Agrochemical companies are expected to hold up better than the overall chemicals industry in the current global economic slowdown, with credit ratings remaining stable through the end of 2008 and 2009, according to Standard and Poor’s Ratings Services.
Thanks to continuing world population growth, improving standards of living, energy diversification into biofuels, and a cap on the amount of arable land available, the outlook for agrochemicals companies..remains favorable.
Record U.S. farm income is forecast for 2008, which should boost farmers’ purchasing power of fertilizer, as well as the latest state-of-the-art seed varieties. In addition, fertilizer prices should remain high because of tight supplies and strong demand globally, S and P said.
As a result, companies such as Monsanto Co. (MON) and Potash Corp. (POT) have seen their credit ratings upgraded in 2008, with the entire sector seeing S and P ratings improvements over the past 18 months.
For details, see “Strong Fundamentals Boost Agrochemicals Firms Worldwide.”
Technorati Tags: (MON), (POT), agribusiness, agriculture, agrochemicals, Biofuels, commodities, commodity-prices, farm economy, fertilizer, Monsanto Co., Potash Corp.
Renewable energy development is falling far short of its potential and governments need to do much more to remove non-economic and other barriers, a major new report from the International Energy Agency says.
The IEA report, Deploying Renewables: Principles for Effective Policies, looks at the “realisable potential” for renewables, based on a long-term view of the technical potential adjusted to take account of unavoidable medium-term constraints on the rate of change, such as maximum market growth rates and planning constraints.
For most countries, the additional realisable potential to 2020 far outstrips the achieved deployment of renewables to date.
The aggregate additional potential to 2020 for renewable electricity (RES-E) in OECD countries and BRICS (Brazil, Russia, India, China) amounts to 6 271 TWh. This is equivalent to 41% of 2005 total electricity generation and represents almost 2.5 times the current RES-E generation. In absolute terms, China has the largest additional potential, followed by the EU-27, the United States, India, Russia, Canada and Brazil. Overall, BRICS account for 47% of the additional realisable potential among those countries analysed.
The ratio of additional potential to achieved generation in 2005 is even larger for renewable heat (RES-H).
For solar thermal and geothermal heat the additional potential is almost thirty times the achieved heat production from these sources.
In the case of renewable liquid transport fuels (RES-T), the estimated additional realisable potential of first-generation biofuels is more than five times the current production. This estimate is based on the conservative assumption that a maximum of 10% of current arable land would be used for energy crop cultivation in 2020, with a lower share (3.5-8.5%) assumed for the emerging economies (BRICS) due
to potentially stronger competition with food production and environmental pressures.
The report recommends:
- The removal of non-economic barriers, such as administrative hurdles, obstacles to grid access, poor electricity market design, lack of information and training, and the tackling of social acceptance issues (“not in my backyard” - NIMBY), with a view to overcome them - in order to improve market and policy functioning;
- A predictable and transparent support framework to attract investments;
- The introduction of transitional incentives, decreasing over time, to foster and monitor technological innovation and move technologies quickly towards market competitiveness;
- The development and implementation of appropriate incentives guaranteeing a specific level of support to different technologies based on their degree of technology maturity, in order to exploit the significant potential of the large basket of renewable energy technologies over time; and
- The due consideration of the impact of large-scale penetration of renewable energy technologies on the overall energy system, especially in liberalised energy markets, with regard to overall cost efficiency and system reliability.
Technorati Tags: Biofuels, electricity, oil-&-gas, renewable-energy, solar-energy, wind-energy
The challenge facing the European Community in reducing its dependence on imported fossil fuels is clearly illustrated in the International Energy Agency’s just published review of EU energy policies.
“The EU energy economy will become increasingly reliant on energy imports – with import dependence reaching 64% in 2020 and 67% in 2030 in business as usual projections, up from slightly more than 50% at present.”
Dependence on oil imports continues to be highest, reaching 95% in 2030.
