Pike Research scores Shell, BP highest in assessment of oil majors’ commercialization of biofuels
20 March 2012
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| Pike Pulse Grid for oil majors commercializing biofuels. Source: Pike Research. Click to enlarge. |
With “easy oil” increasingly difficult to source and with an obvious stake in the future of the $2 trillion transportation fuel market, the world’s largest oil companies have begun charting strategies to bring biofuels to market at scale. According to a new Pike Pulse report from Pike Research, the oil majors currently best positioned to drive and profit from the growth of biofuels are Shell and BP.
The current biofuels industry accounts for nearly 30 billion gallons of production, and advanced biofuels production represents just a trickle Pike notes. However, biofuels are expected to play an increasingly important role over the next decade due in part to mandates imposed in at least 31 countries worldwide. With the cost of meeting those emerging mandates over the next decade estimated at $336 billion, access to the oil industry’s capital and expertise will be critical to scaling up biofuels production.
Pike Research also projects that total revenue from global biofuels production—both the conventional and advanced segments—will reach at least $171 billion by 2020.
The “Pike Pulse Report: Biofuels Commercialization by Oil Majors” evaluates ten of the leading publicly-traded international oil majors (BP, Chevron, ConocoPhillips, Eni, ExxonMobil, Petrobras, PetroChina, Shell, Statoil and Total) and rates them on 12 criteria for strategy and execution, including production strategy and roadmap; partnerships; geographic reach; investment portfolio; distribution network; and market impact.
The companies profiled in the report have collectively sunk billions into developing the biofuel industry over the last 5 years. While a handful are pursuing near-term production via proven, first generation pathways, all acknowledge that advanced biofuels must play a strategic role in the future energy mix. To varying degrees, these companies have established strategic partnerships and invested in innovative startups in an effort to build out integrated supply chain delivery networks.
While Pike Research does not perceive any of the oil majors to be outright industry leaders at this stage, several companies have demonstrated a solid foundation for growth and long-term success. Shell and BP both have advantageous near-term positions for ethanol production from sugarcane and strong commitments to commercializing advanced biofuel pathways.
—senior analyst Mackinnon Lawrence
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With none of the companies falling into the Leaders category, 7 of the 10 profiled companies fall within the Contenders category. These companies demonstrate a solid foundation for growth and long-term success, but have not attained a superior position in the market, Pike explains.
Both Shell and BP—almost tying for top place—are pursuing strategies based on rapid scale-up in Brazil, where the efficient sugarcane market represents one of the most attractive biofuels markets over the next decade, with potential to supply sugar for advanced conversion technologies producing “drop-in” fuels as well. Shell scored slightly higher than BP in the Pike Pulse assessment thanks largely to its $12 billion venture with Cosan, one of the world’s leading producers of ethanol from sugarcane.
An early pioneer in the pursuit of advanced biofuels among oil majors, BP has made multiple investments across a number of potentially breakthrough feedstocks, participates actively in R&D efforts, and has built a strong portfolio of early-stage investments.
Third-ranked Total has charted out a similar strategy to Shell and BP, but its commitment to building out a delivery supply chain for biofuels, especially in Brazil, has to date been more conservative.
Pike ranks ConocoPhillips, Eni and ExxonMobil as Challengers. Although all three are “fundamentally sound” the report suggests, they have been more conservative in scaling up biofuels production.
ExxonMobil, ranked last, has made one strategic investment in a potentially breakthrough microalgae opportunity to date. However, the company’s long-term focus and lack of leadership in other areas resulted in lower scores overall in this Pike Pulse. Like all of the companies profiled in this report, it is worth noting that ExxonMobil has the level of capitalization available to accelerate advanced biofuels production if it so chooses due to considerable assets at its disposal.
—Pike Pulse report
"all acknowledge that advanced biofuels must play a strategic role in the future energy mix" So, this is the oil companies saying that oil from under the ground will at some point become too costly and difficult to get? If I were to listen to some of the pundants, and take what they say as true, I would believe that there is plenty of recoverable oil, and we just need to allow drilling everywhere on the planet. I guess that's not true, and billions in investments into biofuels stands as the oil industries true opinion on the matter. Sure, they want you to keep buying the drilled stuff, but their getting ready for the future. You see, they still want you to buy their stuff, they make a lot of money. The difficulty for them however is cost. As cost increases the ability of alternative technologies to become competitive increases, so for them to succeed with biofuels, they have to not only beat traditionally produced oil sources, but alternatives, such as electric cars. Electric cars will become cheaper, and at current price of oil, they become competetive at $25K, so about a 30% reduction in cost for electric cars and for many at least part of their commuting becomes cheaper via electric than using an ICE car. Although, I must say I think the car companies are on the side of oil, because they sure aren't trying very hard to get the EVs and PHEVs cost competitive, or maybe they just like gouging the early adopters. Most businesses do.
Posted by: Brotherkenny4 | 20 March 2012 at 10:45 AM
The world will still have oil for decades, but whether we have access to it at a price we are willing to pay is the question.
I believe this is why Exxon and Chevron recently bought natural gas companies. They want a Plan B in case foreign governments are not friendly. The recent dust up in Brazil is just one example.
Posted by: SJC | 20 March 2012 at 02:26 PM
Clearly oil major have a problem coming as oil if getting more expensive, users will try to use alternative fuel including electricity, so big oil has to convince that they will still be the supplier of the fuel of the future...so that we don't drop gazoline too fast
Posted by: Treehugger | 20 March 2012 at 03:52 PM
Kind of hard to give up hundreds of billions of dollars in revenue each year, I would hedge my bets too.
Posted by: SJC | 20 March 2012 at 06:40 PM
Drop the ethanol and bring on the butanol.
