BP Competition
Now Viewing BP's competition in: Biofuels Production
Call Preparation Questions
Customers, Marketing, Pricing, Competition
Does the company have supply agreements in place with refiners and distributors? For how long? What portion of production? - Many companies have one- to three-year agreements with refiners and blenders, which may lengthen as the Energy Policy Act of 2005 becomes fully implemented.
How does the company price its product? - Many companies agree to contract prices pegged at a percentage of retail gas or diesel prices, but some hold back a small percentage of production to offer on the spot market.
Is enough biofuel available to meet local demand? - Demand exceeds production in most areas, and refiner/blenders are mixing biofuels with gas at rates less than 10 percent.
How many other biofuel companies are competing directly for refiner/blender business? - Through year-end 2005, demand exceeded supply, so refiners/blenders frequently bought from multiple biofuel producers.
Are cellulosic biofuels appearing in the local market? - Companies are just beginning commercial-scale factories for cellulose-derived ethanol, which is expected to eventually replace ethanol made from corn and other grains.
Is the company working directly with retailers to establish local E85 and B100 markets? - Retailers have little incentive to invest in separate facilities to offer E85 and B100. Many companies are working with local retailers, auto manufacturers, farm cooperatives, and local environmental groups to help retailers acquire the special facilities and build a customer base.
Is the company working with state and local government to convert their fleets to biofuels? - State and local governments are realizing the environmental benefits of burning biofuels and the economic benefits of using locally produced fuels.
Competitive Landscape
Demand is driven by federal legislation and regulations that establish a government-mandated market for biofuels. The profitability of biofuel production facilities depends on prices of gas and diesel, which fluctuate based on world petroleum demand and domestic refinery utilization. Economies of scale in ethanol production are limited due to the transportation costs associated with gathering feedstocks (corn and other biomasses) and transporting the ethanol to blending sites. As a result, large companies operate multiple production facilities. Small companies can compete effectively by developing business relations with distributors and being able to assure delivery consistently. The industry is capital-intensive: annual revenue per employee in ethanol production facilities is about $1 million.
Business Challenges
CRITICAL ISSUES
Economic Viability Depends on Fuel Prices - Sustained high oil prices are encouraging the development of alternative fuels with increased R&D investment and capital outlays to build new production facilities. Ethanol's current production cost, and that it gets about 30 percent less mileage than gas, means that it's uneconomical unless gas retails for over $3 per gallon. Biofuels enjoy political and popular support and benefit from government mandates and subsidies; however, for long-term viability, they must become cost-competitive with petroleum-based fuels.
Dependence on Government Support - Due to current economics, the biofuel industry depends on government support to establish itself and grow. Government regulations mandate the use of specific amounts of biofuels as blends of fuel, and the EPA will impose quotas on refiners and importers for biofuel use. In addition, the government is giving tax rebates for biofuel production and sale, equipping retail outlets to handle higher content fuels, and supporting R&D with grants. If petroleum prices drop for a sustained period and supply is plentiful, the government could reassess its priorities and reduce financial support. While the Energy Policy Act of 2005 was written with an eight-year horizon, its key tax and grant provisions must be funded annually.
Industries Where BP Competes
- Energy & Utilities
- Oil & Gas Refining, Marketing & Distribution
- Alternative Energy Sources
- Chemicals
- Basic and Intermediate Chemical & Petrochemical Manufacturing
- Retail