Dependence on gas imports would rise substantially, from 58% at present to 84% in 2030. Similarly, solid fuel supplies would increasingly be based on imports, reaching 63% in 2030 (up from just under 40% today).
Oil, gas and coal production in the EU is set to decline significantly by 2030 and be only partially offset by increases in renewable sources of energy.
The EU’s renewable energy supply (RES) target of 20% for 2020 cannot be attained without strong additional policies, the report says.
…under currently implemented policies, the renewables share in final energy demand rises by 4 percentage points between 2005 and 2020, reaching 12.5% in 2020.
The report suggests the EU will need to enact more stringent enforcement of the targets. The challenge is made even more difficult by pressure to rescind or reduce the current requirement that 10% of liquid fuels come from biofuels.
In addition to urging the implementation of already agreed policiies, the IEA urges an substantial increase in R&D and a reallocation of R&D funding from nuclear power to renewables. Almost 40% of the energy funding is targeted at nuclear fusion, a technology that is only expected to contribute past 2050. “It will be important for the achievement of the EU climate change targets that this funding allocation is revised at the earliest possible opportunity, and that funding for non-nuclear energy research and development is increased significantly.”
Technorati Tags: Biofuels, energy, nuclear-power, renewable-energy
Venture capital investments in US cleantech companies grew by 41% to $961.7 million in the second quarter from $683.5 million in the first, according to an Ernst & Young report based on data from Dow Jones VentureSource.
This is the highest total cleantech investment on record, and comes amidst a quarter in which overall venture capital investment was down by nearly 8%.
Year-on-year cleantech investment follows this upward trend, increasing 83% from Q2 2007.
Energy/Electricity generation companies attracted the most investment of any sector this quarter with $494.9 million - 52% of the total. The top three deals of the quarter were solar-related companies. The deals included SunEdison in Beltsville, MD, which raised $131 million, eSolar in Pasadena, CA, which raised $130 million and BrightSource in Oakland, CA, which raised $115 million. It is also worth noting that corporate investors were involved in all of these deals.
Energy efficiency companies made up 20% of total investment dollars and continues to be a top cleantech investment segment despite a slight 4% decline to $188.3 million in Q2. The third largest segment this quarter was alternative fuels, which comprised 13% of the overall US cleantech market. The segment made up entirely of biofuels transactions, attracted $129 million of investment, down 44% from the previous quarter.
“Efficiency-related investments, such as smart meters and LED technologies, have seen relatively steady levels of deals and investment over the past few quarters because they can be ready for an exit more quickly than other renewable energy technologies,” says Joseph A. Muscat, Americas Director of Cleantech and Venture Capital, Ernst & Young LLP. “Investment in increased efficiency can have a shorter payback period since many of these technologies are relatively capital efficient compared to the capital intensity of a manufacturing-heavy segment like biofuels.”
The price of energy is driving demand for cleantech innovation in the corporate sector. New corporate commitments to climate change are also stimulating cleantech activity: 77% of large corporations have integrated cleantech into their internal systems or supply chains and 63% offer cleantech-related products, according to a recent Ernst & Young survey of 150 large corporations.
Technorati Tags: Biofuels, cleantech, venture-capital
The expansion of biofuels production is responsible for the lion’s share of the runup in food and feed commodity prices, according to a Working Paper published by the World Bank.
The paper, A Note on Rising Food Prices, which does not represent the official view of the World Bank, estimates that “the combination of higher energy prices and related increases in fertilizer prices and transport costs, and dollar weakness caused food prices to rise by about 35-40 percentage points from January 2002 until June 2008.”
These factors explain 25-30 percent of the total price increase, and most of the remaining 70-75 percent increase in food commodities prices was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.
While other estimates agree that biofuels have contributed to higher food commodity prices, the paper’s estimate is much higher.
This reflects author Donald Mitchell’s argument than speculative activity and export bans that may have contributed to higher prices are in essence a “knock-on” effect of increased biofuels production from food and feed crops.
