Biofools the new dot.commers

DOT.COM days, when the world went into hyper-drive over the miracle of the internet, are now becoming a distant memory. How curious then that Slugcatcher, when checking on the health of the world’s petroleum industry, has been reading about a repeat performance 10 years after we rejoiced in what is now called Web 1.0.

The connection, to save anyone from thinking too hard, is not in the product being produced – it’s in the market, and the gross over-promotion of a premature product.

Back in 1997, dot.com was the buzz expression for a new way of doing business. According to the propaganda, we were going to do everything on the internet, from buying fruit and vegetables to finding a decent restaurant.

In time, as can easily be demonstrated by the fact that you’re reading this, much of it came true – 10 years after the original promises were made.

Take that dot.com experience and apply it to a part of the petroleum world – the so-called alternative fuels of ethanol and biodiesel.

Just as it’s taken 10 years for Web 1.0 to morph into Web 2.0, and for the rest of the world to discover what everyone at www.PetroleumNews.net has known for some time, so too will it take a decade for alternative fuels to deliver a similar performance.

What does this prediction mean? Easy – it means that an awful lot of investor capital is being tipped into an impulsive stampede to find an alternative fuel to the traditional petroleum that we’ve been using for the past 100 years.

If there is a single word which sums up the phenomena of what we saw a decade ago with Web 1.0, and what we’re seeing today with Biofuels 1.0, it is inertia.

Quite simply, it is awfully hard to get people to change their habits, and for a new player in a very big business to prise loose a piece of the action.

Politicians of all colours reckon that the world should be making a dash for ethanol and biodiesel because converting sugar cane, palm oil, algae or some other biological material into fuel makes sense.

It does make sense, of course, but not to the forced extent we’re watching today as the debate grows as to whether we should use a 20% blend of biofuels in our cars or a 10% blend.

The problem, which is going to cost a lot of investors an awful lot of money (as happened with Web 1.0) is that the world is not ready to rush into biofuels.

Too much money is being poured into building factories to produce a product for which there is not yet a fully developed market – and apart from that it’s not even cost-effective.

In Brazil, for example, ethanol from sugar cane, is cited as an example of where we’re headed, quickly skipping over the fact that the great Brazilian experiment only makes sense when oil prices are high.

When oil prices fall, say back down into the world of sub-$US50 a barrel, biofuels struggle to gain commercial traction.

The economic reality test for biofuels is a dead ringer for the economic reality test we saw so painfully with the first flush of the dot.com days a decade ago.

But with Biofuels 1.0, there is a second force at work – called food.

This boom in making car fuel for the western world means that Mexicans will go short of corn flour for their tortillas, hungry Africans will go short of maize, and hungry Indians will go short of wheat.

While biofuels are still based mainly on food crops, “saving the planet” will mean starving the poor.

True believers in biofuels will go on pouring money into the sector. But, just as many people stampeded into Web 1.0, it will be a decade, at least, before they see the benefits of Biofuels 2.0.

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