Oil prices and investments in biofuel production are in an inverse relationship.
While one is rising, the other is falling.
1. Energy market volatility in the oil market influences investments in biofuels
VOLATILITY OF THE BIOFUEL MARKET: The energy markets remain volatile: the price of oil continues to fluctuate strongly, and this will have an impact on the biofuels business. There is an inverse relationship between biofuels and oil prices. We see the same inverse relationship between oil prices and plastics-to-fuel technology. This relationship could also be observed in the past. Falling oil prices have led to declining investment in new biotechnologies such as algae fuel.
The problem remains the same: investors do not really know whether biofuels can replace hydrocarbons. Hydrocarbons have some major advantages over biofuels:
- The main reason is that hydrocarbons are energy dense matter collected over millions of years.
- We already have a fully functioning infrastructure for hydrocarbon, oil and gas networks and midstream businesses.
2. The decline in oil prices has led to consolidation in the biofuel market
PRICE-COMPETITIVENESS: This can of course be expected when price competitiveness becomes an issue. In terms of price, the future of biofuels depends a.) on technological advances in the field of biofuels and b.) on the successful commercialization and scaling up of biofuel technology.
HOW TO SCALE BIOFUEL PRODUCTION: Technological progress means that we need an EROI (Energy-Return-on-Energy-Invested) that is at least equivalent to the plastics-to-fuel technology. Successful commercialization means that we need a solution that is scalable for the entire population. Such a solution must meet the needs of the entire population. It must meet the needs for everyday life.
SUBSIDIES: There is a third factor that limits the spread of biofuel production, and that is the enormous subsidies that are paid to keep biofuel production in the market. Subsidies limit the diffusion of appropriate technological solutions, as less appropriate technological solutions remain on the market longer.
3. Future prospects
INVESTMENT DELAY: Low oil prices lead to a delay in investments in biofuels. If we look at the historical development of biofuel production, this becomes quickly apparent. About 10 years ago there was a technology boom in biofuel production from algae. This boom flattened out after a few years. In the following years, oil prices fell dramatically.
REPEATING HISTORICAL CYCLES IN BIOFUEL PRODUCTION: Due to the historical situation we expect that the investments in biofuel production will increase in the coming years.
SUPPORT FROM THE GOVERNMENT: A major driver of this development are the measures to reduce CO2 emissions in the European economy. These measures currently represent a priority and are part of the climate measures that have been developed by the EU and countries.
Many thanks for the shared interest in the energy world!