Oil’s Plunge Is an Existential Threat to a Far Cleaner Biofuel

by Fabiana Batista and Tatiana Freitas (Bloomberg/Yahoo! Finance) ... The spectacular plunge in the crude market is sparking unprecedented reverberations across commodities and economies, with Brazil’s corn-ethanol producers standing out as a concentration of the pain.It goes to show how the unraveling in the oil market is threatening production of cleaner, renewable energy. As gasoline tumbles, ethanol is under pressure. The two compete directly at the pump in Brazil, where most drivers have flex-fuel cars, which can run on either.

Margins for the grain-based biofuel have already turned negative in Goias state, where a third of the nation’s plants are based, said Matheus Costa, an analyst at INTL FCStone. If lower energy prices are sustained, things could get worse. As many as 60% of planned expansion projects could be scrapped, according to Guilherme Nolasco, president of the industry group known as Unem.

It’s a sharp turnaround in outlook. Money had been flooding into the sector as companies like Cargill Inc. worked to increase capacity amid roaring demand for renewable fuel. Earlier in 2020, FCStone predicted corn-ethanol output in the upcoming 2020-2021 season would jump to 2.5 billion liters. That would’ve been up more than 16-fold from about 150 million liters just five years ago.

“The corn-price boom combined with the oil plunge really concerns us that a hold is coming for investments,” Nolasco said at an industry conference last week in Sao Paulo.

Even with the expected drop in biofuel, corn is likely to stay in high demand because of protein production. That could send corn costs for millers to about 35 reais in the near term, further squeezing ethanol plants, Nolasco said.

Biofuel maker Sao Martinho is one of the companies poised to increase corn-ethanol output. It was recently downgraded by Bradesco BBI, party on the assumption that a planned biofuel expansion project in Goias won’t be approved by the board.

While Sao Martinho may end up moving forward with the project in the long term, “the final decision may be postponed by one or two months -- until this turbulence calms down,” said Chief Financial Officer Felipe Vicchiato. READ MORE

Between coronavirus economic meltdown and the excess oil supply thanks to the Russia and Saudi Arabia price war, bidding on the latest oil and gas leases for sale in the Gulf of Mexico yesterday was lower than any sale since 1993 for the highly productive central Gulf, according to the Associated Press. And a coalition of environmental groups challenged the sale in court yesterday seeking to block the lease sales, saying federal authorities approved the sale without fully analyzing the risks expanded drilling poses to the environment.

Why This Matters: You gotta wonder why the federal government is essentially giving away our shared oil and gas resources. Cheap sales like this are good for the President’s pals in the oil and gas industry, but they are selling off our national assets for pennies on the dollar and making our climate change crisis worse. The major oil and gas companies were the big winners — Shell, Chevron, BP and Total accounted for more than 60% of the high bids.

Why are there not more bidders given that the sales are so cheap, you ask? Because even at these bargain-basement lease prices, with the price of gas at $20/barrel (where it was yesterday) they can’t come close to making money – break-even is $45/barrel. READ MORE