Biofuel boom or fossil doom?

A Vancouver tech firm is set to capitalize on a U.S. government ruling that opens the doors for alternative energy.

U.S. President Harry Truman created the National Petroleum Council (NPC) in 1946 out of the remnants of the Petroleum Industry War Council, a group brought together to co-ordinate government and industry action during the Second World War. Today the NPC — chaired by former Exxon Mobil CEO Lee R. Raymond — continues its mission as a federal advisory committee made up of 175 industry members tasked with providing the U.S. energy secretary with information about the nation's oil and gas industry. When current secretary Samuel Bodman wrote a letter to the council in 2005 requesting an analysis of the stability of U.S. energy supply, the NPC got to work on a reply.

The verdict was finally announced on July 18: There are “accumulating risks to continuing expansion of oil and natural gas production,” but the use of alternative energies like biofuels will help the United States avoid economic chaos.

For someone like Andrew Kingston, CEO of Vancouver-based biofuel maker Dynamotive Energy Systems Corp. (OTC: DYMTF), a more fortuitous scenario could hardly be imagined. It's as if the biggest minds in the energy industry hung a shiny gold star on his business plan and said “go.” “It's not about going to market,” says Kingston. “The market is coming to us.”

The key now is capturing the onrushing opportunity. Dynamotive has just completed a factory in Guelph, Ont., that turns biomass (husks, wood chips, agriculture waste) into a biofuel that can replace Types 2 and 6 heating oil in industrial applications. Its technology bypasses the “enzymatic” process many biofuel makers rely on and uses a heat process that runs in an oxygen-deprived environment to wring liquid energy from plant waste. Heavy oils make up 25% of fossil-fuel use, and Kingston is confident Dynamotive, one of the first movers in this market, will do well.

Considering the company produced its first batch of biofuel back in 1996 when oil was just US$25 a barrel, you have to think things are going to be easier now that the price is well over US$70. According to Kingston Dynamotive’s product is competitive at $35.

When asked to comment about the release of the “good news” in the NPC report, Kingston expresses mixed feelings. “It's bittersweet,” he says. “A little bit of worry around fossil-fuel use is good for us, sure, but you look at the way energy is being used as a weapon these days and you've got to be nervous.”

He's got a point. Nine days before the NPC report appeared, the International Energy Agency came out with its own numbers that suggested the world is on tap for an “extremely” tight oil market in 2012. According to the IEA, which advises 26 countries, including Canada, there are not enough oil and gas projects in the pipe to meet projected demand in that mid-term period, and the notion that this alt energy boom is without risk has to be questioned. Can we replace what we're losing in time to avoid market chaos?

The Association for the Study of Peak Oil & Gas (ASPO), which studies the issue of declining fossil-fuel reserves, heralded the IEA report as a more realistic outlook from an organization that has been criticized in the past for being too optimistic. ASPO also commented on the NPC report and was downright dismissive, saying it “camouflages the enormous near-term challenges” in the industry, uses “profoundly misleading” graphs, and employs wildly optimistic projections about the ability (and willingness) of the Organization of Petroleum Exporting Countries (OPEC) to raise production levels to plug future gaps between supply and demand. The ASPO commentary on the report ran a quote from one Saudi official who said, “There has been a paradigm shift in the energy world whereby oil producers are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity. This sentiment…has yet to be appreciated among the major energy-consuming countries of the world.” Earlier this summer, OPEC rebuffed calls to increase production, claiming that the amount of oil making it to market was more than enough. The 12-member cartel later softened that position by hinting that it could increase production if it needs to. Will they or won't they? All eyes will be on the next OPEC meeting in Vienna on Sept. 11.