Oil Instability Giving New Life to Biofuels?
Robert McNally, the author of the new, critically-acclaimed book, “Crude Volatility: The History and the Future of Boom-Bust Oil Prices,” believes that global oil markets are entering an epic, structural shift to a protracted new era of wildly fluctuating crude prices. The reason is that the market now lacks a swing producer to level out production and demand shifts. In his view, we are in for an extended period of prices oscillating “in a range well below $30 and above $100” per barrel – – with the crunch starting maybe as early as the 2020s.
What does this mean for the biofuels industry? If Mr. McNally is right and the wild swings we have seen in the last decade – – up to $145/barrel and down to $26 in just eight years – – are the new norm, then oil’s reliability as a transportation fuel will increasingly be called into question and the search for alternatives will accelerate. After all, oil’s reputation as a reliable transportation fuel depended not only on its abundance, but also its stable pricing.
These fast-approaching, fast-changing shifts in oil markets are only now starting to dawn on policymakers – – with implications even more clouded. But, several points can be drawn already:
1. Technically speaking, the biofuels industry can not serve as the new swing producer, the North American Saudi Arabia, because the definition of that role embraces both rapid downscaling as well as surging production as needed to balance markets. More than anything else, biofuels producers themselves may shy away from that role, given its inherent potentially disruptive – – and costly – – nature.
2. But, that terminology may miss the point. Biofuels already underpin the huge American gasoline market with their ten percent ethanol blend, with industry’s rising aspirations to at least fifteen percent as well as expanding exports. Meanwhile, global potential for sustainable production in other regions is large and growing. That serves as a critical floor for transportation fuel markets.
3. At a time when new oil production in key areas is already in question (see recent announcements about Canadian tar sands and the Arctic, for example) alternatives to petroleum could help modulate global oil price swings in the coming decades.
4. Moreover, international pressure is mounting to reduce greenhouse gas emissions, adding to the unpredictability of oil market swings in a transportation sector so heavily reliant on refined oil products with little relief in sight from electric vehicles for years.
Many questions remain unanswered though about biofuels’ ability to fill the breach, including uncertainties over: lead times for advanced biofuels commercialization; their acceptance by and adaptability to legacy industries; future fuel demand from new drivers; and, government’s ability to adjust old approaches for biofuels promotion to new political, social economic, environmental realities.
Nonetheless, the time is clearly ripe to test Mr. McNally’s thesis as well as explore analytically all its implications, especially that of a potential new growth era for biofuels. Intriguingly, scenarios and roadmaps developed by technical organizations, like the International Energy Agency, highlight the essential role for biofuels in de-carbonizing the transportation sector. Perhaps a new global consensus on the economic and environmental benefits of biofuels is in the offing.
In any event, old arguments for biofuels, mixing oil import reductions, rural development and environmental cleanup have gone stale. The emerging new oil market reality underscores the need for a fresh rationale I have urged in this space before: biofuels can be the West’s crucial insurance policy in an unstable and uncertain world, buying time for new technologies while mitigating oil market chaos and environmental disruptions.
But, that doesn’t mean just more of the same from Washington, DC, in today’s struggle for regulatory reform, debt reduction, economic growth and political re-positioning. A new bipartisan consensus will take some time to form, but it clearly needs to revolve around a renewed national (and global) commitment to the expansion of sustainable biofuels production without such a heavy reliance on the old central government formula of mandates, subsidies, debt and regulation.
The unexpected election of President Trump and of Republican dominance nationwide, combined with Mr. Trump’s continued strong support for biofuels and the new McNally paradigm may offer a rare window of opportunity for fresh thinking on energy in the U.S. This may open up the possibility for new priorities favoring biofuels in such diverse areas from federal research to light duty vehicle mileage regulations to the upcoming Farm Bill. This out-of-the-box thinking could even involve consideration of new legislation making bioenergy a true national priority, such as a full-throated re-energizing of the landmark Biomass R&D Act of 2000. It could even lead to new alliances between traditional rivals in the broad bioenergy industries, and maybe even a political swing role for the biofuels industry between Big Oil and Big Ag.
Who needs biofuels anymore? American and its allies do – – and more of it in the decades ahead to buffer us against the wild ride ahead foreseen by Robert McNally. Carpe Diem, indeed.