I've gotten many questions on what goes into the price - as you all know, the price of both petroleum fuel and biofuel has been going up and up. (While writing this article, the price of a barrel of crude oil has hit $118.28, a price far higher than forecasted.)
SeQuential has received numerous inquiries to why this is happening, and like everything in the world, there are many factors that go into the equation. This is not meant to be a complete list, but an overview of some of the key influencers. Feel free to post any comments or questions!
Limited Supply
Without getting into a discussion on how much oil is left underground, there is a very real constraint on oil output: refinery capacity. Since 2004, refinery output worldwide has not increased.
Demand from Developing Countries
The demand for petroleum by developing countries, mainly China and India, has put a strain on the already limited supply of petroleum. Classic economics shows that when there is a supply-demand imbalance, prices raise.
Weak US Dollar
The US Dollar has been loosing value as compared to other world currencies. Since the US imports about 60% of its petroleum, the dollar is not able to buy as much petroleum as it used to.
Effect on Biofuel
Like it or not, the price of petroleum has an effect on absolutely everything in our lives, even the price of locally produced biofuel. Every day in Oregon, only 0.7% (0.007) of the total fuel used is biofuel. SeQuential sources products from companies that use biofuels as much as possible, but the reality is that most companies use petroleum fuel, tying us and our prices to the rises in the price of petroleum.
Effect on Food Prices
There have been many articles in the news as of late on how the growing use of biofuel has impacted the price of food worldwide. This is an issue that SeQuential takes very seriously; there is a wrong way and a right way to produce biofuels. Wherever possible, SeQuential uses recycled or locally grown products and the most efficient processes for fuel production.
Our sourcing principle:
- Best – regionally-produced from regionally-available feedstocks. Emphasis on waste products and recycled products.
- Better – regionally produced from domestically sourced feedstocks.
- Good – domestically produced from domestically sourced feedstocks.
- Unacceptable – biofuels that have a negative energy balance or are produced from imported feedstocks. (Brazilian soy or Malaysian palm oil.)
The effect of petroleum prices, currency imbalances, worldwide crop failures and growing demand of developing nations for meat (which requires large amounts of corn and other grains) has been largely overlooked. Given the relative small size of the biofuel industry, these other macroeconomic factors have a much larger influence. For more reading: NY Times.
SeQuential is committed to finding ways to avoid competing with food crops, such as using Used Cooking Oil or Canola and Camelina grown regionally in rotation with grass seed and other crops.
10 comments:
Thanks for this post. I'm wondering if SeQuential has any short/long term plans to use other crop sources for fuel like switchblade grass or algae which is likely to produce a higher fuel yield per acre than corn which, although subsidized, is a horribly inefficient biofuel source.
You can bet that SeQuential will be first in line to use biofuel produced from future technologies like cellulosic ethanol or algae based biofuel.
Until the future, you can also bet that we will be first in line to use better sources of biofuel produced from current technologies as they become available.
I agree that there are better feedstocks than corn, but as an aside I want to point out that the corn ethanol we get from Pacific Ethanol comes from field corn (food for cows, not humans). After Pacific makes the ethanol, what is left over is called distillers wet grains, which is basically cow food that is more nutritious than plain raw field corn.
Pacific Ethanol has talked to Northwest farmers about growing corn, but they are not interested as wheat prices are so high.
Thanks for your more detailed explanation of why fuel prices in general are increasing and how this is effecting the global economy. At the same time, that wasn't really the question. We all know why petroleum fuel costs are rising. Your post does little to specifically address the question here of why the price of your biofuels are rapidly rising, now approaching $5 per gallon.
Yes, all of the companies you deal with don't necessarily use homemade biofuels, and thus are paying more for transportation of goods in correlation with the rising fuel costs in general, but I fail to believe that this is the entire answer and that higher petroleum fuel prices directly translate to higher biofuel prices. If so, this same phenomenon would be effecting all realms of commerce, and we would be seeing an equal rise in the costs of all goods (I'm not suggesting that it is not effecting all realms of commerce, just that we are not seeing comparatively similar rises in prices of other goods). To simply attribute your prices to increases in transportation costs of your suppliers is skirting the question.
So, I don't feel I've come to a better understanding at all of why I am paying $4.89 a gallon after reading your post. To me, your answer is really more of a non-answer. Sorry, if I'm being hard here. I really am a large supporter of this movement and your company. And, I know fluff when I read it.
