The Growing Biofuel Market

Oil majors around the world have been involved in the development of alternative energies and downstream products based on renewable sources for a number of years. But the push towards the development and use of biofuels in particular, gained momentum when governments perceived that there was a need to reduce dependence on fossil fuels not only based on environmental concerns but also for reasons of energy security. Indeed the ongoing calamity in the Gulf of Mexico, as BP seeks to clean up oil following an explosion on a drilling rig, is adding weight to the call for more sustainable transport fuel.

Speaking at the Energy Security Symposium held in Turkey during 2009, Roxanne Decyk, corporate affairs and sustainable development director for Royal Dutch Shell, said: “For the next few years, real growth in the Shell renewable portfolio will concentrate around biofuels. That’s because they are a natural fit with our downstream capabilities in transport fuel. We believe biofuels could grow from just 1% of the world’s transport fuel mix today to between 7% and 10% during the next few decades. And providing they are sustainably sourced, biofuels can make a substantial contribution to reducing CO2 emissions from transport.”

Indeed Shell is already among the world’s leading distributors of biofuels and the company is pursuing R&D efforts to make next-generation biofuels, those based on non-food biomass such as straw and algae, commercially available. But Shell stresses that commercialisation of these products is some five years away.

Moving ahead

In focusing on the immediate need to reduce emissions from transport Shell has taken a number of steps, however. One of the most significant was the signing of a memorandum of understanding with Brazilian biofuels producers Cosan to form a £12bn joint venture in Brazil for the supply, distribution and retail of sustainable biofuels based on sugar cane. The deal was announced during the first quarter of 2010.

BP is also committed to taking a leading role in the development of alternative fuels. In recent years it has invested in a number of research projects. Since 2006 BP has announced investments of more than $1.5bn in biofuels research, development and operations. This includes partnerships with other companies to develop the technologies, feedstock and processes required to produce advanced biofuels. Among the notable developments was the 2009 tie up with Verenium Corporation.

The 50:50 joint venture with the US company is focused on the development and commercialisation of cellulosic ethanol from non-food feedstock. A 36 million gallons per day ethanol production plant will also be built, located in Highlands County, Florida. Under the deal the companies have agreed to commit $45m in funding and assets to the joint venture. Verenium is involved in the development and commercialisation of cellulosic ethanol as well as enzymes for applications within the biofuels industry.

Another significant development took place during 2009 when ExxonMobil announced that it has established a $600m partnership with Synthetic Genomic (SGI) to develop biofuels based on algae. The move was significant because ExxonMobil has for a number of years endorsed the theory that global warming is not linked to human activity and large-scale industrialisation; courting the ire of environmental groups.

In announcing the plan the company acknowledged: “This may look like a U-turn for a company that for many years refused even to acknowledge the existence of global warming.”

On entering the biofuel arena some years after many other oil majors, ExxonMobil said the investment comes after several years of planning and study and is “an important addition to ExxonMobil’s ongoing efforts to advance breakthrough technologies to help meet the world’s energy needs”.

Biofuel use in practice

Latin America is considered to be the home of biofuel production, where the use of sugarcane to produce ethanol that is blended with gasoline, has allowed the region to produce what is considered currently to be the most environmentally friendly and sustainable ethanol and biofuels.

Brazil’s oil major Petrobras is among the leading companies in Latin America developing biofuels. The company’s commitment to the sector is such that it set up Petrobras Biocombustivel, a wholly owned subsidiary that will develop and manage biodiesel and ethanol production projects.

In Colombia local producer Ecopetrol established a partnership with palm growers to provide feedstock for the production of biofuels. The alliance between the oil company and local growers is called Ecodiesel Colombia, which as well as providing ‘green’ diesel for Colombians will also give a boost to local agriculture.

Meanwhile in China, oil company Sinopec has tied up with local food company COFCO, and Novozymes, a bio-innovation company headquartered in Denmark, signing a memorandum of understanding to build a demonstration cellulosic ethanol plant in China. The agreement was announced during May 2010 and the production facility, which will be built by Sinopec and COFCO, is due to start up in the third quarter of 2011. Novozymes will provide its proprietary enzyme for the ethanol production. At full capacity the plant will produce 11 million litres/year of ethanol from corn stover. It is said that once completed the plant will be the largest of its kind in China. China is also set to launch is first biofuel powered flight during 2010, following the signing of a deal between China and aerospace firm Boeing. The Air China flight will use a jatropha-based biofuel supplied by PetroChina.

There is now a real commitment by just about every oil major to make a contribution to the issue of sustainability and indeed energy security. The next decade is set to see a significant shift away from fossil fuels but it will cost. But as Shells’ Decyk comments there is a need for industry and government to work together: “Neither industry nor government can solve these problems alone. But if all of us bring our specific strengths, we should able to mobilise sufficient brain power and capital to stay on course.”