While he acknowledges that export controls have had an impact, notably in the rice market, he is skeptical about the effect of speculative activity: “The impact on prices is hard to quantify and most studies do not find that such activity changes prices from the levels which would have prevailed without such activity…”
The paper’s policy recommendations: “Removing tariffs on ethanol imports in the U.S. and EU would allow more efficient producers such as Brazil and other developing countries, including many African countries, to produce ethanol profitably for export to meet the mandates in the U.S. and EU. Biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices.”
Felix Salmon at Portfolio.com compares the final paper with an earlier leaked version and finds little evidence of the censorship reported by The Guardian.
Technorati Tags: Biofuels, food-prices
How quickly things change in the current volatile financial markets. In little more than a week, the discussion over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) has moved from temporary measures to shore up their capital bases to serious consideration of how to dismantle them.
Long a critic of the GSE’s “deeply flawed” private/public structure, The Economist leads the charge for privatization:
…now that the guarantee is explicit, Mr Paulson should seek to secure the gains for taxpayers and treat Fannie and Freddie like one of their own mortgages, by nationalising them, breaking them up and selling them on.
Former Treasury Secretary Larry Summers told NPR he would not be surprised if the government has to take an equity position in Fannie and/or Freddie at some point. In a new report, Oxford Analytica says “political support will grow for a major overhaul of the GSE system under the next administration.”
The irony of the situation is that arguably the most free-market administration in living memory is once again forced to resort to government intervention to save the day.
It’s also hard to make sense of the varying fortunes of the major financial insitutions, with JPMorgan Chase (NYSE: JPM)and Wells Fargo (NYSE: WFC) outperforming expectations, and Merrill Lynch (NYSE: MER) again disappointing. Citigroup’s $2.5-billion quarterly loss announced today also was better than expected, but another $7 billion in writedowns is nothing to be proud of. The diverging fortunes do drive home the point that while the credit crunch affects virtually all financial institutions, superior management can make the difference in how they navigate the stormy waters.
Still, Merrill chief John Thain was admiraby forthright in summing up the current situation, as the FT reports:
We continue to be in a difficult period. House prices are still falling. You have rising energy prices, rising food prices and rising unemployment. All those are going to drag on the economy and that’s not good for business or for asset prices.
Subrime fallout again topped the Research Recap charts, with NERA Economic Consulting’s analysis of the rise in subprime-related litigation our most popular post by a wide margin. This was the third in a series of reports from NERA, all of which have proved immensely popular with our visitors.
Also highly read was Fitch’s report on the worsening troubles of US mortgage insurers as was an earlier report on the same topic from CreditSights.
The Center for Economic Policy and Research’s calculation that the US housing crash is eliminating 20 years of increases in wealth drew strong interest, as did Moody’s guide to interpreting mark-to-market losses of monoline insurers.
Research Recap Quote of the Week:
Current biofuel support measures alone are estimated to increase average wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years. - OECD
Technorati Tags: Biofuels, food-prices, housing, monoline-insurers, mortgage-insurance, subprime-mortgage, Zeitgeist
Oil and food prices are likely to remain high and volatile as low inventories and capacity margins are expected to persist for some time, the International Monetary Fund says in its latest World Economic Outlook.
Oil production is expected to remain broadly stagnant, as much of the small amount of new capacity coming on stream is likely to be offset by further production declines in existing fields, the IMF says. In food markets, rising biofuels production and continued strong net demand from emerging and developing economies should continue to exert pressure on some prices.
In the oil market, the strong upward momentum in prices has reflected a sluggish supply response against the backdrop of already stretched spare capacity at the start of the global recovery.
There is now widespread realization that production and distribution capacity will be slow to build up, reflecting soaring investment costs, technological, geological, and policy constraints, as well as the rundown of existing fields. This is expected to perpetuate very low spare capacity and tight market conditions.
