Crude Oil, Fossil Fuels, and Biofuel

[TOM4CWB]

Charlie and Lee:

Just a few things in our Ag Strategy on Biofuels I think we should consider:

1. OPEC control of the crude oil market, does this Cartel, which works in a dual market; have control, or will those outside OPEC become bigger producers... spurred on by $60/barrel prices?

2. Will high fossil fuel prices solve the high price problem... by increasing supply till the price drops back down to $30/barrel?

3. Biofuels, can ag production of biofuels be sustainable at $30/barrel? Do we as a society have the global resolve to replace fossil fuels with biofuels...

As one large player can make this biofuel system tumble... if a large consumer/economy finds a cheap source of fossil fuel... and biofuels for other economies are no longer competitive; what happens?

Don't we need a global pact/agreement on biofuels before we put all our eggs in this basket?

[wd9]

In response to number 3:

http://english.people.com.cn/200608/29/eng20060829_297654.html

China breeds ****seed of record high oil content for biodiesel development!

China has bred a new kind of ****seed with record high oil content in a move to develop its bio-diesel industry, the Ministry of Agriculture announced on Monday.

The new ****seed has an oil content of 54.72 percent, nearly two percentage points higher than the previously reported highest oil content, according to a test report from the ministry.

The seed was developed to meet the market demand for renewable sources of energy, according to the ministry.

If grown in high altitude regions, such as West China's Qinghai Province, it was two to three percentage points higher in oil content, the ministry said.

The new strain, named Zhongyou-0361 and bred by the Institute of Oil Crops Research of the Chinese Academy of Agricultural Sciences, was disease resistant, early maturing and unmodified genetically, said Wang Hanzhong, leader of the development team and research fellow of the institute.

The Yangtze River valley, which was the world's largest **** production base and with nearly one third of the world's **** yield, had the potential to produce 40 million tons of bio-diesel per year, equaling the oil output of one and a half Daqing Oilfields, said Wang.

**** is the most widely planted oil-bearing crop in China, which has the world's highest output.

With international oil demand soaring, "bio-energy" is gaining popularity for being renewable and environmentally friendly.

The European Union has been vigorously promoting bio-diesel produced from ****, which pushed international **** oil prices up to the present 822 U.S. dollars per ton from 711 U.S. dollars at the end of last year, said Wang.

**Maybe made in China is not so bad after all.

[wedino]

Copied from AgriWeek:

UPS AND DOWNS
Fluctuations in ethanol prices are
as normal as can be


Ethanol prices on the U.S. spot (non-contract or 'rack') market have dropped abruptly. Plant-gate quotations last week averaged $2.38 per US gallon, down from $2.42 a week earlier and $2.65 a month ago. That was not as sharp a drop as in gasoline, the retail price of which averaged $2.59 last week, down from $3.05 a gallon in early August.

Ethanol price records were set earlier this year as demand spiked because of state bans on the use of MTBE, a petroleum derivative, in gasoline. Most states have banned the substance, which is believed to be cancer-causing. Remaining bans had various effective dates, so the refining industry decided to eliminate it as of June 1 and replace it with ethanol. The sudden spurt in demand caused logistical and other problems, especially on the eastern seaboard, where ethanol sold for a time at over $5 a gallon this summer.

Petroleum prices have not exactly come crashing down, but a major adjustment is underway. Crude oil last week stabilized at just over $64 a barrel, down from the record of $78.40 on July 14. Retail refined product prices have followed but different supply, demand and inventory conditions have changed price relationships. Diesel fuel has been priced higher than gasoline for over a year in the U.S. and last week heating oil was 15 cents per gallon higher than regular gasoline.

None of this threatens the viability of ethanol production, which has been mostly scaled to oil at $50 a barrel and corn at $2 a bushel. At current prices the ethanol in a bushel of corn is worth $6.69, plus $1.38 in government subsidies. The value of distillers' grains and carbon dioxide by-products is additional. After federal tax credits and state subsidies, with cash corn under $2 a bushel, many plants have a net cost per gallon of 60 to 70 cents. To make ethanol economically non-viable, either crude oil prices have to drop below about $35 a barrel or corn has to go to $5 a bushel, or some equivalent combination has to develop.

Price volatility is an everyday fact of life in ethanol as in other energy forms and all commodity markets. Oddly, the ethanol industry is making no use whatsoever of the futures market to control price risk. Daily volume on the Chicago Board of Trade rarely exceeds 25 contracts and open interest last week was less than 600.

[wedino]

Me thinks $30 oil is a thing of the past. All the easy fields have been discovered & are producing (or on the verge of drying up). Any new finds will have increased production expenses associated with it. IMHO

[ianben]

Here in UK we will have mandatory inclusion rates of green fuels to all petrol and diesel sold for road use starting 08.

Thought you had something similar in Canada?

Not sure how it will work in practice but would seem oil companies will have to buy biodiesel and ethanol before they can sell any of their fossil fuel no matter what price crude.

Is this not a captive market?

Will green fuel and fossil fuel have the same value?

If there is not quite enough green fuel to go round what can the oil companies pay to sell their oil?
They have made billions from the resent oil prices havent they.

[wd9]

IANBEN, the policy in Canada is yet to be announced sometime this fall. All I know is it will be a renewable fuel strategy. Probably a mandatory 5% on gasoline and for diesel a 2% on the entire diesel pool by 2010 as agreed to by Canadian Renewable Fuels (CRFA) and the Petroleum Poducts Inst. (CPPI). The government likes it when everyone agrees.

As far as incentives, who knows for sure. Pretty much everyone is asking for parity with US incentives, which apparently are coming off in 08 anyways. Missed that boat, huh.

As far as biodiesel producers in Canada, well the future may not be so bright. Hydro-cracking, Neste (NExBTL)Biomass to liquid, SuperCetane etc directly at the refinery, although not quite efficient enough but will get there, will probably be the future in Canada for dyno-diesel and biodiesel.

But for oilseed growers and crushers there will be a market because you still need the raw product. Just not sure where that leaves methyl ester producing industry and farmer owned plants.

Anything like that talked about lately in Europe Ianben?

For ref:
http://www.canren.gc.ca/tech_appl/index.asp?CaId=2&PgId=1083

Neste: http://www.greencarcongress.com/2006/03/neste_oil_and_o.html

[joedales]

Hi Guys:

Does the new Canadian government mandate for the biofuel mixture in gasoline and diesel help to build a market for the products - this should support a profitable price in the longer term - once the plants are operating in North America??

Not sure how this will work out - all I see is that grain prices are stronger due to the new ethanol market for our grain...