Analysts weigh alt-fuel developers’ ability to weather cheap oil 

Source: Amanda Peterka, E&E reporter • Posted: Friday, May 15, 2015

Biofuel producers vary in their ability to weather cheap oil prices, according to a report released yesterday by Lux Research.

The advisory firm examined 25 biofuel companies and found 13 could likely compete in an era of cheap oil. Of companies attempting to commercialize advanced biofuels, Neste Oil and Diamond Green Diesel were the best-positioned to compete with oil prices at $50 per barrel, the report found.

Some companies, though, have capital-intensive projects and have delayed commercializing its technology as the price of oil dropped from more than $100 per barrel to the $50 range. Others are shifting toward renewable chemicals, a higher-value market, to weather low oil prices.

“Many companies have technology roadmaps for cheaper alternative fuels. Not all of them will actually achieve that benchmark, but some will — while others will find alternate markets or, ironically, use support from oil majors to survive until prices rise again,” Lux research associate and lead author Yuan-Sheng Yu said in a statement.

Lux analysts said they wanted to evaluate the “world of outlandish claims and promises” about the costs of commercializing alternative fuel technologies. According to the report, about 200 companies have made claims about the costs of its products and its ability to compete with petroleum fuels.

On average, technology developers have claimed that the costs of producing crude oil, diesel replacements, gasoline replacements and bio-jet fuel are $62, $75, $94 and $85 per barrel, respectively. Developers of technology to convert non-food plants and waste into fuel have claimed costs ranging from $21 a barrel to $216 a barrel, Lux found.

Of the companies making claims about their prices, Lux said it chose 25 companies to evaluate, representing a wide range of technologies and fuel products in various stages of development.

The two companies that came out on top in Lux’s analysis both produce renewable diesel. Neste has three facilities in Finland, the Netherlands and Singapore that produce renewable diesel from vegetable oils and waste fats. Diamond Green Diesel, a joint venture between Valero Energy and Darling Ingredients, has a 130-million-gallon facility in Louisiana that converts used cooking oil and animal fats into renewable diesel.

Neste has claimed production costs of $34.50 per barrel of renewable diesel, while Diamond Green has claimed to be able to produce renewable diesel at less than $3 a gallon.

According to Lux, both firms are likely to be able to compete with cheap oil because the two have been able to lower its production costs by diversifying the inputs that go into its diesel.

Other firms that came out on top were Red Rock Biofuels and Edeniq, which have both raised enough funding to build its first refineries.

“Strong technology, a target market and a commercialization path are key in the era of low oil prices,” the report says.

According to the report, Solena Biofuels and Joule Unlimited are among the companies that face challenges in competing with cheap oil, as the two have been forced to delay commercial production of its fuels because of increasing capital costs.

Lux also found that several oil companies have turned away from advanced biofuels in the era of low oil prices. BP PLC, for example, announced in January that it is selling its cellulosic ethanol assets. Other oil majors to move away from advanced biofuels include Chevron Corp. and Royal Dutch Shell PLC.

“Capital-intensive commercial projects have lost much of their attractiveness and some corporations have begun cutting back investments or dropping interests in alternative fuels entirely,” the Lux authors wrote.

However, “even as panic sets in with low oil prices,” the report concludes that “not all hope is lost in alternative fuels.” The report noted that some oil majors are still heavily invested in alternative fuel technology, including Valero, which is partnering with Diamond Green Diesel.

“While cheap oil impacts corporations in the near term and novel technology developers scramble to find alternate markets,” the analysis said, “long-term focus among oil companies remains undeterred and government support continues to push alternative fuels growth.”