How Are Low Oil Prices Affecting Biofuels?

As crude oil supplies dwindle and the world wakes up to the immediacy of climate change, individuals and governments alike have been moving towards cleaner, greener energy sources. One of the most popular of these has been biofuels, which are made from a plant-based source (normally corn or rapeseed) to produce ethanol.

However, oil prices (and in turn, petrol and diesel prices) have been steadily falling over the last year. Indeed, they are currently hovering around their lowest in five years, due to various different reasons which are explored more thoroughly in the article Why Are Oil Prices Dropping?

Of course, this is having a knock-on effect on other types of energy generation. Though renewables are not so heavily affected in the short term (since cheaper natural gas is their main competition), there are concerns that the renewable industry could be hampered if oil prices remain low for a protracted period of time. This adverse effect is more immediate when it comes to biofuels, however.

Bad News for Biodiesel

Because petrol and diesel prices are low, that forces biofuel manufacturers and sellers to lower their prices, too. And since these processes often come with high expenditure margins, there will come a point when it is no longer feasible for them to continue producing biofuels in the face of continued low oil prices.

As an especially small part of the sector, biodiesel has particularly been feeling the heat. Biodiesel is made from recycled animal or vegetable fats and oils and has traditionally provided robust competition to fossil fuels due to its high biodegradability and its low emissions. However, with diesel prices remaining significantly lower than biodiesel (which itself is at an all-time low), customers are left with an easy decision as to which to choose to fill up their tank without draining their wallet.

Corn-Ethanol Struggling Too

Though it’s a bigger industry than biodiesel, corn-based ethanol has also been feeling the pressure. Last year, low corn prices saw ethanol production skyrocket – which has led to a surplus this year. That’s because the low oil prices are contributing to less demand for the biofuel, meaning that there is an abundance of supply… which again leads to low prices and lower production levels.

Cellulosic Biofuel Faring the Worst

Though popular, corn-based ethanol has been fairly controversial in that it displaces land that traditionally was used to grow food crops. As farmers make the switch to biofuel crops, food shortages demand more land be cultivated – which in turn has led to deforestation. As deforestation is a contributing factor to climate change, the benefits of biofuels have been somewhat undone by this chain of events.

However, cellulosic biofuel is a process which utilises organic matter or inedible parts of plants, thus meaning it does not directly compete with food production. It is, on the other hand, more expensive to produce than corn-ethanol, which means that it is suffering even more severely from current price troughs. Add to this the floundering nature of the cellulosic market, and US legislation which effectively caps the price of cellulosic fuel, and you have severe trouble for the industry.

Unless oil prices rise in the near future, the biofuel industry could be in need of a shot in the arm – and quickly.