Biofuelling the wheels

13 May 2015
Biopolttoaineilla tien päälle

Chatting with Biofore magazine at the World Bio Markets events in Amsterdam is a man with firm faith in the future of liquid fuels: John Cooper shares his helicopter view of what’s happening in the industry.

Though many are predicting that electric cars will soon take over, John Cooper, BP’s Director of European Biofuels Strategy, sees liquid fuels – including advanced biofuels – as having a long-term future in road transport.

We recognise that the combination of biofuels with fossil fuels and efficient vehicles that use internal combustion engines are already a lower carbon alternative and very cost efficient – and can bring amazing value to society.

Cooper acknowledges that electric vehicles have a role, but not on the wide scale that is often envisaged due their ongoing reliance on incentives at high cost to the taxpayer. There is also no viable electricity solution yet available for the heavy-duty road transport sector.

“We see biofuels, and liquid fuels in general, as the most effective way of directly reducing the carbon intensity of transportation fuel for some decades to come. Liquid fuels generate a lot of revenues to governments through the very high value that they add, which allows high taxes to be placed on them. The alternatives that we see are completely incapable of doing that.”

Better fuel mix

BP has a long history of expertise in fossil fuels reaching back over 100 years. The biofuels business has also been part of the company’s portfolio for about a quarter of a century. Currently biofuels are integrated into BP’s downstream business and service-led arm. In Europe, the USA and many other markets around the globe, there is a growing requirement for biofuels to be sold as partof the offering.

Cooper is responsible for bringing biofuel strategies to various markets, which requires careful planning from a longterm perspective. One key challenge is shifting the sourcing of raw materials to sustainable non-food sources.

“Developing a longer-term strategy requires discussion of multiple arrangements with a large number of companies. We need to look at how we can jointly make commitments and investments to bring better biofuels to the fuels mix.”

This is where companies like UPM, who produce renewable diesel from non-food materials, enter the picture. BP supports the movement towards these second-generation biofuels.

“Absolutely, we are interested in sourcing this material for our business.” In Europe there has been a lot of talk about indirect land use change (ILUC) related to biofuel production. The increasing global demand for biofuels is driving farmers around the world to abandon food crops in favour of biofuel production. This consequently produces more carbon emissions.

Cooper recognises that there can be a role for existing biofuels, but the focus from now on, both in terms of the technology and the volumes that go into the fuel, should be in non-food based biofuels that are produced from wastes and residues.

“We think the focus should now change to how we support the development of the advanced biofuels sector. How do we provide a long-term framework policy that gives reliable pricing and demand signals, so that investors can make commitments and plans?”

Policy headwinds

The road ahead is by no means easy or smooth for the biofuels business. There are many obstacles the business is facing now and will continue to face in the near future.

Policies around the biofuels business have changed repeatedly. There have been surprises both in high-level and detailed-level political decisions, which have resulted in mechanisms that vary from market to market.

“We need policy-makers to recognise the financial influence that they have on the market. This business needs longterm and stable policies so that the assumptions that were used to make business cases can have a long-term life.”

Lately also the drop in crude oil price has affected the liquid fuels market. BP has estimated that they expect to see lower-level oil prices for up to three years.

“I think many companies are putting in effort to try and understand the dynamics of the market. But it does look like that we will see lower-level oil prices for some time.”

One of the factors affecting the economics of biofuels is the price of feedstock. While the global market pricing of food-based biofuels like vegetable oils and grain is relatively well understood, many fuels made from wastes and residues have a very limited local market, making it impossible to predict future trends in pricing of this feedstock. Compared with food-based biofuels, the capital intensity of advanced biofuels projects is generally higher, which means that a longer guarantee of assured business is essential for making a sound business case.

Cautious optimism

Despite turmoil in the policy arena and uncertainty surrounding the economics, there are still companies willing to commit to biofuels-related investments. Most of them already have some kind of connection to the petroleum industry, but there also other companies like UPM that are involved for other reasons.

“Integration is an emerging theme. Companies are integrating a completely new product to the existing business.

It’s really about diversification and it makes a great deal of sense.”

Although Cooper remains optimistic that there is significant potential in advanced biofuels, there are a few things he would like to change. The first is driving down the construction costs of biofuel plants. Another is having a common voice emerge within the industry, as so far biofuels investors and producers have devoted their energy to competing against each other rather than supporting a common cause.

“The bigger objective should be making a clear case for the role that biofuels can have as part of the liquid fuels mix that we’ll need for the upcoming decades. Fossil fuels, biofuels and advanced, efficient ICE powertrain vehicles can offer a really competitive and and useful alternative for the European economy and society.”

Antti Ylitalo

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