Biofuels have kept gas prices down by 15%
The Wall Street Journal reported this week that a Merrill Lynch analyst and the chief economist of the International Energy Agency indicated that if it weren’t for biofuels such as biodiesel gas prices would be 50 cents higher at the pump. Issues remain with some forms of biofuel (e.g., corn-based ethanol) that are getting progressively addressed but it is interesting to see that biofuels have already filled 1/3 of the increased oil demand driven by developing economies.
Here’s a link to the full article. The following are a few excerpts
The world’s economy is acquiring a new energy addiction: biofuels. Crop-based fuels such as ethanol and biodiesel are quietly becoming a crucial component of the global energy supply, despite growing concerns about their impact on the environment and world food prices.
Biofuels production is rising rapidly, while other fuel sources are failing to keep pace with demand. As a result, biofuels are making up a larger portion of the world’s energy-supply gap than many analysts expected. That means the debate over biofuels probably will shift from whether they are good or bad to the more difficult question of how to make sure their production keeps growing — without wreaking economic and environmental havoc.
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Global production of biofuels is rising annually by the equivalent of about 300,000 barrels of oil a day. That goes a long way toward meeting the growing demand for oil, which last year rose by about 900,000 barrels a day.
Without biofuels, which can be refined to produce fuels much like the ones made from petroleum, oil prices would be even higher. Merrill Lynch commodity strategist Francisco Blanch says that oil and gasoline prices would be about 15% higher if biofuel producers weren’t increasing their output. That would put oil at more than $115 a barrel, instead of the current price of around $102. U.S. gasoline prices would have surged to more than $3.70 a gallon, compared with an average of a little more than $3.25 today.
Biofuels are playing “a critical role” in satisfying world demand, says Fatih Birol, chief economist of the Paris-based International Energy Agency. Without them, “it would be much more difficult to balance global oil markets,” he said.
![[chart]](http://s.wsj.net/public/resources/images/NA-AP820_OUTLOO_20080323193639.gif)
But a slowdown in biofuel production would only tighten world energy markets — and further highlight the world’s dependence on the fuels, especially as producers of traditional crude oil struggle to crank up their supply.
All of that can only mean one thing: With so many challenges ahead for increasing oil supplies, the world will have to get used to relying on biofuels — or find yet another alternative, at a time when there aren’t many.
Write to Patrick Barta at patrick.barta@wsj.com
March 26th, 2008 at 10:43 pm
http://www.johnsearlstory.com/