LONG TERM GLOBAL BIOFUEL PROJECTIONS WITH
AGRICULTURAL RESOURCE USE UNDER DIFFERENT
OIL PRICE SCENARIOS
John Miranowski
Professor of Economics, Iowa State University
with
Alicia Rosburg, Assistant Professor, University of Northern Iowa
Introduction
• Sabbatical opportunity at FAO (2011)
• “LONG TERM GLOBAL BIOFUEL PROJECTIONS WITH AGRICULTURAL
RESOURCE USE TO 2080”
• What would long term global market model tell us to expect?
• Given feedstock demand for energy content, crude oil price will
drive biofuel or parity price for foreseeable future.
• Renewable energy programs have limited long term (LT) impact
(US-RFS & EU-RED) – “Fossil fuel attacks on mandates,
subsidies, put renewables at risk.” (DSM Register, June 18, 2012).
Fracking NG, Oil
• Implications for resource use are more complicated but technology
and productivity growth will limit LUC and other input use.
Rationale and Framework of Analysis
• “Important resource problems are LT issues.” T.W. Schultz
• If biofuel is small component of energy market, the
demand for biofuel is perfectly elastic for a given oil price
• Energy content of feedstock is demanded by biofuel
processor. The processor can only pay an amount equal
to energy value of biofuel, plus co-product value, less cost
of feedstock conversion.
• The minimum amount the feedstock producer will accept
to deliver feedstock reflects production, harvest, storage,
transport, and opportunity costs.
Rationale and Framework of Analysis
• Parity price graphs relate maximum price the biofuel
process can pay for feedstock given alternative oil price
scenarios.
• In the LT, the price of oil puts both floor and ceiling on
commodity and biomass feedstock prices.
Figure 1. Breakeven sugarcane price (PD) – BEFS Peru
(Commercial/smallholder coastal)
Figure 1 (cont). Breakeven sugarcane price (PD) – BEFS Tanzania
(BEFS Tanzania – Scenario 1)
Figure 2. Price gap (PS – PD)
(Maize only)
Rationale and Framework of Analysis
• In LT, inputs are variable and substitutable. Short term market
shocks and responses not issue.
• Government biofuel incentives and mandates put upward
pressure on food and feedstock prices, but not LT phenomena.
• Technological change and productivity growth lower unit costs
and competitive markets lead to lower profit margins and
sectoral adjustment. Improved resource use efficiency - LUC,N.
• Agricultural commodities follow the traditional market paradigm
of declining LT real prices.
Figure 3. Select real commodity prices, 1965 – 2010
$120.00
$30.00
$100.00
$25.00
Crude Oil
Corn
Soybean
Wheat
$80.00
$20.00
$60.00
$15.00
$40.00
$10.00
$20.00
$5.00
$-
$-
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2010 $/bu
2010 $/bbl
Commodity Prices
Long Term Biofuel Breakeven Model
• Determines maximum LT breakeven price the processor
can pay for feedstock given oil price scenarios and biofuel
conversion costs.
• Determines minimum LT breakeven price producer is
willing to accept given feedstock production, harvest,
storage, transportation, and opportunity costs.
• Budgeting model with step-wise LT supply curve.
• Gap between producers’ willingness to accept and
processors’ willingness to pay indicates when LT biofuel
market does not meet necessary sustainability condition.
Background Studies and Database
• We assume three LT crude oil price scenarios - $60, $100, and
$140/bbl
• Schmidhuber papers, various years.
• FAO BEFS Reports - Peru, Tanzania, Thailand
• IEA Biofuels Study, 2011
• Kazi, et al, 2011
• ALTF Report, 2009, NRC Report, 2011, Rosburg and
Miranowski, 2011
Figure 4. Price gap per gallon (PS – PD)
Figure 4 (cont). Price gap per gallon (PS – PD)
LT Breakeven Is Not Only Sustainability Consideration
• Competitive biorefineries are large scale plants requiring
continuous throughput of high-density, dependable
feedstock supplies.
• Countries and regions need price elastic feedstock with
excess supplies. Otherwise, any supply disruptions may
force biofuel plant shutdowns. Small-scale options?
• LT productivity growth in feedstock production and
conversion to biofuel.
Figure 5. Price gap (PS – PD), current minus future values
with productivity growth at $100/bbl oil
Figure 5 (cont). Price gap (PS – PD), current minus future
values with productivity growth at $100/bbl oil
Summary and Conclusions
• First generation biofuel ($100/bbl oil) largely competes
because of government intervention (except sugar). Other
feedstock are possibilities with high LT oil price ($140/bbl). NG
• If LT oil price is high and tropical countries can expand
feedstock supplies to sufficient quantities, they may become
competitive biofuel suppliers.
• Productivity growth in feedstock production and conversion
may have important implications for biofuel. Continue research!
• Anticipate LT global cropland base will not expand because
limited biofuel expansion and productivity growth.
Feedstock Costs and Price Gaps for Biofuels
Figure . Processor breakeven feedstock prices @ $100/bbl oil
Figure . Feedstock cost per gallon (PS reported)
Figure . Price gap per gallon @ $100/bbl oil, (PS – PD)
Figure 4. Price gap per gallon (PS – PD)