Posted by: Mannstein | 20 March 2012 at 07:50 PM
Biofuel is a general term. I don't know if I would put a lot of money into algae right now, but I would invest in natural gas to liquids in the U.S. and consider biomass gasification in the near future.
Thermal chemical is the same path, whether reforming natural gas to synthesis gas or gasifying biomass to synthesis gas, the synthesis gas can be made into synthetic gasoline. Since this is what the oil companies like Shell sell now, it is an obvious move.
Posted by: SJC | 21 March 2012 at 08:26 AM
We will be seeing increasingly desperate moves by the fossil industry. Their last gasp hope is to convince the world that biofuels are just as good as EVs. This of course will be their final downfall. Since higher energy density batteries and public comprehension of short distance drive patterns will increase.
The energy revolution is now in full swing. Fossil fuels are a fading component. Low, low cost electricity is around the corner. And since 85% of drivers travel less than 40M per day - cost reduction in present battery technology beats fossil and non-fossil fuels. But they ARE a nice transition fuel as the public fears of not enough - range, are put to sleep.
Posted by: Reel$$ | 21 March 2012 at 09:55 AM
Let's see how many EVs are sold this year before making predictions. In the U.S. the LEAF went on sale last year, this year they plan to sell even more, but how many more?
Do you believe that 1 in 10 cars sold in the U.S. will be an EV by 2020? That would be more than 1 million EVs sold in the U.S. in 2020. We might sell 20,000 EVs in the U.S. in 2012, so it is suppose to go from 20,000 to 1,000,000 in 8 years? I do not see the evidence for that prediction.
Posted by: SJC | 21 March 2012 at 10:14 AM
Even IF it went to 1 million EVs sold each year in the U.S. in 2020 and it stayed at that level for another 10 years we would have just over 10 million out of more than 200 million vehicles EVs by 2030.
I am not trying to be anti EV, I like the idea and I have gone on record saying that with enough quick chargers for commuters, they could become more popular.
I am just trying to inject a bit of reality into the discussion and projections. Think things through before making true believer predictions. They sound silly to the average person because they ARE silly.
Posted by: SJC | 21 March 2012 at 10:20 AM
Who would have believed that the world would buy 100+ million tablets in the second year and probably 200+ million in the third year.
There are three sure ways to accelerate the sales of electrified vehicles:
1. Do like Colorado and increase tax credits to $13,500+ for all electrified vehicles with 16+ Kwh on-board batteries or better yet, make it a plain $750/Kw with a ceiling of 40 to 50 KWh. Adjust the per Kwh subsidy downward every year (or every 6 months) as batteries price go down.
2. Increase States and Fed Fuel taxes every 6 months or so to cover 100% of the electrified vehicles support program.
3. Promote the installation of one million (or more) quick charge stations at the rate of about 100,000/year. The cost should be fully recovered over 5 to 10 years with an extra charge of about $0.01/Kwh paid by all users.
Posted by: HarveyD | 21 March 2012 at 10:38 AM
Again, SJC, evidence. It all hinges on the price of fuel. Biofuels would have to scale faster than demand growth for liquid fuels and faster than petroleum production declines in order to have any impact on prices. At what price do you think the American consumer suddenly runs in horror from oil-burners. $6, $8, $12/gallon? I don't know what that price is, but you can bet as soon as we reach that threshold, you'll see an exponential growth in EV sales. We should be looking at fuel price, not the calendar as the driver. You know exponential curves as well as I do. In the beginning, small numbers are too easy to ignore. Look deeper into a wider spectrum of global trends. Calling something "silly" is meaningless. What's more and more likely is a disruptive roller coaster as EVs destroy petroleum demand, biofuel companies come on strong, then falter as prices see saw. It will be a rough ride. But at the end of it liquid fuels will most likely be limited to aviation and heavy shipping. I can't tell you the precise year, but it's inevitable.
Posted by: Sean Prophet | 21 March 2012 at 10:44 AM
Comparing iPads with EVs is apples and oranges. Synthetic fuels are being made in quantities around the world, mostly from natural gas.
Synthetic fuels can be made from biomass through gasification and synthesis. Once you have synthesis gas, you can make many different products.
I am hoping EVs become popular, but I am not betting the future of my country on that belief. I am advocating a transition using synthetic liquid fuels, while we get more HEVs, PHEVs and EVs over time. That seems reasonable to me.
Let's follow the scenario outlined. Gasoline goes from $4 per gallon to $6 per gallon to $8 per gallon in just a few years in the U.S. Everyone demands more than one million EVs per year and the industry bends and distorts from the stress of that demand.
Now let's say we are building synthetic fuel plants every year that produce millions of gallons of synthetic gasoline per day from natural gas and biomass that sell for about $3 per gallon.
Might that stabilize the prices? Might that give us some time to ramp up production of HEV/PHEV/EV without panic distortions to the markets and production supply lines?
Posted by: SJC | 21 March 2012 at 11:10 AM
This is not an either OR issue it is and AND issue. I and others have said time and time again that we are going to need everything viable to help out.
Posted by: SJC | 21 March 2012 at 11:47 AM
SJC,
There is very, VERY much an apples to apples comparison for selling a million BEVs in the US: US hybrid sales went from zero to TWO million vehicles per year in just 11 years.
You can't get much better of a comparison than that.
http://wardsauto.com/ar/hybrid_sales_million_110607
Posted by: DaveD | 21 March 2012 at 02:39 PM
There are not 2 million hybrid vehicles sold in the U.S. each year. You put up a link, but you do not quote them saying that. Go back and find the quote and post it, I am not doing your work for you. You can not, because it is NOT true.
Posted by: SJC | 22 March 2012 at 10:31 AM