Background
While India and all other oil importing countries are
celebrating the drop in crude oil prices, there is one industry in the early
phase will see a set-back. That is bio-fuels. All the interest in bio-fuels was
due to consistent rise in crude oil prices. There was search for alternate
fuels. And bio-fuels seemed to be the answer. Ethanol blending began couple of
years ago. Since most of Ethanol is made out of Sugar crop, there was fear that
it will lead to shortage of sugar and drive the food prices high. Then the
interest turned towards Jatropha, which is a non-food crop and can be grown in semi
and non-arable farmlands. It seemed perfect to make bio-diesel out of Jatrpoha
seeds. It will reduce oil imports, saves foreign exchange, create jobs in the
homeland where there is so much of unemployment and non-arable land. Govt.
announced subsidies, organizations began spreading the knowledge, pilot
projects kick-started and there were research projects taken up to improve
yield of Jatropha crop.
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| Jatropha farm and its seeds |
Bio-fuel economics under threat
Most of the bio-fuel business models assumed crude oil
prices remaining high or going up further. Now that crude prices are down (30% approx.),
and there seems to be no hurry in getting back to earlier prices as the crude
oil capacity is on the rise and demand is not catching up at the same pace.
To keep up with the fall in crude and to make economic sense,
yields from Jatropha crop has to go up by at least 30% or so. When the pilot projects are not yet proven for
their feasibility, this additional expectation is a burden on the economics of
Jatropha crop.
In another development, natural gas (CNG, LNG, LPG) vehicles
are becoming popular. An increasing number of vehicles worldwide are being
manufactured to run on natural gas. The trend is likely to catch up further as
many countries would like make use the new gas discoveries and the biggest of
them is USA with their shale gas exploration. As more and more natural gas run cars
hit the roads, demand for bio-fuel fades away.
Conclusion
As bio-diesel loses its price competency against the
conventional crude oil, Jatropha farmers (there are not many) will find fewer
and fewer takers for their crop. An industry in its infancy will face a
survival threat. Jatropha seemed to be a solution to isolate from geo-politics for
India but when oil producing countries are offering a discount for their
natural resource, geo-politics lost its power to influence crude pricing.
For now it appears
that Jatropha has hit a road block. Unless the crude prices come back or Govt.
offers further incentives or any improvement in the yield in Jatropha is seen,
Jatropha farmers need to stay cautious.
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