Biofuels - The New Oil for the Petroleum Industry?

FNI Report 15/2005. Lysaker, FNI, 2005, 39 p.

We conclude that there exist strong general driving forces for diffusion of biofuels at the EU level, in the form of various problems, directives and other policies converging towards diffusion of biofuels as  a joint solution. At the EU member-state level, however, the driving forces have been less clear, due to large asymmetries in the national policies established for implementing EU policies. Nevertheless, by late 2005, most key member states appear to have adopted policies that will clear the way for growth in biofuel diffusion. We have noted more specific driving forces and obstacles for involvement by major oil companies in biofuel activities. Inter-company variation in biofuel investments may be explained by variation in business focus (upstream vs. downstream focus), by attitudes towards diversification in general, by response strategies to the climate-change issue, as well as by variation in political and business pressure caused by geographical differences in the companies’ core downstream business spheres. As political pressures grew more similar across the EU member countries in the course of 2005, variation in pressure on the companies tended to be weaker. Hence, as of early 2006, the driving forces working for greater involvement in biofuel diffusion appear stronger than those working against such involvement by the European upstream oil industry. Thus, we must conclude that recent political changes at the EU and member-country levels have removed major obstacles to the diffusion of biofuels in Europe. This should increase the future prospects for bio-energy in Europe and the pressure on oil companies to choose biofuels as ‘the new oil’ to lubricate the diversification strategy for the renewable energy products so highly profiled in the past decade. It remains to be seen, however, whether the companies have the will and ability to balance their upstream oil and gas focus with greater attention to developing activities further down the energy supply chain.



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