Are Biofuels Ready for a Comeback?

Biofuels typically get a lot of attention as gas prices go up in the summer driving season. This year was different. After the love affair with biofuels throughout 2006 and the bitter attack on biofuels in late 2007 and 2008, there was a general slowdown in interest from the press moving into 2009. As oil prices dropped, it became much more difficult to produce ethanol and biodiesel at a profit. Production facilities were scaled back or closed, many companies went bankrupt and investors looking for big payouts went searching for other markets. There has been a general malaise in the industry since.

… According to the National Biodiesel Board, two-thirds of biodiesel facilities in the U.S. have closed their doors, unable to profitably produce fuel. At the beginning of the year, Archer Daniels Midland reported that 20 percent of ethanol production capacity had been shut down as well. Many of those ethanol facilities are now back at partial or full production, but there are very few new facilities being built today.

The much-anticipated next-generation fuels industry is also challenged. Many analysts doubt that ethanol producers will be able to hit the targets for cellulosic fuels set by the Renewable Fuels Standard because of slowed investment and delays in ramping up commercial facilities.

But recently there are signs that the ethanol industry is coming out of this period of stagnation. U.S. ethanol production will total over 11 billion gallons this year, a 20% increase from last year. Oil companies have moved into the market, buying up cheap assets and keeping production facilities running. And now that oil prices are slowly climbing back up, plants are able to break even or generate a small profit.

Reuters