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Biofuels: Wouldn’t We Miss 500,000 Barrels a Day?
By John Geesman
Green Energy War
As debate continues to rage over the role which biofuels policies have played in the extraordinary inflation in world food prices, a sobering awareness may spread. Crop-based fuels like ethanol and biodiesel may have already become an indispensable element of global supplies of liquid fuels. Their absence could have a significant impact on the price of oil.
That’s the gist of some recent cautionary remarks coming from the International Energy Agency, generally considered the analytic watchdog for the energy consuming interests of the developed world. By IEA’s estimate, biofuels make up about half the new fuel coming to market this year from outside the OPEC cartel.
In the words of William Ramsey, deputy executive director of the IEA, “If we didn’t have those barrels, I’m not certain where we would be getting those half a million barrels,” adding that OPEC has indicated that it will not increase supply.
What would be the impact on oil prices without those barrels? Using a slightly different analysis, focused on an annual increase in global production of biofuels of about 300,000 barrels-of-oil-a-day equivalent, Merrill Lynch commodity strategist told the Wall Street Journal that oil and gasoline prices would be about 15% higher if biofuel producers weren’t increasing their output.
Significantly, that 300,000 barrels-a-day amount represents one-third of the world’s growth in the demand for oil last year, which was about 900,000 barrels-a-day.
How much blame does biofuels demand deserve for increases in world food prices? The institutional estimates vary. The UN’s Food and Agricultural Organization says 10 - 15%. The International Monetary Fund says 20%. The International Food Policy Research Institute says between a quarter and a third. Others generally fall in between.
And what degree of culpability should be assigned to the price of oil, or the perverse feedback loop between oil and the US dollar that seems to have ignited all commodity prices, or the petroleum dependence that has made all of these conditions possible (if not inevitable)? Oddly, there’s been no similar outcry yet.
John Geesman recently completed his term on the California Energy Commission and has been following California politics for over 40 years. He writes “California Green Energy War: A former California Energy Commissioner digests global climate and energy politics” where this article originally appeared and it is republished with his permission. Geesman says of his site: “The Green Energy War is no stranger to passion, but is subject to periodic mind-clearing blasts of rationality as well. Won't you join me on patrol of this frontier as global society works through the greatest struggle of the 21st Century?”
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