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

54.40 or fight

In looking at the world of cost — an obscuring factor is that oil is generally quoted in a cost per barrel (42 US gallons), while biomass is generally quoted in a price per metric or US ton. To simplify, we have converted everything to US cents per pound. Plus, we’ve used constant dollars, so that you don’t have to constantly factor out inflation.

Today, the cost of Brent Crude oil is 35.88 cents per pound, and the IEA forecasts that price will increase to 54.40 cents by 2040.

So, here’s the good news or the bad news. If your biomass refining process at scale can beat that price — fully loaded for the raw inputs, capex, opex and margins — you’re going to find a lot of friends in the fuel markets.

Barriers? Even if your technology pencils out, there are the “3 Bewares“.

1. Beware! The technology has not yet reached scale. It may well not have fully de-risked itself, either – being somewhere in the path between concept and scale.

2. Beware! Qualified investors have more attractive options. No matter how attractive 10 percent returns might be to many investors, they weren’t sufficiently attractive to Chevron in evaluating their own solvent liquefaction technology — compared to 17 percent average corporate returns on capital, primarily from oil & gas exploration.

3. Beware! Policy and market risk frighten away investors. It could be that the requisite fuel requires a blending mandate to be assured of a market — mandates which may well be unstable. Or they may require flex-fuel vehicles, which may not be in wide supply. And so on.

If those barriers are addressed either by your technology (for example, by reaching scale, or producing drop-in fuels that negate the infrastructure risk) — then you may well have the basic economics to compete dollar-for-dollar with crude oil, and win.

It’s 54.40 or fight, though. Any technology that can’t compete with crude oil on price — must enter in to the more esoteric and unstable world of what is usually described as the 3 E’s of biofuels – emissions, energy security and economic development.

Today, we look at the carbon price; the energy security price; the economic development effect; and the bottom line — by following the page links below.