David Ripplinger, NDSU Department of Agribusiness and Applied Economics, Published June 21 2013
Renewable Accounts: Why support bioenergy and bioproducts?My job focuses on supporting new and existing North Dakota-based bioenergy and bioproducts ventures and current and proposed businesses that use renewable organic matter to produce fuels, chemicals and materials to displace those made with fossil fuels.
A question I often hear is: Why? North Dakota is up to its eyeballs in fossil fuels. We've flared enough gas some nights that aliens have had to double-check their maps to make sure that Watford City isn't the fourth largest city in North America.
All kidding aside, it's a great question.
It might be best to start with some historical perspective. In the winter of 2005, natural gas and oil were trading near record highs ($14 per cubic foot of gas and $60 per barrel of West Texas intermediate). Midwest midgrade gasoline was retailing for $2.26 per gallon. Americans were loudly expressing concerns about the environment and climate change, and the Middle East was a mess. These conditions supported federal and state programs for bioenergy and bioproducts development.
At the same time, high fossil fuel prices provided the economic incentives to justify the use of two new technologies, which are horizontal drilling and hydraulic fracturing. These technologies have transformed global energy markets. High prices were the motivation to turn the amplifiers up to 11 and get the Bakken rocking.
Domestic production of fossil fuels has increased dramatically in the past seven years. Late April estimates doubled the Bakken oil reserves to 7.4 billion barrels. There also is the associated natural gas that comes with it.
So, one would think renewables have been knocked out at least for a few decades. Not quite. While the Bakken and North Dakota are now on the map of the average American and energy professionals worldwide, we've only looked at one small part of a complex market.
Domestic production is clearly on the upswing, but so is global demand. There are billions of people in China, India and elsewhere with growing incomes who want an energy-intensive lifestyle that we as Americans have grown accustomed to. Also, the U.S. economy is growing and the Middle East is still a mess.
We can look to the markets to see how things balance out. Natural gas is trading for less than $4 per cubic foot. This is good news for consumers who heat their homes with natural gas and for utilities looking for relatively clean fuel that can be accessed on demand. Given large domestic supplies, exports and conversion of part of the nation's heavy vehicle fleet to use liquefied natural gas is likely.
However, today West Texas intermediate is $95 per barrel and Midwest midgrade gasoline is retailing for $3.95 a gallon. Both are near record highs. The price of oil is at a level that many biofuels and bioproducts can compete against oil on a purely financial basis without even mentioning the environmental, rural economic development or energy security impacts.
Ripplinger is a bioproducts and bioenergy economist and assistant professor
in the NDSU Department of Agribusiness and Applied Economics.