Guar: Shovels in a gold rush?

The analogy of selling shovels in a gold rush immediately came to mind when I read this:

U.S. companies drilling for oil and gas in shale formations have developed a voracious appetite for the powder-like gum made from the seeds of guar, or cluster bean, and the boom in their business has created a bonanza for thousands of small-scale farmers in India who produce 80 percent of the world's beans.

"Guar has changed my life," said Shivlal, a guar farmer who made 300,000 rupees - five times more than his average seasonal income - from selling the beans he planted on five acres (two hectares) of sandy soil in Rajasthan. "Now, I have a concrete house and a colour TV. Next season I will even try to grow guar on the roof."

In Jodhpur, under the shadow of an ancient fort, traders buy guar seed at 305 rupees a kg, a 10-fold increase from a year ago.

How big a deal is guar? Up to 30% of fracking cost and enough to send Halliburton shares down 5%, apparently.

With gas barely above $2/MMBtu, iconic producer Chesapeake shedding attractive assets to plug a cash gap, and even the oilfield services companies who do the drilling vulnerable, it seems the winners here are the farmers. But two cautionary notes. First, supply response can be rapid in agriculture - a single season - and such lucrative price fly-ups are seldom long-lived. And second, since guar grows in the desert and is susceptible to drought, I would not be surprised to find (once the dust settles) that guar is a water-hog like jatropha and hardly (like most other cash crops) a panacea for sustainable development.

More bad press for jatropha

The bad news for jatropha continues:

In a report leaked to The East African newspaper last week, Envirocare, an environmental and human rights organization, highlighted the impact of the jatropha trade in Tanzania — including concerns over the displacement of farmers, water consumption, and the substitution of food crops for biofuels.

Jatropha producers are naturally not thrilled with the report’s findings:

Mr. Ruud Van Eck, the chief executive of Diligent Energy Systems, a Dutch jatropha developer working in Tanzania, is among business executives who have contested the findings on the water footprint of jatropha.

Mr. Van Eck also stated that for jatropha to be sustainable, it should not be grown in places with high rainfall, which can be used to grow food crops.

That jatropha is a water-hog is old news. Perhaps less-discussed is that, while part of jatropha’s appeal was that it can be grown on marginal land, it will compete with food crops for prime cropland too, if fuel prices are high enough.

Update: The aforementioned report has caused waves in short order:

Reacting to mounting pressure from farmers and environmental groups citing concerns over food shortages, the Tanzanian government has reportedly suspended all biofuel investments in the country and halted land allocations for biofuel development.

“The government was asleep,” Esther Mfugale, the coordinator of biofuel production for Tanzania’s Ministry of Agriculture, Food Security and Cooperatives, was quoted as saying in an interview with The East African newspaper. “We have to stop and set out clear procedures for biofuel investments.”

This may hurt businesses and investors currently in biofuels in Tanzania, since setting up “clear procedures” could take a while, but of the country’s overall welfare this is probably a good thing.

Carmelina - the new jatropha?

The U.S. Navy has anointed carmelina its next-generation biofuel feedstock of choice. It certainly sounds like a model candidate...

Camelina was selected by the DESC because it does not compete with food crops, has been proven to reduce carbon emissions by more than 80 percent, and has already been successfully tested in a commercial airline test flight. In addition, camelina has naturally high oil content, is drought tolerant and requires less fertilizer and herbicides. It is an excellent rotation crop with wheat, and it can also grow on marginal land.

... but remember what happened to the last biodiesel darling.

By the way, running military vehicles on biofuels because they're "domestically produced" doesn't strike me as a particularly good argument.

Bad news for jatropha: BP exits

Days after Exxon announced a move into algal biofuels, the latest darling of the biofuels sector, it appears the sun is setting on the last big craze. Jatropha was billed as a miracle solution to the food vs. fuel tension, growing oily seeds on marginal land that doesn't compete with food, but BP is exiting its jatropha JV with D1, which was a milestone for oil major involvement in the biofuels sector when announced in 2007.

BP Plc, Europe's second-largest oil company, will exit its jatropha biofuel project with D1 Oils Plc to focus on production of ethanol in Brazil and the U.S. and advance biobutanol development.

“To ensure the success of these investments, BP is concentrating new business development in these areas and will no longer be directly involved in the jatropha as a biofuel feedstock,” Sheila Williams, a London-based company spokeswoman, said today in an e-mail.

This could be construed as part of BP's broader pullback from renewables under Tony Hayward. That said, with BP's continuing with ethanol and biobutanol, it's hard to construct a story where this is other than a bad sign for jatropha in general. With such a small capital investment at stake, it makes no sense for BP to exit if there is any appreciable upside.

Update, pat on the back: I beat Environmental Capital, one of my top blogs, to this by a few hours. Which is, of course, irrelevant. Plus their post is much better. It adds at least three interesting facts:

1) "D1 Oils will buy out BP’s half of the venture for 500,000 pounds—less than the price of a nice apartment in London—even though the joint venture is apparently worth more than 7 million pounds."

2) "BP and D1 Oils planted more than 200,000 hectares of the stuff—25% of the worldwide jatropha planting."

3) Jatropha is a water hog, using 5x as much water per unit of energy as sugarcane and corn. So much for not competing with food for scarce resources...