaining to be exported to generate the necessary government revenue through exports. However, the population explosion in many of these countries is not benefiting the net consumption of oil and gas, as net consumption of oil and gas is already rising in the oil producing countries and will continue to do so. It is likely that Saudi Arabia will have to drastically reduce its government spending even in the not too distant future, simply because the local population consumes more oil, and the price of oil in these countries is subsidized by the government in a certain way.
9. ONE WAY TO GET OUT OF THIS ENERGY DILEMMA IS TO PRIVATIZE NATIONAL OIL PRODUCTION COMPANIES, THERE ARE SIGNIFICANT RISKS OF RE-NATIONALIZATION AS WITH THE ANGLO-PERSIAN OIL COMPANY
One way out of the energy misery is to give shares in the oil production companies to foreign investors, which indirectly leads to increased investment in maintaining the technical infrastructure for oil production. This is similar to relationship that has existed between the British Government and private investors from Western countries who, through the Anglo-Persian Oil Company more than 50 years ago, influenced Iran’s political decision-making process. The conservatives in the Iranian government at that time saw oil revenues as a welcome source by which Iran could cover its growing welfare budget, when it came to taxation and state revenues from oil production, they weren’t ready to budge and the Anglo-Persian Oil Company was nationalized. Investors in the energy industry have a long-term memory when it comes to investing in oil-producing countries and will take into account the risk of nationalisation by the local government.
10. THE PRIVATIZATION OF SAUDI ARAMCO
It is also not surprising that Saudi Arabia is thinking about going public with Saudi Aramco, which used to be a private company. Let’s remember that Saudi Aramco was also a nationalization in a way. In the future, investors would be exposed to the risk of nationalization. It also makes sense to go public right now, as Saudi Arabia’s oil reserves are running out. And nobody in the industry knows exactly how high Saudi Arabia’s oil reserves really are. The same could also be said about all the other oil-producing countries of OPEX, where every government keeps the data relating to oil reserves secret.
11. ONCE EQUIPPED WITH ENORMOUS FOSSIL FUEL DEPOSITS, ABUNDANT OIL AND GAS DEPOSITS ARE NOW BECOMING AN OBSTACLE TO THE ENERGY TRANSITION IN OIL-PRODUCING COUNTRIES
On the one hand, most of them missed the point at which they should have invested in renewable energies. apart from the United Arab Emirates, almost all other oil-producing countries have not invested in renewable energies precisely because fossil fuels are still available for decades, but this is a fallacy. For while oil-producing countries have persisted for decades with their continuous revenues from the export of fossil fuels, the oil and gas consumer countries, including China, which originally had significant oil and gas reserves itself, have been searching for and finally finding alternative energy sources. Particularly due to the fall in the price of solar systems, which can be manufactured much more cheaply, an undreamt-of intensity of competition with renewable energies began, which the oil-producing countries thought would be decades away in the future. The oil-producing countries had the best initial conditions to benefit from the construction and use of the solar systems. In the meantime, the United Arab Emirates had examined the energy revolution more closely and decided to play a pioneering role. This process is very similar to the changes that the UK experienced more than 50 years ago, with the shift away from indigenous coal reserves in England and Wales. Coal was used for shipping, and Britain continued to use domestic coal reserves which delayed the transition to oil, which the Americans had been using for much longer and which all but guarenteed American supremacy over the oceans. A similar transformation process is now taking place in the energy industry, and the oil-producing countries are at a loss.
12. MANY OIL-PRODUCING COUNTRIES; SOME WESTERN NATIONS; WILL NOT BENEFIT FINANCIALLY FROM RENEWABLE ENERGIES
In the meantime, even the European Union has fallen behind in the technical development of renewable energies, and while Europe rests on its laurels, China and the USA have become leaders in the renewable energy field, with the United States playing a leading role in the technical development and marketing of renewable energies, and Chinese in mass production and cost reduction. So it is surprising that the European Union, and Germany in particular, are complaining about China’s leadership in renewable energy, as it has long been the goal of the European Union to reduce the production costs of renewable energy to a level that makes it competitive with fossil fuels.
