Should Oil Companies and Biofuel Companies form Strategic Partnerships?


INSIGHT


  • Strategy is at the root of being able to manage the energy transition. Given the turmoil in global energy markets, it is hard to imagine why oil companies should not reach out to other branches of the energy industry. It is certainly worth exploring other opportunities.
  • There is a significant amount of overlap between the oil business and biofuels business. Oil companies and biofuel companies want to be at the forefront of the energy transition. Oil companies and biofuel companies realize that energy sources in liquid form have an ace up their sleeve. They are in liquid form, which is an advantage over other forms of energy.


1. OIL COMPANIES AND BIOFUEL COMPANIES CAN DEVELOP NEW FUELS


A key component to succeed in the energy world of the future is to know what customers want. The development of so called superfuels is one area where oil companies and biofuel companies can work together. These so called superfuels often have lower sulphur emissions and less dioxins. They may be more suitable to urban, smoggy environments. Such superfuels may also improve engine performance.


2. OIL COMPANIES AND BIOFUEL COMPANIES CAN ACHIEVE ECONOMIES OF SCALE


We have to understand that economies of scale can only be achieved if a new fuel can be produced in large quantities. The fuel must be distributed and be delivered at low cost. Biofuel companies can leverage their strategic partnerships with oil companies. In what ways? By working with oil companies, biofuel companies can expand their presence in global energy markets. This is important because biofuel companies can reduce their operating expenses on logistics through economies of scale.

Logistics is an important factor in biofuel production. Biofuel companies have regional networks. Their biomass supply is regional. This practise cannot be scaled. The trick is to pool deliveries from multiple sources. This allows biofuel companies to bundle supplies and to expand their operations. Biofuel companies reduce their fixed costs for equipment, facilities, labor, logistics, delivery, and more.

We assume that capital investment is negatively correlated with the liters of biofuel produced every year. Thus, cost reductions are a major incentive for biofuel companies and oil companies to enter strategic partnerships. This shows that biofuel and petroleum companies can become a force to be reckoned with. 


3. THE OIL AND BIOFUEL COMPANIES FIT INTO THE EXISTING ENERGY INFRASTRUCTURE


This has to do with the realization that energy companies need to reduce their operating costs. In times such as these with flucuating oil prices, this is a central concern for everyone in the industry. Biofuel companies and the oil companies are aware that the energy transition relies on an existing network, an existing fuel infrastructures that cannot be abolished. A solution must be found that builds on what we have in the energy industry.


4. CONCLUSION: STRATEGIC PARTNERSHIPS BETWEEN OIL COMPANIES AND BIOFUEL COMPANIES


  • Both oil companies and biofuel companies benefit from collaboration at a strategic level, cross-pollinating cooperation across product offerings. Oil companies benefit from the innovative spirit of biofuel startups.
  • Innovation is another area where oil and biofuel companies can work together. They can develop patented solutions for the fuel market. Biofuels are able to adapt to local market needs. Their modus operandis is to provide fuel from biogenic sources that is environmentally friendly and has less an impact on the environment. But oil companies have a global reach. This is where interests meet. Biofuel companies can benefit from the global operations of many oil companies, which can provide significant revenue growth.
  • Biofuel companies and oil companies are pulling in the same direction. Their fuel offerings are substitutes, albeit in different price ranges. This becomes apparent when considering production costs. They both offer a range of products that complement each other.

Many thanks for the shared interest in the energy world!



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