This post was made to address fuel prices in general - not just biofuels.
The rising prices of commodities could be pegged as the single largest reason why biofuel prices have gone up.
Commodity prices are being effected strongly by oil prices, the weak US dollar and new demand from developing countries.
$5.12 a gallon? Come on. It seems as though you guys are gouging just like the big boys. I'm appalled, and unfortunately will no longer be taking part in what I thought was a great cause!
Again, the price of the raw materials used to make biodiesel have continued to go up, leading to high prices. We have not changed our margins.
Like any wholesaler, we cannot set prices at our distributors and prices vary by location. The only location that we have control over prices is at the SeQuential station in Eugene.
The high prices affect all of us. I live in Portland and buy B99 Biodiesel for my VW Jetta. There is no employee discount in Portland - I pay full retail.
I believe in the positive change that biodiesel is making for the environment and for local energy security and even though the price is up there, I continue to use it.
As of today in Portland, petroleum diesel is retailing for about $4.40. B99 Biodiesel at Jay's Garage is $5.12.
From a purely economic point of view, this means that per fill up (about 10 gallons), I pay $7.20 more total to use 99.9% Biodiesel, instead of 100% petroleum diesel.
A twice a month fill-up means a premium of $14.40 is paid for a month's worth of using 99.9% cleaner burning renewable fuel.
Yes I want to see prices go down, but for the meanwhile, this is a price that I'm more than willing to pay!
I will pay the premium on biodiesel to NOT have my money go to Shell!
It is no different than the premium I pay on organic food to NOT have my money go to petro-farmers.
The only vote I really have is where I choose to shop and what I choose to spend my money on.
And now back to my bicycle.
Im the one above who called your answer fluff. I'm not jumping ship, and will continue to pay the price for all the reasons that have been listed here with which I fully agree (the organic food comparison is a good one!) - I'm just trying to gain a better understanding of what's going on. That the price correlates so closely with the tide of petroleum diesel, but roughly $0.50 cents more, and there just happens to be this $0.50 tax break is just a little too coincidental, so it makes one of my eyebrows raise in an curious way.
It is interesting that you state "Like any wholesaler, we cannot set prices at our distributors and prices vary by location. The only location that we have control over prices is at the SeQuential station in Eugene."
When I have asked Jay's garage several times in the past what the deal is with pricing, they tell me they have no control over it and that it is set by SeQuential. Hmmmmm.....
Im the one above who called your answer fluff. I'm not jumping ship, and will continue to pay the price for all the reasons that have been listed here with which I fully agree (the organic food comparison is a good one!) - I'm just trying to gain a better understanding of what's going on. That the price correlates so closely with the tide of petroleum diesel, but roughly $0.50 cents more, and there just happens to be this $0.50 tax break is just a little too coincidental, so it makes one of my eyebrows raise in an curious way.
It is interesting that you state "Like any wholesaler, we cannot set prices at our distributors and prices vary by location. The only location that we have control over prices is at the SeQuential station in Eugene."
When I have asked Jay's garage several times in the past what the deal is with pricing, they tell me they have no control over it and that it is set by SeQuential. Hmmmmm.....
True, retail pricing will ultimately be based off of wholesale pricing. Here is an example with made up numbers:
Coke sells a bottle of soda to a convenience store for $0.50 cents. That c-store will resell that soda for something higher than what they bought it for - say $1.00.
In some respect, Coke is setting the price, but due to anti-price fixing laws, Coke can't tell the store exactly what to sell it for. There are, of course, manufacturer suggested retail prices (MSRP), but in the end, it is only a suggestion. If the price of soda flavoring goes up, coke will raise their prices, and in turn so will the retailer.
The same holds true for biofuel - Jays, or any of our outlets barring the SeQuential-owned station in Eugene, sets prices based off of what they buy fuel for, plus a margin.
I appreciate your continued concern about the price premium being similar to the tax credit, but I assure you that the tax credit does not factor into any equation on our end.
The range of prices at our various pumps speaks to that - two weeks ago I called all B99 Biodiesel locations to in Oregon to see what they were retailing for and found a $0.60 spread between the highest and lowest price. Compared to petroleum diesel, that was a $0.20 to $0.80 premium.
Sasha
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