13. WHEN BIOGENIC WASTE AND BIOFUELS COMPETE WITH FOSSIL FUELS
And now we come to the most important part in this article: To what extent will biogenic waste from sewage sludge plants be able to replace fossil fuels. How competitive will oil and gas really be in the end if current trends continue and sewage sludge unfolds its full potential in the United States, and the same trends will alter the European sewage sludge markets as well. I have outlined all of that in an another article on how to turn sewage sludge into fuel. Household waste, corn liquor in biogas plants, sugarcane, algae fuel, wood and plastic wastes will compete with each other for market share in the global fuel business. The future is not on the side of oil producing countries, they will have some serious competition. We assume that the upper price limit of 75 US dollars per barrel will be the price threshold at which alternative fuels become attractive to consumers, which I mentioned in my introduction.
14. CAN BIOGAS COMPETE WITH FOSSIL FUELS?
It is very unlikely that biogas will compete directly with fossil fuels, due to the fact that biogas itself is obtained from corn liquor, thus from an agricultural product. Maize removes many valuable minerals and phosphorus from the soil, denaturing the soil on which the maize plants grow, and as a result it has to be replenished. Biogas only makes sense in Central Europe if it is subsidized by the government. However, as subsidies are currently being cut, it is unlikely that biogas will ever become a serious competitor to fossil fuels. But also because of the bad EROI (Energy-Returned-on-Energy-Invested) biogas will probably not contribute significantly to the solution of the energy problem we are seeing now, as there are hidden costs with biogas. The American Biogas Council has produced a great overview of the entire process to produce biomethane and renewable natural gas from biogas conversion.
15. CAN ALGAE FUEL COMPETE WITH FOSSIL FUELS?
Algae fuel is currently still in the development phase and the commercialization of this solution is still years away. However, it is most likely that this solution will come from the United States, and that much capital will be needed to bring Algae fuel to markets worldwide. The United States may be suitable for the commercialization and development of algae fuel, but not for mass production due to its distance from the equator. This slows algae fattening and growth rates. In order to accelerate this growth rate, and the process of algae fattening, more genetic engineering research is needed.
Shell is the leading company in this area, and commercialization is expected by 2030.
16. CAN SUGARCANE COMPETE WITH FOSSIL FUELS?
Similar to algae fuel, sugarcane is also dependent on climatic conditions, but is more geographically concentrated in certain countries such as Brazil, and to some extend, the United States. As a result, it is not nearly as suitable for global use as oil is, and is regionally concentrated in certain parts of the world. However, sugarcane does not have the same advantages as algae when it comes to genetically modifying the plant, partly due to the growth rate of the plants.
17. CAN SYNTHETIC DIESEL MADE BE FROM PLASTIC WASTE; AND CAN IT COMPETE WITH FOSSIL FUEL?
Plastic is of course abundantly available, due to the high consumption in the industrialized countries, but also in East Asia the consumption is now very high. the plastic waste produced per person in Taiwan and Singapore is very high and sometimes even well above the average of western countries. nevertheless, it must be emphasized that plastic waste is not the same as plastic waste. There are enormous differences between the waste fractions, and basically the plastic waste needs pre-treatment and sorting, and must be shredded. This leads to the fact that actually only few fractions are usable for the utilization of plastic for the conversion into fuel. Scientific studies have shown that this synthetic fuel is best suited for diesel engines and even improves the driving characteristics. To broaden the appeal to produce fuel from non-recycled plastistics, the American Chemistry Council launched the Plastics-To-Fuel and Petrochemistry Alliance which will promote the interests of petrochemical producers and plastics recyclers.
18. WOOD FUEL
Wood fuel is actually not fuel in that sense, but it should be mentioned here as it was the raw material basis for charcoal for centuries. wood fuel will not replace fossil fuels in my estimation, mainly because of the low energy return, due to the slow growth of trees. Also, only certain trees can be used to generate energy. The cultivation is also more expensive than it may seem at first. Nevertheless, wood fuel is used industrially in sawmills and papermills, even if only to partially cover the plant’s own needs, also known as cogeneration. The uses of wood fuel have been described by the National Energy Education Development Project in greater detail.