BioCycle April 2011, Vol. 52, No. 4, p. 53
The economy is plugging a long, but it is not quite clear if it is recovering or heading into more trouble. Prices are climbing in some areas not unlike they did in 2008. But in other areas the prices are declining. The U.S. economy, after 235 years, is still on an economic frontier, which means that no one has exclusive rights to the economic answers. For its part, the economy is being shocked, and then compensating.
Demand for biomass globally is high and the production and harvest – or supply – of biomass is adjusting. Consequently, the price for carbon in all its forms is increasing. This is true of prices for the high profile transportation fuels, food, fiber, and even previously undervalued carbon bulking materials for quality compost. Some fuels like wood pellets seem to stay about the same no matter what the economy is doing. Other fuels, like natural gas, are experiencing lower prices.
CHEAP DOMESTIC ENERGY
Natural gas prices have continued to march lower over the last five years. In January 2006, natural gas prices were around $8 per million btu (MMBTU). In January 2011, natural gas prices were at $4/MMBTU. This is both exciting and challenging. It is exciting that the declining price of a principal fossil fuel will help offset the rising prices of the other fuels. Natural gas demand has increased and the price of natural gas still declines. It is also encouraging that the carbon dioxide emissions, or the CO2 yield, are lower for natural gas than other fuels, e.g., they are half those of coal, for instance.
One of the challenges of falling natural gas prices is that substituting biofuels for cheap natural gas is increasingly more difficult. This is especially true if the shift from natural gas to biofuels requires an additional investment in new bioenergy equipment. There are other key adoption factors like local energy independence and the environment.
Fuel pellet prices have been relatively constant at $250/ton for the last five years. This average price reflects higher prices in the northeast U.S. and lower prices in the Midwest. Curiously, these prices do not seem to respond to the same motivators as crude oil and the agricultural commodities. The production capacity of fuel pellets for both domestic use and export have more than tripled in the last few years. Increased demand appears to have increased at the same rate as the increased supply.
RISING FOOD AND ENERGY PRICES
Equally challenging, but less exciting, are the continued high prices for corn, soybeans and hay. Corn and soybeans have been increasing for most of 2011. Corn for example was selling around $2/bushel in January 2006. By January 2011, corn had reached as high as $7/bushel two times in that five-year period and did not drop below $3/bushel after crossing that price level in 2006. The high price of these commodities is having a large influence on planting decisions this spring. Hay users are concerned that the high prices of corn and beans are reducing the acres of hay production, which is also causing the price of hay to rise. More hay is in demand than can be supplied. Hay and corn silage can serve as reference indicators in developing economic estimates for cellulosic biomass energy.
Soybean oil and Number 2, yellow grease followed a similar upward trend as corn. Number 2, yellow grease is used vegetable oil that has been rendered once again into this standardized commodity with specific product attributes. Crude oil price has followed much the same cycle as corn price. Crude oil was at $60/barrel in January 2006. By January 2011, crude oil prices were back above $80/barrel and have increased above $100/barrel by March. The rising price of oil is a factor in driving food prices up. It takes a lot of energy to produce and distribute our food. Conversely, it does not take a similar amount of food to produce our crude oil supply. The dependence is food on oil, not the other way.
It is important to recognize the amazing progress that is being made with renewable energy. While the 8 percent of U.S. energy consumption generated from renewables may seem trivial, it is not. Renewable energy is replacing fuels that emit more CO2 and some of it is replacing fuel that the U.S. depends upon from other sometimes hostile countries. Without the progress in biofuels, the prices for crude oil would be higher.
ECONOMIC OUTLOOK IS LESS THAN GLOOMY
There is still quite a lot of fear that the high food and energy prices are bad news for the economy. However food and energy price levels are simply highly volatile. The U.S. Department of Labor, Bureau of Labor and Statistics provides data on the “price levels” through the consumer price index (CPI) for the U.S. economy and they separate out food and energy prices. Without the food and energy prices included in the U.S. CPI, the price levels are fairly constant – even declining into 2010. It is when the food and energy CPI are included with the entire economy that the annual CPI fluctuates broadly from annual increases of over 5 percent to declines as low as -2 percent. The implication is that much of the economic instability comes from erratic behavior from the inclusion of food and energy.
As prices for some goods are increasing, prices of other, less carbon-intensive goods are declining. High oil prices are slowing down our travel – and emissions. Low natural gas and fuel pellet prices are building a reliance on cleaner domestic fuels. This current economic volatility is just part of riding through a bioeconomic cycle.
Mark Jenner, PhD, and Biomass Rules, LLC, has joined the California Biomass Collaborative. Burning Bio News and other biomass information is available at www.biomassrules.com.
April 21, 2011 | General
Biomass Energy Outlook: Riding A Bioeconomic Cycle
BioCycle April 2011, Vol. 52, No. 4, p. 53