Web exclusive posted Sept. 11, 2008 at 2:49 p.m. CST

Despite an emerging biofuels market, a recent study completed by Accenture, a global management consulting, technology services and outsourcing company, indicates that the creation of a global biofuels market will be significantly more difficult than previously thought, although still attainable.

The report, titled "Biofuels' Time of Transition: Achieving high performance in a world of increasing fuel diversity," includes a comparative analysis of 20 countries' biofuels industries, augmented by interviews with stakeholders, consumers, professionals from the automotive and airline industries, infrastructure and transport providers, and legislators.

The study reports that although biofuels could make up 10 percent to 15 percent of future fuel mixes in the next 10 years to 20 years, getting to that level will be more difficult than previously thought, reflecting the challenges involved in creating full-scale markets in biofuels feedstock, production, transport and distribution.

Issues raising uncertainties to the attainability of the global market involve the current food-versus-fuel debate, which may slow demand. However, as long as governments manage sustainability issues, the study found that demand will remain strong.

According to the report, distribution challenges that relate to integrating biofuels into the fuels value chain was also demonstrated as an obstacle. The report said tough decisions will have to be made regarding the storage, blending and accommodation of different fuel blends. The report also suggested that industry Infrastructure must be examined. "While it's clear that the development of an efficient biofuels market requires investment in the infrastructure needed to facilitate and support large-scale biofuels operations and trading, it is difficult to justify the up-front investment when the ultimate returns and size of the market are uncertain," the report stated.

Melissa Stark, senior executive in Accenture's energy industry group, said that although the ultimate scale of the biofuels industry is yet unknown, the company believes that biofuels will be part of the future fuel mix and also heralds the evolution of a fuels marketplace. "Our research shows that government policy and technology developments are the biggest uncertainties," she said. "Technology will continue to improve the economics of biofuels development, but the industry will also have to deal with competing technologies such as plug-in hybrid. And regulatory policies, including those that encourage cleaner fuel versus selecting a type of a fuel, will continue to grow."

Despite challenges in 2007, the report predicts that biofuels production may exceed International Energy Agency predictions of 120 billion liters (31.7 billion gallons) of ethanol and 23 billion liters (6.1 billion gallons) of biodiesel before 2020. "In terms of both the supply side and demand side, most of the elements are developing in a way that a truly global biofuels market can develop," the report stated. "These elements include feedstocks, regulation, consumer awareness/demand, original equipment manufacturers (OEMs, such as auto manufacturers), distribution (primarily via oil compa¬nies), infrastructure, financial markets and technology." Understanding these separate elements, according to the study, will enable companies to achieve high perfor¬mance in the global and competitive biofuels industry of the future.

First-generation biofuel technologies, such as ethanol from sugarcane, will be joined over the next few years by second-generation technologies, such as cellulosic ethanol and those that use the waste from first-generation technologies. As well, the report said new biofuels pathways under development, such as butanol, will also be used. The first- and second-generation biofuels will be used in tandem for a number of years.

The report concluded that the biofuel transport fuel market will largely diversify- resulting in a shift away from gasoline and diesel. "In Accenture's view, the biofuels industry has a window of opportunity of perhaps 10 years to evolve into a truly global and efficient industry before new technologies compete with first- and second-generation biofuels," it stated. "The challenge for the biofuels industry is to carve out its place and to become as global and efficient as possible-before these technologies arrive."

Stark said that despite the ongoing debate and controversy over biofuels, it is clear that they will be here for the foreseeable future. "The growing number of privately funded independents and agribusinesses - and even international and national oil companies - now developing and investing in biofuels and other alternative fuel strategies is testament to the significant momentum behind biofuels," she said.

This is Accenture's second report on the biofuels industry; in September 2007 the company released a report that compared the bioethanol and biodiesel markets of 20 countries.