IEA and biofuels

Posted on July 2, 2008

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The International Energy Agency, IEA, is an advisory body set up by the OECD. Sweden and 25 other nations are members of the OECD. In the international press the IEA is often called the OECD nations’ “watchdog”. The information that it produces should be available to the citizens of those nations but that is not the case.

The IEA published its ”Medium-Term Oil Market Report” on 1 July 2008. This detailed report is naturally meaningful for the OECD nations’ citizens but they cannot read the report without paying dearly. The price is €400 or 3,800 Swedish Crowns (US$630). If one wishes to use this text for university research one can get a 30% discount, but the price tag is, nevertheless, quite high. Today I have spent 2,660 Swedish Crowns to get access to something that should be every citizen’s right to study. It made a hole in my research budget!

A first quick read-through shows that the IEA is now counting on biofuels in future production capacity increases:

“Biofuels: Biofuels continue to add significant growth to the supply forecast, rising from 1.35 mb/d in 2008 to 1.95 mb/d by 2013. Although significant capacity additions have been proposed for the next five years, we maintain the cautious stance on future growth that we have held since 2006. Previously we have warned that the planned expansion in biofuel capacity seemed overly aggressive in relation to available feedstock and that more rapid growth could impact food prices. While it is wrong to attribute all the recent increase in grain prices to rapid biofuel expansions, it has undoubtedly had an impact. Similarly, we remain wary about the ongoing competition for first-generation feedstocks and also the growing political resistance to expansion in some areas. It is clear, however, that biofuels have helped to diversify energy supply. Compensating for the additional supplies that have been met through ethanol and biodiesel supply growth in Europe and the US since 2005 would require around 1 mb/d of crude oil to be processed. Given the poor performance of non-OPEC production and relatively low spare capacity, clearly much higher petroleum prices would be in place now if those biofuels had not been available.”

It is completely correct that an ethanol production of 1.35mb/d is equivalent to 1mb/d of crude oil, but what the IEA does not seem to understand is that ethanol does not replace crude oil but, rather, gasoline. The majority of the ethanol that is produced today is blended into gasoline. In Sweden, ethanol is commonly added to a level of 5%. That means that ethanol does not replace crude oil but gasoline.

To get gasoline, one must refine crude oil and the proportion of gasoline is approximately 20% of the volume of crude oil. That means that 1.35 mb/d of ethanol replaces 5.0 mb/d of crude oil, and that is something completely different to what the IEA is saying.

If the oil industry had refined 5 mb/d of crude oil to get 1 mb/d of gasoline then they simultaneously would have produced large amounts of aviation fuel, diesel and bunker oil for shipping and home heating. Since they are now not making these, the consequence is that these fuels are lacking in the market and the shortage drives up the price. Those that bought a diesel-powered car because they believed that diesel would remain cheaper than gasoline can feel cheated. This is a detail that the IEA has completely missed, or does not want to discuss.

The fact is that there is a secret that the IEA does not want to tell, but as a professor at a Swedish university I feel free to reveal it. Today, there is a large excess of gasoline in, primarily, Europe. If the market economy functioned normally we would have a gasoline price that is markedly lower than today’s and the price of diesel would be even higher. This reality would cause even greater protests from truck drivers and others that are dependent on cheap diesel for their activity. The reality is that the gasoline users are subsidising the diesel users.

Governments around the world rely on that the IEA speaks the truth. Our Swedish government is no exception. For us in the ”Uppsala University Global Energy Systems Research Group” there is another truth and it is that which is our guiding light. If anyone can shows us that we are wrong we will, of course, change our view.

(Swedish)

IEA, International Energy Agency, är ett organ under OECD. Sverige och 25 andra länder är medlemmar av OECD. I den internationella pressen kallar man ofta IEA för OECD-ländernas ”vakthund”. Den information som man tar fram borde vara tillgänglig för ländernas medborgare, men så är inte fallet.

Daterad 2008-07-01 publicerade man ”Medium-Term Oil Market Report”. Denna detaljerade rapport är naturligtvis betydelsefull för OECD-ländernas medborgare, men medborgarna kan inte läsa rapporten utan att betala dyrt. Priset är €400 eller 3.800 kronor. Om man skall använda skriften för universitetsforskning kan man få 30 % rabatt, men prislappen är ändå ganska hög. Idag har jag spenderat 2.660 kronor för att få tillgång till något som borde vara varje med borgares rättighet att studera. Det blev ett hål i forskningsbudgeten.

En första snabb genomläsning visar att man nu räknar med biobränsle i den framtida kapacitetsökningen:

“Biofuels: Biofuels continue to add significant growth to the supply forecast, rising from 1.35 mb/d in 2008 to 1.95 mb/d by 2013. Although significant capacity additions have been proposed for the next five years, we maintain the cautious stance on future growth that we have held since 2006. Previously we have warned that the planned expansion in biofuel capacity seemed overly aggressive in relation to available feedstock and that more rapid growth could impact food prices. While it is wrong to attribute all the recent increase in grain prices to rapid biofuel expansions, it has undoubtedly had an impact. Similarly, we remain wary about the ongoing competition for first-generation feedstocks and also the growing political resistance to expansion in some areas. It is clear, however, that biofuels have helped to diversify energy supply. Compensating for the additional supplies that have been met through ethanol and biodiesel supply growth in Europe and the US since 2005 would require around 1 mb/d of crude oil to be processed. Given the poor performance of non-OPEC production and relatively low spare capacity, clearly much higher petroleum prices would be in place now if those biofuels had not been available.”

Det är helt riktigt att en produktion av 1.35 mb/d etanol motsvarar 1 mb/d råolja, men vad IEA inte tycks förstå är att etanol inte ersätter råolja utan bensin. Merparten av den etanol som produceras blandas in i bensinen. I Sverige har vi vanligtvis en inblandning av 5%. Det betyder att etanol inte ersätter råolja utan bensin.

För att få bensin måste man raffinera råolja och fraktionen bensin är ca 20 % av volymen råolja. Det betyder att 1.35 mb/d etanol ersätter 5.0 mb/d råolja, och det är något helt annat än vad IEA säger.

Om oljeindustrin hade raffinerat 5 mb/d råolja för att få 1 mb/d bensin hade man samtidigt fått stora kvantiteter av flygbränsle, diesel och bunkerolja för sjöfart och uppvärmning. Eftersom man nu inte gör det blir konsekvensen av detta att dessa bränslen saknas på marknaden och en brist driver upp priset. De som köpt en dieselbil för att man trodde att diesel som tidigare skulle vara billigare än bensin kan känna sig blåsta. Det här är en detalj som IEA fullständigt har missat, eller inte vill diskutera.

Faktum är att det finns en hemlighet som man inte vill berätta, men som professor vid ett svenskt universitet känner jag mig fri att berätta denna hemlighet. Idag finns det ett stort överskott på bensin i framförallt Europa. Om marknadsekonomin skulle fungerat på normalt sätt skulle vi ha ett bensinpris som är betydligt lägre än dagens och priset på diesel skulle varit ännu högre. Denna verklighet skulle medföra ännu större protester från långtradarchaufförer och andra som är beroende av ett billigt pris på diesel för sin verksamhet. Verkligheten är att bensinkonsumenter subventionerar dieselanvändare.

Regeringar runt om i världen förlitar sig på att IEA är sanningens ord. Vår Svenska regering är inget undantag. För oss i ”Uppsala University Global Energy Systems Research Group” finns det en annan sanning och det är denna sanning som är ledstjärna för oss. Om någon kan visa att vi har fel kommer vi naturligtvis att ändra oss.

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