The Grand Finale of Biofuels, the Oil Price and the Pandemic


INSIGHT


  • BIOFUELS HAD A GOOD RUN THAT LASTED UNTIL THE FINANCIAL CRISIS OF 2007/ 2008 OR SHORTLY THEREAFTER. THE DEVELOPMENT OF BIOFUELS WAS AND IS DEPENDENT ON THE PRICE OF OIL.

  • THE OIL PRICE, IN TURN, DEPENDS LARGELY ON THE AVAILABILITY OF CONVENTIONAL CRUDE OIL RESERVES. MOST OF THESE REMAINING RESERVES ARE LOCATED IN THE OPEC COUNTRIES, RUSSIA, SOME AFRICAN COUNTRIES AND VENEZUELA.

  • THE PANDEMIC HAS CAUSED A KINK IN THE GLOBAL SUPPLY CHAIN. SUPPLY SHORTAGES EXACERBATE CONCERNS ABOUT RISING COMMODITY PRICES. THIS WILL AMPLIFY THE IMPACT OF PEAK OIL AND PEAK EVERYTHING.



1. BIOFUELS HAVE THEIR OWN UNIQUE ADVANTAGES AND DISADVANTAGES. BIOFUELS HAVE LOST OUT TO HYDROGEN AND ELECTRIC VEHICLES OVER THE LAST 10 YEARS.


Biofuels have their own unique adaptations to the current macroeconomic environment. Over the past 10 years, hydrogen and battery technology have stolen the show from biofuels. As more and more investment has flowed into hydrogen and battery technology, less funding has been made available to finance biofuel plants. We need to keep in mind that a significant number of biomass plants were built, so there appeared to be less need to expand capacity. This was particularly relevant for biofuel production in the German market. This already shows the relevance of the increasing competition of biofuel against its main competitors, hydrogen and electric vehicles.

And most biofuel is consumed in transportation. But what is often ignored is that biofuel, hydrogen and electric vehicles all compete with gasoline. In recent years, oil prices have dropped significantly. This has reduced the incentive for many car buyers to purchase electric vehicles and hybrids. In the truck sector, this effect has been even more pronounced. Many have emphasized that diesel trucks will be replaced by hydrogen trucks in the future.

Dreams of a hydrogen economy remain dreams for the future. This has not been borne out by recent developments in the transportation industry. The incentive to opt for hydrogen-powered trucks has been anything but. One reason is that hydrogen-powered trucks require a fully functional infrastructure with refueling facilities along the route. This infrastructure has not been built to date. Building such infrastructure requires an enormous amount of capital. It is not clear where this investment will come from or what the ultimate payoff will be. Building a hydrogen infrastructure will significantly increase the price tag. 

Nor have we seen the development of electric vehicle infrastructure in countries that have led the renewable energy revolution. That includes countries like Germany. When you add up these costs, it is very unlikely that there will be much interest from customers to bear the additional costs of building the infrastructure for electric vehicles, because they are prohibitively expensive. Electric cars, as they are, are very expensive. There is a clear limit to how much customers are willing to pay for an electric vehicle. 


2. THE RISE IN OIL PRICES


The price of oil has a tremendous impact on just about every commodity needed to sustain modern industry. Oil continues to shape the nature of industry and civilian life. But what’s even more interesting is that it is the glue that holds the energy industry together.

Oil has enabled the rise of renewable energy in the 21st century. Without black gold, the growth of renewable energy would not have been nearly as rapid. Renewable energy technologies rely on oil as an input. It is a key component in the design, construction, and operation of renewable energy facilities. Oil and other hydrocarbon fuels support a future hydrogen economy, electric cars, and biofuels.

Biofuels alone would not be able to meet our fuel needs. But as an admixture to gasoline, they are certainly a valuable contribution to the fuel mix. This is certainly not the case for hydrogen and electric vehicles, which require conversion of a high-calorific energy source such as oil, which involves significant energy losses.


3. THE PANDEMIC AFFECTS THE PRICE OF OIL. THE PRICE OF OIL AFFECTS THE PRODUCTION OF RENEWABLE ENERGY.


It is also not certain that the middle class will be able to afford either hydrogen or electric cars in the future, given the significant macroeconomic uncertainties. The pandemic has played a significant role in this, as workers are increasingly insecure about losing their jobs. This may reduce their interest in buying a new electric or hydrogen car.

In addition, most customers will be people who do not currently have a car. But these people, this segment of customers may instead choose to buy a new apartment to have a place to call their own. It is important to remember that real estate prices have increased tremendously over the last 10 years. Real estate prices have also risen tremendously in the pandemic, putting further downward pressure on prices of other consumer goods such as electric cars, as consumers have less disposable income available for consumption.

Things don’t look much better in the corporate sector. Similarly, lost revenue could make transportation companies hesitant to buy hydrogen-powered trucks. Even though it is an innovation, it is widely seen as an unnecessary risk when there are other expenses. 

Biofuels, on the other hand, differ only slightly from conventional gasoline and diesel in terms of supply chain requirements. They can be blended into the existing fuel supply and, depending on their purity and chemical constituents, do not harm the engine. Driving characteristics may be only minimally affected. As a result, the advantages of biofuels are often not considered in discussions about future energy sources. In fact, biofuels could even have an advantage over hydrogen-powered cars and electric vehicles.

As credit financing terms for consumer goods deteriorate and people find it harder to buy new cars, they will most likely stick with good old gasoline as they have known it for decades. This could mean that even ardent proponents of hydrogen and electric vehicles will no longer be able to support the continued growth of the hydrogen economy and the electric car industry. This may have long-term implications for the growth prospects of the hydrogen economy and electric vehicle industry relative to biofuel production. It may even contribute to biofuels regaining lost ground to hydrogen and electric cars.

Although biofuels would be affected by the pandemic and deteriorating credit conditions, they may not be affected to the same extent as hydrogen and the electric vehicle industry because biofuels are complementary to existing fuel supply. Biofuels do not require significant redesign of existing infrastructure, process technology, and engine manufacturing. 


4. Conclusion


  • Biofuels have an ace up their sleeve, as their potential has been underestimated until now. Algae biofuels have significant growth potential that can be further maximized. Moreover, algae research plays a role not only in energy production, but also for the agricultural sector and the development of new food products. This is an advantage that other alternative fuels such as hydrogen and electric vehicles do not have.

  • Oil prices will continue to rise. This will create significant volatility in global energy markets. Ironically, the rise in oil prices will also make renewable energy technology more expensive, as oil is an essential component of renewable energy technology. 

  • The pandemic will further strain logistical networks and global supply chains. The pandemic will cause supplies to stall and demand to fall. This will further increase the price of oil, as well as other commodities. As solar panels and wind energy are made from a variety of raw materials and rare earths, this will also increase the price of renewable energy. 


Many thanks for the shared interest in the energy world!



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