By Per Dahlen, Portelet Asia
“Saudi Arabia is the largest crude oil producer in the world and produces some 11 million barrels per day. Southeast Asia has the potential of producing 14 million barrels per day of renewable biofuels in an environmentally and socially responsible manner,” reports Singapore-based renewables analyst Per Dahlen in a new report on biofuels potential.
“Southeast Asia was a net oil exporting region until 1993 but today it is importing some 37% of its oil requirements. The projections for 2020 are that the region will need to import over 50% of its oil requirements at a tune of 2.7 million barrels per day. Located in the tropics with abundance of available land, water and cheap labor it should be feasible to turn this region into a biofuel producing power house.
To explore the full potential biofuels we must first take a look at the underlying market forces, the price of crude oil, the environmental and sustainability issues and the availability of second generation energy crops and conversion technologies.
Crude Oil Developments
The price of crude oil has been on a steady increase of 15.6% on average over the past 10 years. We have had extreme fluctuations from US$145 down to US$30, but, on average prices have increased steadily.
As a matter a fact since the crude oil price broke the US$50/bbl in July of 2005 the price has remained over US$50/bbl, 89% of the time. The average price of oil has for the past 4.5 years been US$69.7 per barrel of oil. It is our view that these prices will continue to increase but not at the pace as experienced over the past decade.
It is realistic to assume that the price of oil will oscillate between US$60-US$80 with the average dip and high, but it is our firm beliefs that crude oil price will not pass below US$65/bbl on average.
Our projections are that we are going to move from an average price per barrel of oil of US$65 per barrel in 2009 toward US$80-US$90 per barrel by 2020.
Environmental and Sustainability Issues
The US and Europe will continue to set tighter rules and regulations with regards to imported biofuels. We already see momentum with regards to RFS-2 (US) and the RED (EU), and this is likely to increase in the future.
Environmental organizations like Greenpeace already prove its power by forcing Unilever to cancel annual contracts with un-sustainable Palm manufacturers by the end of 2009.
This trend is going to increase when the end-consumer can make informed choices between a sustainable and a less sustainable product or service. According to Procter & Gamble some 70% of the American consumers will choose a ‘more environmentally friendly’ product with the same performance.
So if Southeast Asian producers of commodity food and fuel are going to be able to sell its products in EU and in the US, they will have to become more sustainable.
To quote Ricardo Lagos the UN Special Envoy on Climate Change: ‘There will be green trade barriers. So developing countries which want to sell their produce to the developed world need to demonstrate they have taken measures to avoid that their production increases pollution’.
The Advancements of Biotechnology
Technologies used for the production of renewable fuel and electricity, are really nothing new. We are deploying technologies that are 50, 100 and sometimes several thousand years old. So, what did change?
The answer lies in the tremendous developments we have had over the past 5-10 years in Biotechechnology. Finally the existing biofuel technologies can be deployed in an economically and environmentally friendly manner.
We are now able to engineer microbes to effectively break-down different types of biomass into useful products like biofuels, bio-chemicals and bio-plastics.
Though genetically modified organisms are a source of controversy, deploying it in an industrial environment, rather than on food, is more accepted and almost all countries in the region allow the use of GMO, and are actively deploying biotechnology.
2nd generation technology is ready
In 2009 we saw the first commercial deployments of 2nd generation biofuel technologies from companies like Ibicon and Verenium, to name a few. By the end of 2011 the total installed capacity capable of converting biomass into biofuels is expected to be in excess of 30M tons per year. This is to compare with total biofuel production in Southeast Asia of 2M tons in 2008.
With the use of ‘free’ biomass in terms of biomass waste, these technologies will be able to produce biofuels at a cost of US$50 per barrel and with dedicated energy crops at about US$70 per barrel.
Currently biodiesel is being sold above US$100 per barrel, second generation biofuels is also expected to commence a premium over petroleum equivalent fuels. With such economics coupled with investment levels of less than US$75,000 per barrel per year capacity, an investment will have a payback time of less than 3 years.
Biomass Waste in Southeast Asia
The Palm, Sugar cane and Rice industries together represents 75% of the total agricultural output of Southeast Asia. To date only 25-30% of the harvested biomass ends up as an end-product, the remaining parts are discarded in the field or at the processing plants.
