Wednesday, June 27, 2007

The future of Biofuels

In China, India, Brazil and Europe, economic and environmental security concerns are giving birth to new government targets and incentives, aimed at reducing petroleum imports and increasing the consumption and production of renewable fuels. Over the next ten years, however, investors in traditional ethanol facilities will face the inevitable prospects of increased ethanol imports, non-food crops for feedstocks, and the imminent maturation of cellulosic ethanol as a competitive ethanol fuel.

"The global market for ethanol faces enormous opportunities and transitional challenges over the next ten years. A few issues hold the key to understanding the transitional nature of these challenges and identifying the best prospects for long-term growth opportunities," said William Thurmond, author of Ethanol 2020: A Global Market Survey.

Thurmond's study, which is being released today at the 23rd International Fuel Ethanol Workshop & Expo in St. Louis, Missouri, by Emerging Markets Online, provides an analysis and review of major ethanol markets, leading producers, feed stock price trends, import-export trends, government targets as well as challenges and opportunities worldwide.

The report reviews biofuels initiatives world-wide, including Bush's new "20% biofuels by 2017" re-vision of the U.S. Renewable Fuels Standard; the European Union's proposed "20 by 20" program to replace 20% of transportation fuels with renewable fuels; and national biofuels target goals and programs for Brazil, China, India, the U.S. and Europe.
"If the promises of competitive, large-scale cellulosic ethanol production are realized, and if nationalist import/export policies for biofuels are further liberalized, then the possibilities for ethanol to replace 20% of gasoline consumption in the U.S., China and India may be realized by the year 2020," noted Thurmond.

The First, Second & Third GenerationEthanol 2020 identifies three transitional generations of biofuels emerging in the next ten years. The first generation, or 1G, according to Thurmond, is based on traditional domestic production, economics and feedstocks—generally grown and sold near geographically agricultural areas.

The second generation, or 2G, is based on the increasing transition of ethanol production facilities from traditional agricultural areas to new areas in coastal regions in order to take advantage of import, export, multi-feedstock and refinery co-location advantages.
In addition, this second phase addresses the food versus fuel debate, supported by emerging trends in increased production and consumption of non-corn and non-food fuel crops such as sorghum and switchgrass.

This is also true for biodiesel, where non-food feedstocks such as algae and jatropha produce significantly higher returns per acre, and do not compromise food supplies or stimulate higher food prices.

Ethanol 2020 observes the third generation, or 3G, is based on emerging technologies and production processes such as cellulosic ethanol, biobutanol, and dimethylfuran that promise higher fuel production and investment returns per acre at lower costs.

The upside to 2G and 3G transitions, the study speculates, is they provide answers and solutions to current problems with rising feedstock costs, energy infrastructure integration issues, the food vs. fuel debate, and eventual price relief for consumers at the pump. During these transitions, new opportunities will emerge for ethanol investors, and new technological processes will improve the present production facilities of today and help alleviate concerns of ROI and stranded costs.

"As these transitions occur, we expect to see an increasing amount of cognitive dissonance and political debate between established ethanol producers, the emerging 2G/3G investors and stakeholders, policy officials and analysts," said Thurmond.
"Moreover, these transitional trends and technologies are likely to be critical to the success of government biofuels programs world-wide with ambitious ethanol production targets. Although growing pains will occur, the emergence of 2G and 3G ethanol will help overcome many of the present limitations of agricultural, commercial and technological ethanol production," he concluded.


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