54.40 or fight: the cost of biofuels, emissions, energy security and economic development

They’re known as the three E’s: emissions, energy security and economic development. But how do they contribute to the economics of biofuels?

And how do those economics compare to the economics of crude?

The financing of biofuels is founded, to put it as simply as possible, upon the economics of substitution. On the one hand, there’s the price of energy currently locked inside biomass; on the other hand, the price of energy currently locked inside crude oil. The monetary rationale for biofuels is a version of vive la difference.

To give a simple example, if renewable sugars are trading at 15 cents per pound, and crude oil is trading at 35 cents a pound — there’s an opportunity for converting sugar to fuels if the refining cost leaves a profit margin worth the agricultural and market risks.

Oh, there are enough complicating factors left over to keep a hive of economists busy for a year. There’s the differential in the energy value of, say, ethanol, compared to gasoline or diesel. The impact of losing mass when you blow off the oxygen to turn a sugar into a hydrocarbon. The impact of bioenergy demand on raw biomass prices. The value of co-products from biomass or oil refining. And so on, practically ad infinitum. It takes an advanced degree and a whole bunch of Tylenol to figure it all out.

But at the end of the day, the point where substitution makes economic sense is going to correlate back to the price of crude. No matter what the hoped-for margins are, or the opex of a biorefinery, or the capex — it all starts with the barrel.

So let’s look at that, today and looking forward — to see what might be feasible, and how, and why. We look at the crude price, now and forward; the challenges faced by biofuels in competing on price; the carbon price; the energy security price; the economic development effect; and the bottom line — by following the page links below.