Biofuel investments seen good bet with pricey oil

Sam Cage, Reuters 24 Jan 08;

DAVOS, Switzerland (Reuters) - Biofuels made from plants and waste will prove an increasingly efficient and cheap substitute for oil in many areas over the coming five years, industry analysts said.

As long as crude sells at prices towards $100 per barrel, there will be strong demand for cheaper biofuels and manufacturing technology will improve, Vinod Khosla, founder of venture capital firm Khosla Ventures, told Reuters.

"It's very clear to me that within the next few years -- about three I would guess, definitely less than five -- we will prove that biofuels are as adequate as oil," Khosla said at the annual meeting of the World Economic Forum.

Biofuels can replace oil as transport fuel and heating. They can also be used in manufacturing.

Khosla estimated oil would have to fall below $50 a barrel to be competitive in three or four years.

"If I had to look ahead 10 or 15 years, I guess the number would be $35," he said.

Biofuels are seen as a way of cutting reliance on oil as fuel and thereby reducing greenhouse gas emissions.

But there is criticism that they raise food prices and also harm the environment during their manufacture.

TARGETS, INCENTIVES

Rahul Iyer, executive vice president of renewable energy company Primafuel, said persistent high oil prices would mean "anything that can become energy will become energy."

"The replacement rates of oil, in terms of discoveries by the oil majors, is not keeping up with the amount of oil that they're taking out of the ground," Iyer told Reuters.

"I'm no economist, but when supply goes down and demand goes up, you will see an upward price pressure, continually. If you believe that oil might go back down to $40 a barrel, then investing in alternatives is not smart," he said.

"However if you believe prices will trend higher and become even less stable, the alternatives will continue to make sense," Iyer said.

But the market is not enough on its own to persuade the world to switch to renewable energy, said Jim Leape, head of conservation group WWF.

"I think government has to play a role in driving technologies down that curve. And that can be through targets, it can be through incentives," Leape told Reuters. "You can't rely entirely on the market to solve all these problems."