Oil Companies See Profits in Advanced Biofuels

The oil industry has backed off alternative energy investments in recent months.   BP, for instance, made news in April when it cut 620 jobs of an original 4,400 in its solar business.  Last October it killed a $67 million expansion of its solar manufacturing operation in Maryland.  And the company has canceled plans to build wind farms and a pilot carbon capture and sequestration project in the UK.  

But apparently BP is feeling bullish on bio-energy.  The company is working on bio-fuel production with Cambridge-Mass.-based Verenium Corp., a two-year-old firm that has been developing enzyme-based processes to create cellulosic ethanol.  The oil giant is providing technical assistance towards the development of a $250 million plant in Florida, with the capacity to produce 36 million gallons a year of bio-fuels made from sugar cane grasses.  

New York Times reporter Clifford Krauss reported this week on how oil companies are edging into the bio-fuels and ethanol industries:

• BP has put around $1.5 billion into varied bio-fuel projects in the past two years, including its partnership with Verenium, and another with a Brazilian company, to create ethanol from sugar cane.
• BP has also entered into a joint project with DuPont "to test production of biobutanol, an advanced liquid alcohol fuel that is made from the same feed stocks as advanced ethanols and is compatible with existing pipelines and car engines."  The companies hope to be producing large quantities of biobutanol by 2013.
• Shell won't talk exact numbers, but says it's quadrupled its bio-fuel research spending since 2007, and is working with smaller companies "on improving enzymes that break down various plants and waste materials for ethanol, making fuels from algae and even biogasoline from sugary liquids derived from plant materials."  These ethanols would be less corrosive to existing oil pipeline infrastructure than earlier types.
• Chevron has teamed up with forestry giant Weyerhauser to take on bio-fuels from wood waste.  
• The largest petroleum refiner in the U.S., Valero Energy Corp., bought up seven ethanol production facilities from bankrupt VeraSun Energy, and says it could update them for newer ethanol blends.  Grist's Tom Philpott took note of Valero's move back in March, noting that the company outbid corn mega-corp Archers Daniels Midland's $700 million bid for the facilities.

The big motivator behind these small but growing stakes by oil companies in biofuels seems to be ongoing federal mandates to increase the amount of ethanol mixed into gasoline between now and 2022.  

This suggests that whatever free-market proponents say about too much government involvement, a regulatory push can help create viable, competitive markets for alternative and renewable energy.

Further, oil executives seem to be realizing "that big oil’s concerns over the political and logistical vagaries of tapping new sources of crude actually dovetail with evolving government fuel policy and widespread concern over climate change," writes The Times' Krauss. 

Graeme Sweeney, Shell’s executive vice president for future fuels and carbon dioxide, tells Krauss that "Sourcing of hydrocarbons in the future is going to be more difficult, and there will be a need for all these fuels to enter the energy mix.”