Turning to food commodities, the recent price surges reflect a confluence of factors. Demand growth—partly reflecting the strong growth in emerging and developing economies noted earlier—has generally outstripped supply growth for many food commodities over the past 8–10 years, notably major grains and edible oils. The general upward pressure on prices has been strongly reinforced by a number of developments since 2006:
- Unfavorable weather conditions reduced harvest yields in both 2006 and 2007 in an unusually large number of countries. Wheat harvests, in particular, had been adversely affected, which led to a sharp bidding-up of wheat prices, with spillovers into close substitutes (particularly rice).
- Rising biofuel production in advanced economies has boosted food demand. In particular, rising corn-based ethanol production accounted for about three-fourths of the increase in global corn consumption in 2006–07. This has pushed up not only corn prices but also prices of other food crops and, to a lesser extent, edible oils (through consumption and acreage substitution effects), and poultry and meats (feedstock costs).
- The rise in oil prices and energy prices more generally has boosted production costs for food commodities, through the impact on transportation fuels and fertilizer prices (the latter have more than tripled since early 2006).
- The growing use of export restrictions by food exporters to raise domestic food supplies and lower domestic prices has put pressure on world prices. Export restrictions by some major rice exporters likely contributed substantially to the run-up in rice prices in 2008.
Technorati Tags: Biofuels, economic-data, food-prices, oil-&-gas
More bad news for ethanol emerged today via the OECD’s Economic Assessment of Biofuel Support Policies. The report adds to the growing body of evidence that government support of biofuel “is costly, has a limited impact on reducing greenhouse gases and improving energy security, and has a significant impact on world crop prices.”
The report estimates that biofuel support costs between $960 to USD 1700 per tonne of greenhouse gases (carbon dioxide equivalent) saved.
The reduction of greenhouse gas emissions is a primary reason for current biofuel policies but the savings are limited, the OECD says. Ethanol from sugar cane reduces greenhouse gas emissions by at least 80 percent compared to fossil fuels. However, biofuels produced from wheat, sugar beet or vegetable oil rarely provide emission savings of more than 30 to 60 percent while savings from corn (maize) based ethanol are generally less than 30 percent.
Overall, the continuation of current biofuel support policies would reduce greenhouse gas emissions from transport fuel by no more than 0.8 percent by 2015.
Current biofuel support measures alone are estimated to increase average wheat prices by about 5 percent, maize by around 7 percent and vegetable oil by about 19 percent over the next 10 years.
The report recommends:
- Governments refocus policies to encourage lower energy consumption, particularly in the transport sector, a much less costly way of reducing greenhouse gases.
- More open markets in biofuels and feedstocks in order to improve efficiency and lower costs.
- A clear focus on alternative fuels that maximise the reduction of fossil fuel usage and greenhouse gas emissions.
- Further research to accelerate development of second generation biofuels that do not require commodity feedstocks is suggested.
Taking into account the 2007 US Energy Independence and Security Act and the proposed EU Directive for Renewable Energy, 13 percent of world coarse grain production and 20 percent of world vegetable oil production could shift to biofuel production in the next 10 years, up from 8 percent and 9 percent in 2007, respectively.
The challenges facing US corn-based ethanol producers are documented in a report from NPR’s All Things Considered. Despite higher gasoline prices, ethanol producers are struggling as a result of sharply higher corn prices. The report cites a biofuels deathwatch map from earth2tech.com that identifies 18 US biofuels plants that have either been put on hold or cancelled.
Technorati Tags: Biofuels, energy-efficiency, ethanol, food-prices, greenhouse-gases
Some relief from tight oil supplies should be forthcoming during the next couple of years, but supply capacity growth will fall back below demand growth by 2011, based on current trends and assumptions, the International Energy Agency says. In its latest Medium-Term Oil Market Report, the IEA also says current high oil prices are the result of tight market conditions rather than speculation:
While recognising that speculation can have a day-to-day impact of price moves, the fact that all producers are working virtually flat out and that there is no sign of any abnormal stockbuild gives a strong indication that current oil prices are justified by fundamentals.
