Maximising Agri-Energy
Sector Returns
The biofuels debate has, to date, been largely a subset of energy security and climate change
discussions (through its impact on the environment). But biofuels, and the new alliance of
agricultural and energy markets that they create, are also having a bigger influence on commodity
and energy markets more generally. Michael Schwartz examines the market and the technology
requirements to support it.
WHETHER DERIVED FROM prairie sector is who the main players are likely to be. As expected, tradition-
grasses or corn, palm oil or sugar, there al energy companies are investing to gain a leadership role; the US’s
is no doubt that biofuels will form a sig- ConocoPhillips, Chinese CNOOC and Brazil’s Petrobras are obvious
nificant part of the world’s energy examples here, taking advantage of the existing and potential natu-
future. In his 2007 State of the Union ral, infrastructure and economic resources available to them. In
address, US President George Bush Europe, BP and Royal Dutch Shell have long talked-up their invest-
called for a 20% reduction in the coun- ment and research into renewable alternatives. Most major energy
try’s use of gasoline in the next ten companies are now following suit. However, it seems that the big
years, with three quarters of the cut to names in our energy future will not be drawn exclusively from the oil,
come from the use of renewable and power and gas industries. Businesses that are more traditionally
alternative fuels. associated with the agricultural markets are seeing expansion
opportunities too.
“Corn is caught in a tug-of-war between ethanol plants
Many are already investing – and with unexpected partners. For
and food, one of the first signs of a coming agricultural
example, Monsanto and BASF have joined forces in a genetic seeds
transformation and a global economic shift ... with the
venture in which the two companies will share funding of up to
right plants, 3.5% of the earth’s surface could supply all
US$1.5 billion to develop genetic traits that increase yields and har-
of humanity’s energy needs ... One of the best
diness from corn, soybean, cotton and canola crops.
candidates: perennial prairie grasses.”
ConocoPhillips is partnering with US meat producer Tyson Foods
Business Week, February 2007
Inc. to make biodiesel. The two companies said they will use beef,
China has also announced that it will pork and poultry by-product fat to create transportation fuel. Other
be spending US$200 billion on renew- names entering the market include the agricultural processor Archer
able energy over the next 15 years, Daniels Midland and chemicals giant Dupont.
while the 27 Member States of the EU
have committed to a 20%boost in
‘Clean Energy’ investments reached
renewable fuel use by 2020.
US$71 bn in 2006
Many within the financial markets
have not been slow to respond to the To add further complication, a number of financial institutions with
political and economic reality posed by commodity desks are getting in on the game, and all this before we
alternative/clean energy. Estimates consider the completely new pure-play companies; the ethanol and
from New Energy Finance show that biodiesel producing start-ups, hoping to take advantage of our grow-
‘clean energy’ investments reached ing awareness of the consequences of fossil-fuel dependence.
US$71 bn in 2006, with a rise predicted
to US$80 bn in 2007. Venture capital Winners, Losers or Equal Partners?
and private equity investment in clean If the shape of the market, in terms of participants, is a complex
energy companies soared by 68% to pattern of inter-related competitive and collaborative partnerships,
US$8.6 billion in 2006. then the same can also be said for the actual fuel that will be pro-
However, beyond clear-cut statements duced and the raw products that will be used to supply it.
of intent, the precise nature of the In the US, at least in the short-term, corn-derived ethanol is likely to
future biofuels industry and the agricul- dominate the market, not least for political reasons and the strength
tural sector that support it is more of the corn-growing lobby. On the other hand, Brazil uses sugar-
ambiguous. ethanol derived from its abundant and easily grown native crop.
These two countries currently represent approximately 70% of bio-
New Players & Strange Bedfellows ethanol production. But other parts of the globe are looking to their
One of the more obvious questions to own indigenous crops for biofuels and catching up with the lead
be asked about the fledgling biofuels taken by the US and Brazil. For example, palm oil is being used for
84 SEPTEMBER 2007 COMMODITIES NOW
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