Oil majors are increasing investments into biofuels as conventional fuel becomes scarcer and the price of oil rises. In a recent report by Pike Research, Shell and BP were named as the two oil companies that are the best positioned to make a profit from biofuels. Governments are also waking up to the fact that they will need to meet biofuel mandates over the coming years, a cost that is expected to hit $336 billion (€253 billion). Refiners are also beginning to take note.
According to Bill Day, executive director of media relations at transportation fuel manufacturer Valero Energy, the US refinery ‘got into the ethanol business because, as a producer and marketer of petrol, we were mandated to use ethanol in petrol. We figured that if we were going to be required to use it, we might as well be on the production side of the business. We were able to pick up our original seven corn ethanol plants at very attractive prices after VeraSun’s bankruptcy, and then added three more the following year’.
Day admits that because the corn-to-ethanol process has a low hurdle rate and thus is not an expensive industry to enter, it is an initially appealing investment. However, once the plant is set up, it takes a lot of financial backing to stay viable, which has caused many companies to subsequently go bankrupt; providing Valero a way into the industry. According to Day, other biotechnology is lagging behind due to the higher costs of production.