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Analysis and Outlook of the Global Biofuels Industry

  • October 2013
  • -
  • Frost & Sullivan
  • -
  • 88 pages

National Mandates Drive Strong Growth and Biorefinery Diversification Drives Maturation

This market insight provides an overview of the global biofuels market, including identified key technological, economic, and legislative trends and their implications. The historical development of the biofuels market, from first generation to third generation, is outlined. National mandates, which are crucial to driving biofuel production, are identified, and national biofuel production levels are tracked. To show trends at the local level, the market is broken down by global regions such as North America, Europe, Latin America, Asia-Pacific, and Middle East and Africa. The future of the biofuels market is examined and discussed, and key global producers are tracked along with a future trajectory.

Executive Summary

• Frost & Sullivan estimates that the global biofuels industry will have investments between $18.8 billion and $26.1 billion from 2013 to 2020 in the form of 301 to 418 biorefineries to fulfill mandates. Biofuel production, however, is unlikely to achieve its identified production levels necessary to restrict global temperature rises to 2 degrees Celsius.
• National and regional mandates, the drive for fuel security, and environmental sustainability continue to support the global biofuels industry centered on the United States, the European Union (EU), and Brazil as well as other countries such as China and India.
• The industry is also maturing, with biorefineries as a market-based driver. Biorefineries offer shorter-term cash flow advantages and offer security by diversification for biofuels producers.
• While biomass use for energy is set to increase, the latest International Energy Agency (IEA) World Energy Outlook downgraded expectations for future use. The lower expectations are the result of multiple complications faced by the industry such as investment, commitment to mandates, feedstock availability, realistic production levels, and competition between fuels.
• Capital investment is the largest restraint to the industry and is influenced by many countries reviewing targets, definitions, and sustainable feedstock qualifications. The cost of renewables subsidies is a burden for national governments and is expected to increase from $88 billion in 2011 to $240 billion in 2030.
• This increase may generate ripple effects on investment and production levels as market participants adjust to future realities. Non Organisation for Economic Co-operation and Development (OECD) countries are expected to play a role as the industry matures and established countries slow investment.
• The industry also faces broad realignments as new, sustainable feedstocks and second generation biofuels are pushed as the main source of future growth. First generation biofuels have lost favor because of their reliance on crop-based feedstocks, which compete with food availability and prices.
• Second generation biofuel production, however, has been slow to take off. Next generation biofuels require a reevaluation of cost competitiveness, time for production volumes to reach critical mass, and time to reach a proof of concept.
• The range of technology choices in second generation biofuels and cellulosic fuel production needs time to develop and build confidence. A blend of technologies may continue, however, as local market conditions influence specific production technology benefits.
• The explosion in shale gas availability may compete and exacerbate the decline in funding for biofuels; however, shale gas is also a complementary fuel that will give the biofuels industry time to develop and drive biofuel processes such as hydroprocessing.
• Mandates continue to drive the industry in North America, but this region faces the E10 blend wall, with practical difficulties in an upgrade to B15. The volume of vegetable oil availability is unlikely to match the need for biodiesel to make up for production gaps. Cellulosic production is needed for the region to hit mandated production targets.
• The EU is redefining mandates and the levels of which sustainable feedstocks need to compose biofuel totals, which has large trade implications for Argentina, Indonesia, and the EU’s own production of rapeseed for biodiesel production.
• Brazil could benefit from a better sugarcane yield in 2013 and may reinstate its higher mandate for biofuels as a result. Future growth, however, may rely on export markets.

Drivers Explained

Biofuel Mandates are Key to Moving the Market Quickly
• National mandates for the introduction of biofuels are the largest market drivers, offering regulatory pressure and subsidies to help the market develop solutions.
• While the future of some mandates may be questioned, there is no sign that the largest consumers of biofuels, the United States, EU, and Brazil, are set to rescind mandates in the short term.

Fuel Security and Energy Independence Drive Alternative Energy Production
• Many countries consider biofuels a long-term strategy that promotes energy independence and a diversification of fuel supply.
• The unlocking of shale gas reserves worldwide, however, may reduce the impetus on biofuels as a solution to fuel security. Countries such as the United States and China have vast resources that technology now allows them to access instead of needing to build up a biofuels-only strategy.

Environmental Protection through the Move away from Fossil Fuels is Helped by Biofuel Production
• There is a worldwide push to limit the effects of carbon dioxide (CO2) on global temperatures and climate change. Emissions from transportation fuel contribute to this change, and biofuel integration can mitigate this issue.
• Tension exists, however, between environmental protection and economic growth, which often seem in conflict. Biofuel production is an example of them both coming together.

Biorefineries Provide Long-term Viability through Increased Revenues
• Many biofuel production plants have turned to biochemicals to increase revenue streams until biofuel can be produced in larger volumes to increase financial viability.
• Biorefineries will help keep biofuels active and part of a long-term strategy in fuel development.

Restraints Explained

Capital Investment is becoming Tighter, Restricting Development
• Investment in biofuel production has slowed in recent years. A recent release by IEA shows production capacity investment in biofuels falling from nearly $X billion in 2007 to less than $X billion in 2012.
• The drop in investment in biofuels indicates increased competition between projects and greater demand to provide strong evidence of scalability and cost competitiveness of biofuels.

Lack of Large Scale Development and Cost Competitiveness Hinder Unassisted Viability
• The shift to second generation biofuels brought a new host of feedstocks that need to be qualified for cost-competitiveness. Unfortunately, many cellulosic processes have been slow to materialize and are still in the stages of pilot plants and feasibility studies.
• Until large scale projects can be developed, investments will be hindered as the technology will be considered risky because of its unproven status.

Unconventional Fuels have Unlocked New, Competitive Energy Alternatives
• The explosion in unconventional fuels, especially in accessible shale gas reserves, impacted the perceived future dependence on biofuels. The United States, one of the largest markets for biofuels, has observed what industry experts quantify as a X-year supply of natural gas.
• This increase in unconventional fuels inevitably reduces some of the impetus on biofuel production outside of the government mandates and gives ammunition to anti-mandate conventional fuel groups that want fewer restrictions on fuel production and consumption.
• Shale gas is unlikely to end the biofuels industry as, ultimately, it is not a renewable fuel source, and it also may help increase biofuel long-term viability. Shale gas can provide lower cost natural gas for hydroprocessing activities and alleviate some of the demand for the quick-paced development of the biofuel industry.

Table Of Contents

Analysis and Outlook of the Global Biofuels Industry
Table of Contents

Executive Summary 3
Drivers and Restraints 6
Future Outlook for Global Biofuels 12
Biofuels by Generation 16
Cellulosic Biofuel Production Technologies 29
Market Development Issues 35
•Challenges to the Growth of Biofuel 36
•Shale Gas Boom 39
•Emergence of Biorefineries 40
Future Biofuel Trends and Production by Region 43
The Future of Biofuels 70
The Last Word (Conclusions and Implications) 80

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