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By Robert Rapier on Nov 5, 2007 with no responses

High Oil Prices = High Biofuel Prices

You know that forever I have beaten the drum that high fossil fuel prices would make biofuels more expensive due to their poor EROEI. If you are unfamiliar with the argument, it is essentially that most biofuels have very high fossil fuel inputs (and thus a low energy return). That simply means that when fossil fuels get more expensive, biofuels eventually have to follow. I always thought it was funny when people thought just the opposite would happen: As fossil fuels get more expensive, biofuels become more competitive. That could very well be true if you had a ubiquitous source for biofuels that had minimal fossil fuel inputs. But that isn’t what we have. And the Wall Street Journal finally noticed:

Biofuel Costs Hurt Effort To Curb Oil Price

Rising costs of biofuels and other alternative energies are making them less viable as substitutes for crude oil, a development that could frustrate efforts to bring oil prices down in the years ahead.

A few years ago, many energy economists predicted that higher oil prices would ensure the success of alternative energies such as biodiesel or wind power by making them more financially attractive. In many cases, though, the opposite has occurred: Even as crude-oil prices approach $100 a barrel, some alternatives look less attractive than in the past.

Many energy economists predicted that, did they? I guess that’s why I am not an energy economist. That this would happen is a no-brainer, again because of the energy inputs. How they could get it so wrong is beyond me.

One reason: Energy demand is now so intense that supplies of just about every kind of fuel are in short supply, driving up prices of the raw materials involved in making many alternative energies.

It is the same across the energy industry. That’s why projects keep coming in over budget. That’s why GTL projects have been abandoned, and CTL can’t get off the ground. And that’s why I think Shell’s oil shale efforts are doomed. (I know that ethanol prices lately have collapsed, but with high energy and corn prices, their margins are getting crushed and a shakeout is inevitable).

The problem is most acute for crop-based alternative fuels, like ethanol and biodiesel, though it has also proved true to some degree for solar power, nuclear power and other competing energy sources. Biodiesel, a fuel made from farm crops like soybean oil and palm oil, was in some cases supposed to be economically competitive with crude-oil prices as low as $50 a barrel, according to analysts who studied the industry.

What a surprise. Who could have predicted that?