There are two US regulatory influences serving as foundational support for the biofuels industry.  The first is the Energy Independence and Security Act of 2007.  Its aim is to reduce America’s reliance on imported fossil fuels by providing support via the US Department of Energy for biorefining research, operational development and commercialization.  The second is the Clean Air Act of 2012, which mandates that a fixed percentage of the total petroleum market be displaced by biofuel production.

Production goals are set in the November prior to the subsequent renewal of the Clean Air Act.  The Act specifies production goals  for four fuel types: cellulosic, biomass diesel/oil, advanced biofuels and renewables.  We can use these two Acts in tandem to estimate the dollar value of the biofuels market in 2012.

Total US Fuel Market Size

If we view the biofuels market through the EISA of 2007 frame of reference, we can reasonably estimate the total biofuel market in 2012 by understanding current liquid fuel consumption in the US.  According to the US Energy Information Administration (EIA), the US consumes 6.64 billion barrels of oil per year.  At a price of $105/barrel, the total market is estimated at $698 billion dollars.

US Liquid Fuel Market 2012

The US liquid fuel market in 2012 is estimated at roughly $700 billion dollars, based on a per/barrel price of $105 dollars

The Clean Air Act recognizes that particulate emissions resulting from traditional fossil fuel combustion may be reduced by using biofuels, both as a pure source, and as a “drop-in” blend with traditional fuel.   It mandates production quantities for each type of fuel and feedstock.   Using these mandated production targets, and the EPA’s estimates of total realized production capacity in 2012, we can estimate the total US fuel market share for biofuels as a whole, and per biofuel/feedstock.  Combining these numbers with forecast spot prices, we can estimate the total market share and size in dollar value.

Market and Dollar values of Clean Air of 2012 mandates

The US EPA set a very consevative cellulosic biofuel mandate at 8.6 million gallons, but projects actual production to exceed 9.5 BILLION gallons. Based on EPA projections, we estimate the overall biofuel market dollar value size around $80-94 billion in 2012. However, we caution that their estimated 11.4% biofuel composition of the total US liquid fuel market is extremely aggressive, and represents a jump of over 6% from prior-year numbers.

Notes:

  • Advanced Biofuels are high-energy liquid transportation fuels derived from: low nutrient input/high per acre yield crops; agricultural or forestry waste; or other sustainable biomass feedstocks including algae.  The key word is “sustainable.”
  • Renewable fuels or “second generation biofuels,” refer to petrodiesel-like fuels derived from biological sources that are chemically not esters and thus distinct from biofuels. For example, renewable diesel is chemically the same as petrodiesel, but it is made of recently living biomass.
  • Biofuels are produced using a transesterification process, “reacting vegetable oils or animal fats catalytically with a short-chained aliphatic alcohol (typically methanol or ethanol).” Glycerol is a by-product of this transesterification process.

Conclusions:

With an estimation of the total biofuel market in dollar terms, we can assess companies 2012 expected production as a percentage of the total biofuels market, and more importantly, we can do the same in each fuel stream.  Our next analysis, to be published next week, will focus on the cellulosic market.  2012 is a key year in biofuels space, and firms that can actively start capturing market share organically will have a major market advantage which should spell competitive trouble for marginal players.  We have the basis now to perform this micro-level (bottom-up) analysis.

Sources and references used in this analysis:

*midpoint of low/high EPA forecast range

***** http://205.254.135.24/forecasts/steo/report/us_oil.cfm

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About groundbreakingenergy

I've been involved in the analysis of the Natural Gas industry since 2005, and have been researching the developments in Biorefining and NextGen Alternative Fuels since 2009. The world currently stands in the nascent phases of a wholesale transition from sourcing energy from fossil fuels to sourcing energy from renewable organic sources. My analysis tends to unify those in the fossil fuel (old guard) industry with those in the rapidly developing biorefining sector. We're not adversaries, we are, collectively, the past, present and future of the global energy industry.

One response »

  1. Although I’ll go along with your definition of advanced biofuels as it tracks that on our site, your other definitions are flawed. Not all second generation biofuels are petrodiesel; some are alcohols. And all biofuels are not produced using transesterification–only biodiesel. A good resource about the distinction between biodiesel and renewable diesel is here: http://advancedbiofuelsusa.info/what%e2%80%99s-the-difference-between-biodiesel-and-renewable-green-diesel

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