Biofuels: the Biggest Supply Response to the 2000s Oil Shock  

Posted by Big Gav in ,

Stuart Staniford has a look at how the various types of alternative sources of liquid fuels fared during the last oil price spike - Biofuels: the Biggest Supply Response to the 2000s Oil Shock.

There are four kinds of liquid fuel alternatives to crude oil in actual commercial production at the present:

* Biofuels - ethanol and biodiesel, primarily from food crops around the world
* Tar Sands - synfuel and bitumen, primarily from Canada
* Gas-To-Liquids (GTL) - from South Africa, Malaysia, and increasingly Qatar
* Coal-To-Liquids (CTL) - primarily from South Africa, but just starting in China

In this piece, I summarize some research I've been doing to look at how each of these sources responded to the oil price increases of 2005-2008. Two sources, GTL and GTL, haven't shown any particular price sensitivity to date and are at low levels. Tar sands growth has shown modest price sensitivity but mainly appears to be growing on its own internal dynamics. Biofuel production growth appears to be extremely oil price sensitive, and increased the fastest and reached the largest volume in response to the mid-to-late 2000s oil shock. I have argued in the past that there are structural reasons for this: given the comparatively low capital requirements and small plant size of biofuel plants, they can respond much faster to episodes of high oil prices than can the other sources, all of which tend to involve larger, slower-to-build, more capital intensive plants. This has important implications for food and land prices in future oil price shocks. Food prices are likely to rise quickly and markedly in response to oil shocks, public policy permitting.

In the rest of the piece, I'll briefly survey the statistics I have for each fuel source, and then draw conclusions about the overall situation.

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