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BP Could Mean "Biogas Promotion" for 2011

Just as the Chernobyl disaster in the Soviet Union in 1986 had a major impact on the

growth of the nuclear energy business, the BP oil spill in the Gulf of Mexico will mark a

significant turning point in the history of the fossil energy business.

Unlike the Exxon Waldez tanker shipwreck and oil spill in Alaska or onshore drilling leaks

during the Kuwait war, this catastrophe took place right in the backyard' of Western oil

companies. One can only imagine its lasting impact on industry safety requirements,

subsidies, taxation, technology development and renewable energy.

Deeper in risk

There are 70,000 oilfields in the world today, according to the International Energy

Agency (IEA). The top ten accounts for 20% of the production and four of these have

operations offshore. Between 1995 and 2007, the global production from deepwater

fields increased sharply. Deepwater rig suppliers have been struggling to meet the

demand from companies such as Petropras, StatoilHydro and BP.

With the disaster in the Gulf of Mexico however, the costs of new offshore projects are

projected to rise as standards become more demanding and increased financial risks are

allocated. The energy industry will have to urgently look for other solutions, particularly in

renewable energy. Oil companies such as Neste Oil from Finland and Preem from

Sweden and traditional production countries such as Abu Dhabi and even the US are

investing heavily in renewables and second generation biofuels.

From deep sea to gas

Of the options in renewable energy sources out there, biogas is the one to watch. The

chemical compounds of purified biogas have the same make-up as methane, thus

allowing its use in existing applications for natural gas without the need for any

modification, for example. Biogas is also touted as an alternative for coal, oil, biomass,

wind, solar and natural gas sources in heat and electricity generation. Wastewater plant

and landfill installations in developed markets are exploring ways to extract and use

biogas for their operations, while industry players in developing markets are exploring

even more advanced methods of waste utilization.

When compared to oil drilling for instance, biogas production poses virtually no major

environmental risks due to its distributed, small-scale nature. The raw material base is

also wider than with other biofuels, almost any organic matter is a potential source for

biogas. Indeed, after considering the actualized risks in deepwater drilling, the idea of

having thousands of anaerobic digesters scattered over the countryside and city outskirts

does not sound that bad an idea.

The barriers come down

Until recently, the biogas industry faced a range of challenges that had held back its

development.

Biogas development has not been spared some resistance and controversy, as green

activists warn of the risk of diverting focus away from reducing waste sources in the first

place. Other concerns include the potential utilization of edible plants and farmland as

energy resources and the domination of big players over what could be a local, labor-

intensive and sustainable energy resource.

In the world's leading biogas country, Germany for example, only seven percent of the

biogas is upgraded and fed into the natural gas network. The dominant biogas industry

players are still relatively low-tech and struggle when complexity and costs increase, as

quality becomes more important. Fortunately, new and improved technologies now exist

that improve the efficiency and yield of the anaerobic digestion process, help biogas fit

existing natural gas applications cost effectively, and that condense upgraded biogas into

liquid biogas.

Where the cost of upgrade technologies has been another key hindrance to improved

biogas utilization, government support for renewable energy in most countries and the

upgrade of old or the building of new sewage and waste management plants should help

in the development of biogas installations market.

The current market mainly consists of rather low-tech players who are likely to struggle

when complexity and costs increase, as quality becomes more important. Opportunities

therefore abound for new innovations and international businesses to enter the market.

In addition, there are at least 10 other factors that favour long-term biogas development.

1. Above all, the price volatility in the cost of fossil fuels makes the renewable energy

sources and second generation biofuels relatively more profitable. In the case of

biogas, the profitability improves also in absolute figures as the plants grow in size

and the technology becomes more economical

2. Leading countries are supporting biogas with subsidies such as feed-in-tariffs, cash

injections and tax reliefs. On the other hand, there is no relief in sight for the

production and purchase of fossil fuels.

3. The large scale plants and increasing utilization of technology are pushing down the

production costs.

4. The existing infrastructure and technology for natural gas is robust and provides a

low threshold for upgraded biogas to enter the market.

5. The energy out of biogas can be utilized flexibly either as electricity, heat or fuel.

6. The current use of natural gas within the transportation industry is driving the use of

biogas as well.

7. Biogas offers superior fuel yield per cultivated area compared to other biofuel

production processes, which makes it the most sustainable of biofuels.

8. The non-food sources of raw material such as landfills, dairy farms and wastewater

plants help reduce their methane emissions.

9. Biogas production provides "green jobs" and additional income in rural areas.

10. Countries dependent on foreign sources of natural gas may start producing a share

of the gas themselves.

As a result, more companies are entering the biogas market. These include chemical

companies such as Rhodia, equipment manufacturers such as General Electric,

distribution companies such as Gaz de France and gas companies like GASUM.

By entering such a nascent market however, these businesses face the challenge of

deciding on their operating models, market focus, technologies to use and their long term

plans, amongst other considerations.

The final implications of the Gulf of Mexico disaster for the energy sector are yet to be

seen but one thing is for sure: from now on BP will always remain as a strong argument

in any energy debate, particularly for biogas promotion.

This article and others from GIA's Consumer & Retail practice can be found at Global Intelligence Alliance industries.

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