Spirits in The Material World

August 2, 2011 |

Is there a political solution to biofuels’ troubled evolution? History provides an answer.

By Will Thurmond, Emerging Markets Online

For more than 40 years, the volatile history of biofuels as a prescriptive solution to petroleum dependency tells a valuable story of political hope, business enthusiasm, market growth, inspiration for change, revolution, and inevitably market evolution in a steep  towards commercialization.

Biofuels markets are not just a by-product of prescriptive political initiatives for change, they are also launched by commodity-driven initiatives subject to the realities of the agricultural and petrochemical-based businesses. In this context, simple political prescriptions for biofuels revolutions rarely account for the empirical data of frequent boom/bust cycles of the petrochemicals business they endeavor to enter. This dichotomy  of prescriptive positivism for biofuels adoption vs  highly volatile commodity market  fundamentals (make profits, not political hyperbole) , clearly demonstrate that politics and the business of biofuels are more often more at odds than in sync, depending on political will invested in the effort.

Faith in Constitution?

A host of political prescriptions for biofuels include prescient and appealing rationale for initiating policy solutions to achieve any one of the  goals: energy independence, energy security, environmental security, economic security, national security, security for farmers, security for fuel supplies during war, economic and job creation.  However, politicians may prematurely initiate prescriptive biofuels regulations when it is popular, fashionable, useful to do so, and driven by “big ag” commodity traders with piles of low-cost feedstock (i.e. corn starch, sugars) looking at biofuels markets as a means to increase the commercial value of these commodities..

The Bloody Revolution

Depending on what country, state, or city you live in, any one of these reasons to initiate biofuels is highly subject to local environments and the never-ending battle between political and commercial market interests.  When politicians lose interest,  or when Big AG (i.e. ABCD = ADM, Bungee, Cargill, Dreyfus)  and Big Oil have reached their limits in the tug-of-war in commercial markets (think the E10 blend wall in the US), then the birth of the biofuels revolution inevitably matures toward the evolution to adapt to fundamental realities of downstream petrochemicals markets. Each biofuels initiative may succeed to some degree, better, or for worse, depending on the country’s long-term political will driven by various actors pushing biofuels into the petrochemical markets.

A Troubled Evolution

“There Will Be Blood” is a relevant movie and a tale which provides a parallel of the birth and evolution of the oil and gas industry for bio-based fuels. After all, the biofuels industry is intractably integrated into the downstream markets of the oil and gas industry. Just as we have seen with biofuels receiving emphatic support from investors, governments, and producers the go-go days of 2004-2009, There Will Be Blood starts off with an inspiring tale of gold-rush euphoria in the early 1900s in the seminal stages of establishing oil and gas business in the US. In a short period of time, this boom cycle of irrational exuberance for oil and gas profiteering for small businesses did not last long.

The oil and gas industry soon accelerated into a paradox of divergent and convergent interests as the oil markets grew, crowding out small oil companies into consolidated enterprises such as Standard Oil (a story similar to the US and EU biofuels markets today in consolidation).

The evolution of the early-stage oil market of independent wild-catters demanded a unified standard for refining, distribution and downstream delivery to harmonize delivery of products by type. Hence, Standard Oil became the predominant power in the consolidation of the industry until it eventually disbanded into companies later named Exxon, Chevron, Amoco, Conoco in the U.S.

The Material World

History repeats itself. fast forward eighty years later to the early 1990s. During this previous economic recession, the price of oil had become so unprofitable at very low prices less than $12/barrel that the “Seven Sisters of Big Oil” converged and consolidated out of necessity. There was blood in the oil patch prompting several alliances and mergers out of necessity, including: Exxon-Mobil, Conoco-Philips, Chevron-Texaco, Total-Fina-Elf, BP-Amoco . During the economic recession of the early 90s, these large oil and gas companies entered tenuous alliances. Not long thereafter, these new “super majors” naturally consolidated operations, fired non-essential employees, sold off redundant assets, and entered dozens of bloody battles leading to consolidation in a fight for survival.

Ultimately the oil and gas markets world-wide picked up, evolved, and grew stronger. The global biofuels industry is entering this phase, particularly in the most developed biofuels markets of the U.S., EU and Brazil. Elsewhere around the world, new markets are emerging and providing open doors for prospective bioenergy entrepreneurs and governments.

