In the long term, both Berry and Jamerson think oil prices will be higher. Anticipated production cuts from OPEC would likely keep oil prices above $50, Berry says. “If you look at the price points that OPEC has put pressure on, that has ranged between $50 and $80. And so that gives that range some reasonable set of legs.”
“I don’t think that the oil prices are going to stay this low for a long time,” Jamerson says. “My view is it will probably fluctuate between $75 and $100 a barrel, once we get past the intense part of this downturn.”
Even at those prices, some biofuel startups may be hard pressed to compete. This summer, Berry says, “about $200 to $300 million was going into algae companies. And algae has long been shown to have a break-even point between $90 and $120 per barrel of oil.”
Jamerson is more concerned about tight credit markets than oil prices. Mascoma is still years away from commercial production, so, as with other advanced biofuel companies, today’s prices don’t have an immediate impact. But Mascoma is still working out the financing for a large 40-million-gallon ethanol plant in Kinross, MI. This month, it will start production at a smaller $20-million facility near Utica, NY, that will produce 200,000 gallons of ethanol annually. To save cash, the company recently laid off 10 percent of its employees and is slowing down orders for equipment and decreasing travel budgets.
Jamerson, however, remains optimistic. Concerns about financing are “tempered by increasing optimism about support for renewable fuels from the new Obama administration,” he says. After the current recession, he says, “Advanced biofuels will be one of the first sectors to come back.”
Addendum: Jamerson adds that Mascoma’s ability to compete with oil at $20 a barrel is assuming optimized production 3 to 4 years from now, not initial costs, and it depends on credits for offsetting greenhouse gases. He also says the company could compete at these levels only temporarily, and not if oil prices stayed this low for the long-term.