The Petrified Forest, or Who Moved my $80 Oil?

by Jim Lane (Biofuels Digest) ...Are high prices good for renewable fuels? The hard data actually goes the other way. The Digest investigates. ... What we can see from the following chart is confirmation that fracking and other enhanced oil recovery techniques have uncovered a vast supply of fossil-based hydrocarbons that make economic sense at around $60-$70 per barrel. That’s where investment is going, and where it will generally go should oil prices climb back anywhere near $80, any time soon.

This time series chart makes it perfectly obvious that climbing oil prices — and the arrival of new technology — facilitated a massive investment in fossil fuels just as the Renewable Fuel Standard 2 was introduced and was supposed to galvanize investment in cellulosic biofuels.

As it happened, investment in cellulosic fuels languished — not a single new project developer announced a successful cellulosic project between 2010 and 2014 — the ones that ended up deploying had all been originally undertaken in the 2003-2007 period, when oil prices were in fact much lower.

Gasoline usage has spiked to 140 billion gallons, a 4% jump — because all those positives have reversed. At the same time, falling domestic oil exploration numbers have left the US with a rising oil import bill for the first time in quite a number of years.

At $80 oil, there are lots of producers and lots of ways to recover fossil energy. At $10, there’s not much left standing except the Kingdom and ISIS, and energy security and world security become more entangled the lower the prices go. Imagine a world where ISIS is the swing producer in international markets, and you get the idea pretty quickly.

At the same time, all those other fundamentals are still in place with ultra low-priced oil. Rising driving miles per capita, a switch-back to less fuel-efficient vehicles, indifference to electrics.

In short, ultra-low fuel prices take marginal producers off the table and expand fuel demand. It’s an idyllic world, seen from the point of view of the driver and the alternative fuel producer.

So, why are alternative fuel producers suffering with “low oil prices”?

You heard the squawking after the EPA released its Renewable Volume Obligation numbers for 2015 and 2016. Biodiesel producers were generally positive, ethanol producers were mildly negative, advanced biofuels producers were on the whole generally pleased. And cellulosic producers and their trade groups were completely aghast.

In the end, it comes down to the way the EPA has regulated the sale and use of what are known as cellulosic waiver credits.

Putting those two together, if airlines could benefit from cellulosic waiver credits, they could be paying up to $3.43 to advanced biofuels producers for jet fuel. These fuels would not be affected by the E10 saturation point. And most experts agree you can produce jet fuels from MSW for less than $3.43 per gallon, all in. Fulcrum has weighed in on that.

So, what would you have accomplished? A gallon of renewable fuel produced that does not stress existing infrastructure, has a ready and eager buyer, at a price that buyer can afford today. And, a liquid market in Cellulosic Waiver Credits. After all, jet fuel customers are eager to have cellulosic fuels, and oil companies are eager to avoid them.

Were renewable jet fuel producers to offer $4 fuels to airlines, the airlines would not be able to compete with the standard EPA Cellulosic Waiver Price (it would be cheaper for an obligated party to pay $1.50 for a gallon of fossil jet fuel and $1.93 to the EPA for a cellulosic waiver credit). In this way, obligated parties are protected from price-gouging.

There are other off-road markets where creative use of Cellulosic Waiver Credits could be used to sharply press to establish a market for cellulosic biofuels. For example, a cellulosic fermentation project like DuPont’s, that makes ethanol, could sell that ethanol to a licensee of Byogy, Virent or Vertimass technology to be upgraded to jet fuel.

Since it takes 1.5 – 2 gallons of ethanol to make a gallon of jet fuel, we’d be taking gallons out of the road transport pool, by-passing the infrastructure problem that EPA is concerned over, and providing a financially viable mechanism to facilitate the deployment of cellulosic jet fuels.

Right now, we have a petrified forest. A system that was supposed to advantage renewable fuels but in fact mineralizes the marketplace and petrifies every renewable provision. Elements that were designed to facilitate renewable fuels, such as Cellulosic Waiver Credits, in the end do not accomplish their intended goals.

Only EPA and the Obama Administration have the power to demonstrate their commitment to climate solutions — as opposed to the climate posturing that comes from switching coal-fired power to natgas-fired power and talking up a world of electrics when people aren’t buying many and, these days, buying less. Nothing wrong with decarbonizing the power sector, but everyone knows that’s not enough, not even in the adjacent galaxy to enough.

Real solutions require real thinking, not wishing hard for things that aren’t real. The hardest yards to gain in climate are in transportation, and real leaders take on the tough assignments. READ MORE