Alan Gelder, Vice President Downstream Oil for Wood Mackenzie and study director, explains; “Taking into consideration the expansion of land use for agricultural purposes in traditional agricultural countries, our bottom up analysis finds no significant land constraints to meeting our projected biofuels demand.“ Gelder continues; “The high cost of biofuels production, due to the price of feedstocks, is, however, a significant constraining factor on demand, and this is related to the availability of productive land to grow particular crops in certain regions.”

Furthermore, Wood Mackenzie believes that current prices for many biofuels feedstocks would be high regardless of the demand for biofuels due to continually growing demand for food and animal feed combined with structural issues, such as years of under investment in the agriculture industry.

“The overall volume growth in biofuels is significant, but we find that it will not pose a large threat to traditional oil products.  However, biofuels will have an important impact at the margin, particularly in markets where increasing volumes of ethanol in the gasoline pool could shift a gasoline deficit into a surplus. As such, interesting business opportunities could emerge in certain situations,” continues Gelder, “However, without heavy government subsidies and strict mandates, there would be little incentive either on the supply or demand side, and based on our analysis, we do not foresee this changing dramatically in the near future.”

One such example which illustrates Wood Mackenzie’s view, is that of biodiesel, as Gelder explains; “The increasing demand for vegetable oils as biodiesel feedstocks has the potential to create substantial surpluses of meal – currently a high value product used primarily in animal feed. The resulting drop in the price of meal requires vegetable oil prices to rise to support further investment, thereby making biodiesel production extremely uneconomic which in turn would severely restrain the demand for biodiesel.”

On the technology front, for biofuels to really step up another level in terms of their contribution to global road transport fuel demand, alternative feedstock sources will need to be harnessed. Gelder explains: “The next generation of technologies will therefore use non-food materials for biofuels production. This could involve converting the non-edible, lignocellulosic parts of plants into biofuels. It could also involve the development of new feedstock sources, such as growing jatropha on marginal land, growing algae, or increasing biomass availability per hectare by growing crops such as miscanthus.” The report points out that few if any of these technologies are currently commercial and there are significant challenges to be overcome before they will be.

The report looks at biofuels on a global scale, however there are some interesting distinctions from region to region. Gelder says: “In order for the EU to meet its renewable transport fuels targets, it will need to include higher quantities of ethanol in its transport fuels pool. This is exacerbated by limits on the availability of economically priced biodiesel feedstocks (such as soybean oil), and could result in adverse impacts on the refining industry.”

In the US, lignocellulosic material will come to account for a growing portion of fuel ethanol production by 2020, as plants start to be commercialised in the US. The cellulosic contribution will remain well short of current US targets for cellulosic biofuels in that timeframe, but would still represent a significant development for the industry, with potential for substantial expansion around the world in the years beyond 2020.

The study concludes that biofuels use will remain relatively low in Asia compared to other regions, although the region will continue to grow as a net exporter of biodiesel and palm oil. “The extremely high feedstock costs will present a challenge for Asian countries trying to promote domestic biofuels consumption,” explains Gelder.

In Brazil, the production and use of biofuels is significantly advanced compared to anywhere else in the world, Gelder expands; “Brazil is on its way to becoming the Saudi Arabia of ethanol: It has advantages in terms of cost and arable land, which will drive its strong competitive position in biofuels, particularly ethanol. However the question remains whether the world wants to expand its use of biofuels by relying heavily on a few dominant suppliers, such as Brazil.”

From its analysis, Wood Mackenzie believes the most likely scenario for the future will be a ‘Bio-Balance’; “Biofuels will become one of many solutions to environmental and energy security challenges. Government policy towards biofuels, in this scenario, can be best described as balanced; meaning no strident moves for or against policies that would support biofuels,” says Gelder.