Biomass left in the fields is normally burnt and in the processing facilities the biomass is only partially used to generate processing steam and electricity at rather low efficiency rates. The opportunity for economically viable and sustainable biofuel production is obvious.
Judging from the currently best estimates with regards to operating costs and capital requirements, this is an untapped gold mine. A 100,000 tons per year processing plant should cost in the neighborhood of US$120-150M to set-up, and with an estimated operating cost of US$50-70/bbl including feedstock costs, we are looking at payback time of three to four years at current crude oil prices.
Dedicated Energy Crops
Additionally to being abundant in biomass waste, the Southeast Asia is the ideal region for biomass cultivation.
Today biomass yields for Cassava and Sweet Sorghum in excess of 75 tons per hectare, in some cases even 120-150 tons per hectare. The main secret to achieving these high yields is the deployment of modern agricultural technologies, with the use of biotechnology over the next decade we could see yields in excess of 200 tons per hectare.
Second generation conversion technologies are able to convert one ton of biomass into more than 300Kg of biofuels. So a combination of high yielding biomass crop (+100 tons per hectare per year) and effective conversion technologies (+300Kg fuel per ton biomass) we are able to ‘harvest’ 30 tons biofuel per hectare per year in Southeast Asia today, increasing to over 50 tons over the next decades.
Let us put this in context with current first generation technologies. Palm is able to produce, on average 4 tons oil per hectare per year and Jatropha, at best, 2.5 tons oil per hectare per year. With first generation technologies this would yield 2.25-3.6 tons of biofuels per hectare per year.
Putting all this data together we seen that Southeast Asia requires some 2.7Mbpd, or 135 million tons per year to eliminate oil imports and to increase energy security. With second generation biofuels crops and technologies we would only need 4.5 million hectares of land for full oil independence.
According to WWF and Food and Agriculture Organization of the United Nations, Southeast Asia has an estimated 17.5 million hectares of additional land available for energy crops and food production. Using only 25% of this additional land Southeast Asia can become oil independent and the total arable land occupied for energy production would be about 5%.
If all potential land were to be used and all biomass waste utilized for biofuel production, Southeast Asia would be able to produce in access of 14 million barrels per day, making it the largest ‘oil’ producer in the world.
Food, Fuel and Employment
So what are the impacts of ramping-up energy crop production in Southeast Asia? We need 4.5 million hectares for oil-independence and this should be compared to the additional land used for primary crop production which grew 18 million hectares between 1998 and 2008, an increase with 20% over ten years.
Cassava is ready for harvest within 8-9 months; sweet sorghum is harvested each 4 months so two, maybe even three harvests are possible each year.
With all these facts available there should be no questions about the viability of producing energy crops from more than 4.5 million hectares in Southeast Asia within a decade.
Biomass is the only renewable energy source able to produce fuel, but it is also the only source able to create massive employment opportunities, something desperately required in most countries in Southeast Asia. On average agriculture in Southeast Asia employs 1.25 farmers per hectare, compared to 0.01 farmers per hectare in the US.
4.5 million hectares could potentially employ 5-6 million people and at its fullest potential of 17.5 million hectares over 20 million people could be employed in energy farming.
We should easily be able to produce food and fuel and at the same time employ literally millions of people.
Financing and Government Support
As we have seen there are no barriers to increased employment and increased energy security for the region, nor are there any technical barriers or conflicts with land rights or competition with food resources.
No, the major barriers for large scale deployment of second generation biofuels in Southeast Asia will be the required capital for financing the deployment, estimated to US$200-300 billion dollars and the political will of the regional governments.
When the will is there, markets move. Let us use Sweden as an example. Back in 1981 Sweden used oil for 84% of its heating requirements, twenty years later the percentage was 7%. Today more than 30% of Sweden’s total energy requirement comes from biomass, more than hydro and nuclear put together.
We have all the required necessities to turn Southeast Asia a major biofuel producer in a sustainable way; will we be up to the task?
Per Dahlen is Partner with Portelet Asia Pte. Ltd., Singapore, responsible for the Portelet Cleantech Initiative.
Source: biofuelsdigest.com
