Biofuels is on the rise… again. The first time some painful lessons were learned for fast-in investors. This time the focus is on second generation biofuels and Central America.
First generation
Why so bad? Some of it´s obvious and has been covered before: using petroleum-based fertilizer to grow corn, which is sprayed with petroleum-based pesticides and then shipped using fossil-fuel based transport (before and after it´s turned into ethanol), doesn´t make a lot of sense. This is also a problem with sugarcane ethanol exported from Brazil and soybean biodiesel produced in the US. Add to these standard issues like displacement of agriculture onto previously unused land, which contributes to carbon dioxide emissions when the land is cleared, and things start to get messy.
For second generation biofuels, the first investment wave that started in 2005 was short lived, and was already seeing problems before the 2008/9 global economic decline. Fast-in investors pushed their money into any available project based on talk of political capital, market capital, the Green Marketing Movement, and talk of cap & trade carbon markets.
Unfortunately the only investors that really benefited were initiators of large commercial projects. The small to mid level investors, suffered as a whole.
One example is D1, rushed into planting Jatropha on large scale, with very little agronomic research. First billed as a wonder crop, Jatropha, as a non-food crop that grows on marginal was hailed as the cure to Global biofuel shortages. And while Jatropha does grow on marginal lands, any farmer will tell you that marginal inputs mean marginal outputs.
But biofuels, like Jatropha have been quietly developing knowledge, experience, and success stories over the past 3 years.
Where most of the first investment/development projects were developed overseas in Africa, and South Asia, savvy developers have now turned their eye to Central America; where biofuel/oil feedstock are indigenous, vast amounts of available land, rich and fertile soil, cheap labor, time zone benefits, and CAFTA (Central America Free Trade Agreement) have illuminated barriers.
In the mean time the demand continues to growth. Mandates on production or blend continue to put pressure on refineries, and other companies in oil production, both upstream and down-stream, to meet demand. Companies in USA are complaining that they are being fined for not using biofuels that don’t yet exist!
Beaker or Barrel
Now the second and more sustainable wave has begun. The main factors driving biofuel develop:
The continuing rise of fossil fuel prices; Russia needs $110/barrel just balance their books, Average Middle Eastern per barrel requirement is between $75 and $85 per barrel, just to balance the books.
29% of the global vegetable oil production’s increase and 68% of the global sugar cane production’s increase are expected to go to biofuels. Food for fuel simply doesn’t work; it’s not a sustainable strategy.
China and India are quietly capturing more oil supplies, both fossil and bio fuels, and their demand is outpacing the #1 consumer, USA.
The aviation industry is starting to see blend mandates, and many European airlines (USA soon to follow) will start receiving fines for not using blends, but like the US refineries they will being fined for not using bio-fuels that don’t yet exist in the market. Here is a perfect example, Lufthansa airlines, just completed over 1800 test flights between European cities using a 50% blend with bio-synthetic Jatropha fuel (the #1 drop in replacement choice for airlines). The results: a huge success, emissions using bio-fuel cut by up to 80%, costs dramatically reduced… the problem? Lufthansa said the jatropha and bio-fuel supply was not yet sustainable at the levels only one airline would require let alone all of them.
So here we have a mandated product in a mandated market, countries and industries have to by law purchase your bio-fuel product at fair market value. Mandated markets and products make investors feel secure.
These are just a few of the reasons bio-fuel investors are on the rise.
It’s a more intelligent market, the demand as expected by analysts has continued grow exponentially and now there are investment options for the small and mid level investor to play as well, it’s an opportunity for everyone now, not just for the big boys.
