The geopolitical conflicts in the oil supplying regions of the world are having a destabilising impact on the fuel supply and prices across the world. Canada has been encouraging the supply and usage of different forms of alternative energy sources. In this context, this question has often been asked if alternative energy sources are economically viable. This is because the production and supply of alternative energy forms are thought to involve cost intensive models.
Canada has been encouraging the use of biofuel to offset the supply and usage of conventional oil and gas.
Advanced Biofuels Canada Association (ABFC) has released a statement by Fred Ghatala, President, on the stabilising role of biofuels amidst current global crude oil supply shocks.
“Surging crude oil and gasoline prices are impacting Canadian drivers and our economy. To the question of whether biofuels in our fuel supply are helping or hurting Canadians in the midst of this conflict, the facts are unequivocal: biofuels are dampening both price increases and price volatility resulting from an unstable geopolitical situation.
The first reason is simple supply and demand economics. Restricted crude oil supplies have driven gasoline pump prices higher. Prices drop when more gasoline supplies are available. Canada’s average 10% ethanol content in gasoline provides that additional supply for Canada’s cars and light trucks. Economists call this ‘price elasticity.’ Without ethanol, pump prices would be substantially higher.
This dynamic has been the subject of expert studies quantifying the fuel cost benefits of biofuel blending when global fossil fuel production is disrupted by war or sanctions. A 2014 study in the Libyan war era concluded that ethanol blending was suppressing gasoline prices by USD 0.25/gallon; and a 2017 study calculated fuel savings associated with additional ethanol supply to be USD 0.22/gallon under relatively quiet geopolitics. Older studies also show this relationship. Further, a 2022 expert study assessed the presence of 6% biomass-based diesel content in US diesel volumes to have reduced the cost of diesel by 4%, or US$0.22/gallon.
Secondly, ethanol is cheaper than gasoline and the price spread is growing. The most recent Biofuels in Canada report shows Canadian wholesale ethanol was 7.4 cents per litre cheaper than gasoline. More critically, the ‘gasoline-ethanol spread’ is wider now than it has been in years. Biofuel blended in gasoline (e.g. ethanol) reduced Canadian wholesale gasoline costs by USD 1.7 billion in 2024. Since 2010, ethanol has reduced wholesale gasoline costs by over USD 13.2 billion.
Finally, biofuel and conventional fuel prices have responded asymmetrically to global energy instability. Since the start of the Iranian conflict, Canadian wholesale gasoline prices have risen by 28%, while wholesale ethanol prices have risen 5.5%. Moreover, the cost of feedstock for making gasoline – crude oil – has increased 35%, while ethanol feedstock – corn – has risen 2.5%, and biomass-based diesel feedstock – canola oil – has increased 5.8%. Biofuel in gasoline is already saving motorists money and also has lower price volatility relative to global energy instabilities.
Ghatala concluded, “It’s easy, but inaccurate, to suggest that Canadians’ home finances would be stronger without biofuels, but the data do not support that theory. Furthermore, a domestic biofuel industry that utilises Canadian farm crop feedstocks insulates us from the instability caused by global trade tensions by shoring up domestic supply of transportation fuels and lessening reliance on foreign markets and volatile trade policies. Experts estimate that biofuels add at least $6.4 billion every year to the Canadian economy; this figure is rapidly growing as Canadian production of biomass-based diesel has expanded significantly in the past few years. Federal, provincial and territorial governments are actively renewing an industrial strategy for Canada’s fuel supply chains – the economic and energy security benefits of Canadian-made biofuels are a cornerstone on which to build a resilient, secure, and affordable Canadian economy.”
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