US Department of Energy: Biofuels Lower Gas Prices

The US DOE went on the defense for biofuels in a press release last week. They tackled one of the hottest topics of today - price - but from a different perspective, the effect of biofuels on the price of petroleum. You can read the whole release here.

The release states that in the US for 2008, biofuels will have displaced the use of 5% of all petroleum.

This 5% decrease in demand amounts to a $0.20 to $0.35 reduction in price at the pump for petroleum products.

The report also stresses that this is the impact of "first generation" biofuels. Second generation technologies, like cellulosic-ethanol and algae-biodiesel, are much more energy efficient, which translates to increased volume at lower costs.

Other good quotes from the release:

Today’s Biofuels Account for Only a Small Percentage of the Increase in Global Food Prices.

Higher oil and gas prices leading to increased costs of fertilizer, harvest, and transportation

Increased demand as developing countries grow and people improve their diets

Two years of bad weather and drought leading to poor harvests in parts of the world

Export restrictions imposed by some countries

Bike Day at the Science Factory

It feels like I've been talking about food vs fuel and high prices for quite a while now on the blog.
While these issues are still at the forefront of everyone's minds, tackling them is not the sole source of activity at SeQuential.

On Saturday I was at a booth at the Bike Day celebration at the Eugene Science Factory. The sun managed to peek through the clouds (much to everyone's joy) and it was fun talking with so many people about biofuels.

Besides showing our support for bicycles (and the Science Factory!) the main reason we go to events are to answer questions about biofuels. A person's car is one of their most valuable possessions (ignoring the intangibles, love and health) and people generally have a few questions before they start using biofuels.

The questions range from the simple, "Do I need a conversion to use biofuels?" (NO!), to the complex, "What are long-range sustainable fueling options for the world?", to questions on food vs fuel and price.


SeQuential is also working on the Sunflower Project, which is an educational program in partnership with Eugene schools and community gardens. The Sunflower Project's goal is to educate children on the lifecycle of plants and how you can create fuel in your own backyard. There is an initial planting of the sunflowers; then when the plants are grown and create seeds, SeQuential will help the children harvest, crush the seeds for oil and convert the oil into cleaner burning fuel!


Also as a bonus, here is a picture of the Eugene SeQuential team from the team meeting on Sunday.

High Prices are Bad for Business

As all of you know, the price of biodiesel at the pump has hit record highs. Over the past few months by phone, email, blog responses, and in person, most people have been asking me "why?"

It is a complicated issue - take a look at previous posts - but there is one large piece that I've been leaving out: the impact high prices have had on SeQuential.

On the financial side of things,we have lost volume and customers. Some people are driving less and others have gone back to petroleum fuels. The price increases have reflected the rising cost of biodiesel - not rising profit margins. The lost volume means SeQuential is struggling .

On the other side of things, I have heard disbelief at the speed and intensity of price increases; questions on price gouging and comparisons to big oil have been made. This stings - SeQuential is a very small company (there are six of us in full-time administrative positions); both as a company and as individuals, we are committed to making cleaner burning, renewable fuels available. This is not an easy task given who and what we are up against and the only way we can do this is with help from our customers.

We are in business to make a difference: to move towards energy independence, to clean up the air, to give people a choice when they fuel their cars. Stay with the right biofuels. When you fuel up with SeQuential, you are supporting a different kind of fuel and a different kind of fuel company: local, cleaner, better.

Fuel Prices

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.

SeQuential Carbon Challenge: Earth Month 2008

In celebration of Earth Month (Earth Day is not enough!), SeQuential, along with local businesses, organizations, and the Mayor of Eugene Kitty Piercy, is issuing the first annual Carbon Challenge to the City of Eugene:

Cut carbon dioxide emissions by 1,000,000 pounds during April

This is an ambitious goal , but with everyone pulling together, we can make a huge difference!

Participating in the Carbon Challenge is easy - simply go to any of the following locations and fill out an entry form that describes how you are (or will) walk, bike, bus or use biofuels instead of driving on petroleum fuels, thereby cutting your carbon footprint.


Bike Friday
Hutch's Cycles
Revolution Cycles
Down to Earth Home & Garden
SeQuential Fuel Station Eugene


You can enter once per visit for the end of month raffle. The prizes are:

• A Tikit folding bicycle from Bike Friday and Hutch’s Cycles
• A commuter bike from Revolution Cycles
• One of three $50 fuel gift cards from SeQuential
• One of five one-month bus passes from Lane Transit District
• A vine maple sapling from Down to Earth Home & Garden.

We are using how much fuel?!

I was going to do a different sort of analysis about this... but the scale of these numbers just wowed me so I'll let them speak for themselves.

Oregon's 2006 consumption of petroleum fuel:
4,314,400 gallons per day of gasoline (source)
2,266,600 gallons per day of diesel (source)

Oregon's 2006 consumption of biofuel:
38,356 gallons per day of ethanol (source)
10,959 gallons per day of biodiesel (source, which is a estimate)


Now with that in mind, how much of this is actually being produced in Oregon?

Oregon's 2006 production of petroleum fuel:
121 gallons per day of production capacity (source, I don't know if this is actually being produced)

Oregon's 2008 production of biofuel:
405,479 gallons per day of ethanol (source)
7,547 gallons per day of biodiesel (source)

So... what is the take away message here? Only a fraction of the fuel we use in Oregon is made from biofuel, but the impact has been huge:

• Bringing fuel production back in state
• Giving farmers access to a new market
  
• Decreasing carbon dioxide emissions
  
• Proving that not only is there an alternative to petroleum fuel, there are thousands of people who want this alternative

Everyone who has chosen to fuel up with biofuel is part of this change; we are still at the beginnings of it, but there is nowhere to go but up from here!

Thought leaders piece; Where gas money goes

C3 Press [Carbon Constrained Communications] recently released their first issue of "Thought Leaders of the New Energy Economy", which included a piece by SeQuential CEO Dave Garten, as well as by leaders in other industries. Check it out here (255k pdf).

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The latest NACS (a gas station / convenience store association) magazine published some interesting facts regarding where money goes on a gallon of gas, using 2007 average prices.

• 58%: Crude Oil
• 17%: Refining
• 15%: Taxes
• 9%: Distribution and Retail (20% of which goes to credit card companies)
• 1%: store income

This is slightly misleading though, since taxes ($0.484 is Oregon + Federal tax), distribution and retail (a set few cents per gallon), and store income (a set few cents per gallon) are all fixed numbers that don't change with gas prices. Simply put, when you read of crude oil prices hitting all time highs, gas stations aren't making any more money, the people pulling oil out of the ground are.

For users of pure biofuel, the taxes, distribution and retail, and store income would all be about the same. I'm not sure how the rest of it goes, but my guess is that the raw materials (raw oil and other production inputs) would make up by far the largest percentage.