Does The Answer Lie?

Empirical evidence is often brutally honest, and sometimes surprisingly inspiring. Invariably, “political prescriptions” depend on one of two things: #1 committed long term political will from governments, combined with with genuine market demand that inspires confidence for investment in biofuels. During today’s times of the “great economic recession”, prescriptive political solutions run head on into the realities of markets adapting to, and consolidating from the best-in-class early-stage advanced bi9fuels players.

Depending on where you live, the market will evolve, and the business interests of Big Oil and Big Ag will sometimes align and converge in favor of biofuels. If #1 political will and #2 market demand support these initiatives for growth and investment.

Spirited Successes

There are many bright spots in the ups and downs of the Ag and Oil markets cooperating to harmonize interests that are mutually beneficial.

For example, success stories with Big Oil, Big Ag and Big Government coalescing and achieving long-term #1 political support and #2market demand include : Brazil from the 1970s to present day, the EU from the early 2000s to 2008, the US from 1977-1982, and the US again from 2003 to 2011. This also includes early-stage initiatives on the provincial, state and local level in Minnesota, Sao Paolo, Iowa, Seattle, Portland, as examples.

One thing is for sure. In the world of biofuels, where there is a firm commitment and strong Political Will, there is clear pathway forward to progress, profits and growth.

Biofuels live and die by government policies

Empirical evidence and history proves a key point: without political support, biofuels are less likely have an economically sustainable (read: profitable) future. The developed nations in the US and EU are often challenged to bring the necessary political will to establish a harmonized, firm foundation for future growth.

As the US 2012 election cycle is ramping up, and as the “lame duck” Republican congress exercises even greater political power, the U.S. is unlikely to extend any real, substantive action on expanding biofuels during 17 months through the November 2012 elections without long-term Political Will.

Emerging Markets Insight

While you wait for genuine, political support to re-emerge and continue in the US and the EU, there are several bright spots in the world on a state-by-state and regional basis. In this case, “think locally, grow globally.” Here are a few dozen examples of emerging markets for biofuels in 2011. The following countries’ biofuels plans are now initiating to renew, continue, or update mandates, starting by region.

In the Americas: Argentina, Canada, Colombia, Costa Rica, Brazil, Jamaica, Paraguay, Peru, Uruguay, and, yes even the United States will be updating/tweaking mandates for Advanced (Sustainable) Biofuels.

In Europe: Austria, Belgium, Bulgaria, Czech Republic, Estonia, Finland, France, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Moldova, Norway, Poland, Portugal, Sweden and Spain each have active biofuels programs with varying levels of political commitment.

In Australasia: Australia, Brunei, China, India, Malaysia, Philippines, Singapore, South Korea, Taiwan and Thailand, the demand for energy is increasingly growing so fast, that these markets are prime targets for savvy investors with local market contacts.

A Spirited Future

Many of these emerging biofuels countries would be wise to follow Brazil’s long-term, 40 year success formula with biofuels. Marcos Jank, CEO of UNICA in Brazil explains the reasons why Brazil has sustained its success in biofuels for several decades.

While political will is #1, there are several other key factors UNICA notes have been historically critical to this success, including: coordination between the largest political players, agricultural producers, biofuels refiners, and government/export/defense coordinated initiatives. 

The rest of the word would be wise to exercise strategic foresight and coordinate long-term plans with key players to ensure genuine progress in an ever changing, volatile petrochemicals commodity world. Note: political will, in and of itself, is not enough. As these emerging from national biodiesel and ethanol mandate world wide, they would be wise to study histo

ry as a lesson for the future. Like the ethanols and biobutanols going to market, it is instructive for countries’ national planning authorities to acknowledge biofuels are in high spirits in the material world of roller-coaster ag and petrochems commodity markets.

Will Thurmond is CEO of business intelligence firm Emerging Markets Online, keynote speaker, author of Algae 2020 and Biodiesel 2020 studies; and recently elected Co-Chair of the Greater Houston Partnership’s Biofuels Commercialization Task Force . Email: [email protected]

Print Friendly, PDF & Email


Category: Fuels

Thank you for visting the Digest.