Over the next two years “Supply growth deriving from a concentration of new project start-ups during 2008-2010, allied to weaker economic growth, sees potential spare capacity rise in excess of 4 mb/d. However, this expansion slows from 2011 onwards when global demand growth recovers, leading to a narrowing of spare capacity to minimal levels by 2013,” the IEA says.
Since the 2007 Medium Term Oil market Report, significant downward revisions have been made to both non-OPEC supplies and OPEC capacity forecasts. Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady, the IEA says.
Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream — to assure that the market is adequately supplied.
Although biofuels will add to supply growth, increasing from 1.35 mb/d in 2008 to 1.95 mb/d by 2013, announced capacity additions may be difficult to achieve given available feedstock and growing concerns due to rising food prices.
Global demand for oil products will grow by an average of 1.6% per year to 2013, from 86.9 mb/d in 2008 to 94.1 mb/d. Contrary to supply trends, demand growth will be weakest in the first two years of the period, building as global GDP growth strengthens from 2010 on.
An anticipated 8.8 mb/d of crude distillation capacity will be added to the refinery system by 2013, the IEA says. “These additions should cover supply increases over this period and help ease current refinery tightness, which limits the flexibility of the industry to meet the structurally-strong demand growth for middle distillate fuel. A doubling of costs and longer lead times for delivery of key upgrading units have led to greater uncertainty over project plans in the refining sector. New capacity additions are primarily in China, Asia and the Middle East. Additional investment is expected in upgrading capacity and desulphurisation units.”
The 2008 Medium-Term Oil Market Report can be purchased from the IEA website.
Technorati Tags: Biofuels, energy, oil-&-gas
Sometimes it seems like biofuels are more trouble than they are worth. In addition to being criticized for contributing to higher food prices and being environmentally questionable, a trade war between the US and the European Union is bubbling up.
In a new report Oxford Analytica looks at the decision of European biodiesel producers to file an official complaint to the European Commission (EC) about subsidies to the US biodiesel industry, which they regard as unfair.
The European Biodiesel Board (EBB), the main EU industry association, has multiple key complaints:
- US Federal regulations introduced in 2004 enable US biofuel firms to benefit from subsidies to such an extent that they can be exported to and sold in EU markets at prices well below those commercially viable for EU domestic producers. This is the so-called B99.9 — or ’splash and dash’ — regime under which US producers can add just a drop of mineral diesel fuel to biodiesel to become eligible for tax credits worth up to 300 dollars per tonne.
- This biofuel does not need to be produced in the United States to qualify for subsidy. It can be sourced from a cheap developing world producer, such as Indonesia and Malaysia, imported to the United States where a splash of mineral diesel — perhaps just 0.1% of total volume — is added, and then exported as a US product to the EU.
- These US exports may then be treated as pure biofuel on reaching Europe, making them eligible for further subsidies under EU regulations, further under-cutting local producers.
The EBB contends that this has resulted in “a dramatic surge in US biodiesel exports to the EU, thus creating a severe injury to the EU biodiesel industry”. As biodiesel is the most common biofuel in Europe, this has been linked to the shutdown or suspension of operations of biofuel plants in several European countries over recent months.
The US National Biodiesel Board (NBB), says the troubles the European biodiesel industry face are not related to US exports.
OxAn’s take: “Imports of subsidised US biodiesel into EU markets has clearly had a negative effect on EU producers, many of which cannot compete on price. The EU believes it has a strong case, and the United States will agree to ease ’splash and dash’ subsidies.”
While bitter, this dispute may come to be regarded as a teething problem in the development of the global biofuels market, as second generation biofuels using a greater variety of feedstocks take centre stage in coming years.
Technorati Tags: biodiesel, Biofuels