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Jan 19, 201508:56 AMInside Wisconsin

with Tom Still

Low gasoline prices ideal for consumers, major challenge for alternative fuels

(page 1 of 2)

With gasoline prices hovering around $2 per gallon or less for regular grade across Wisconsin, drivers are saving money every time they fill up their tanks.

The story for producers of alternative fuels and researchers seeking to unlock next-generation biofuels is very different. Their tanks are running on vapors.

Economists predict that low gas prices are likely to continue through 2015 and save consumers billions of dollars throughout the year. The chief economist at Mesirow Financial last week predicted savings of $300 billion throughout the U.S. economy; an analyst for U.S. Bank’s Private Client Reserve recently forecast about $100 billion in savings; the American Automobile Association has estimated $75 billion in savings.

Those are huge numbers either way, with the U.S. Energy Administration predicting in December the average household will save $550 over the course of the year.

Reasons for the price decline include strong supply from U.S. shale producers and “fracking” fields, as well as the return of production in the Middle East and an OPEC decision to maintain production targets. In addition, Libya has resumed exports, production is on the rise in Iraq, and there’s potential for lifting Iranian sanctions. Weakening demand in China and Europe has helped — and so has overall fuel efficiency progress in the United States, where there are more hybrid vehicles and conventional vehicles that simply burn less gas.

The combination has dealt a blow to efforts to commercialize advanced biofuels, such as ethanol made from woody plant waste or diesel made from plant oils.

A recent report in MIT Technology Review noted that advanced biofuels progress has been slow, despite federal rules requiring the use of such fuels. In 2014, a few large-scale cellulosic ethanol plants became operational, including plants operated by Poet-DSM, DuPont, and Abengoa. All were planned when the price of oil was above $100 per barrel; it’s now hovering around $50 per barrel.

No wonder that some cellulosic plants on the drawing boards were canceled, even before the oil price plunge was in full swing.

Federal biofuel requirements were created with an energy bill passed in 2005. Signed into law by then-President Bush, the standards were meant to promote energy independence. They required ever-increasing numerical gallon requirements for the use of ethanol and advanced biofuels in a range of transportation fuels.

In 2013, the U.S. Environmental Protection Administration scaled back requirements for the total volume of biofuels that must be part of the transportation fuel mix. The EPA cited market saturation due to lower-than-expected demand for gas, thus limiting the amount of ethanol that can be blended.

The EPA may update those requirements again in 2015. If they’re repealed, the market case for cellulosic biofuels and biodiesel “would cease to exist,” according to Wallace Tyner, a Purdue University agriculture and energy economist cited in the MIT report.

While the “peak-oil” crowd will continue to insist that petroleum is a finite resource and generally bad for the environment, the short-term forecast is a barrier for producers and researchers — including some major institutions in Wisconsin.

(Continued)

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About This Blog

Tom Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.

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