Oil prices are at $100 and may go higher. OPEC says that is because of speculators driving the prices up. The US government says it is supply. Over time, supply wins the argument. At some point less oil is available and a lot of people will still want it. That may be a decade out and it may be two decades. Based on comments from some oil executives, it could be sooner.
The plan was that alternative fuels would start to replace oil. It was a good plan. Biofuels come from a renewable source. Grow more corn, grow more wheat. Oil supplies are finite. Crops are not.
The argument for biofuels has started to fall apart. Shares in VeraSun (VSE) have been driven to a 52-week low of $7.75, down from a period high of $.21.47. The high price of the commodities it needs is killing its prospects. Corn may be replaceable, but not at the rate that the alternative energy business needs. The drop in most stocks in the sector also restricts their access to raising new capital.
From an economic standpoint, biofuel are a bust. Since commodity prices could stay high for several years, the math to change that is not going to get better.
The good thing about biofuels is that they did not have the emotional baggage that sources of energy like coal and nuclear do. Coal is bad for the environment. Nuclear is dangerous. Whether those things are true of not, the prevailing wisdom is hard to overcome.
Solar fuel may end up being a good replacement for oil, but that is likely a long way off. It is a solution for home heating, but whether it will work for cars, trucks, and planes is a different matter. No one likes his car to stop working when it rains.
The pathway out of significant dependence on oil lead through the corn field to companies like VeraSun. Right now, the cost of goods is blocking that path, and will for a long time.
Douglas A. McIntyre
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