Investments of oil majors in liquid biofuels: The role of diversification, integration and technological lock-ins

The increasing use of liquid biofuels has been justified by highly volatile and rising oil prices, geopolitical instability of countries that control most of proven oil reserves, growing demand for passenger transportation and environmental concerns, especially climate change. Investments in the sector are increasing steadily, with oil majors being responsible for rising investments into liquid biofuel joint ventures, research and development projects and logistics. This paper analyses the underlying motivations of these investments by evaluating corporate diversification and integration strategies. Findings indicate that vertical integration and diversification are an integral part of oil major's strategic behavior toward biofuels, although strategies differ substantially among companies. In the short term current major oil companies' investments in liquid biofuels are driven by the requirement to comply with binding mandates for biofuels, whereas in the long-term liquid biofuels, if produced on a significant scale, could be classified as non-conventional liquid hydrocarbon reserves for oil majors where access to other (non-)conventional resources is not secured. Finally, given existing technology lock-ins it seems unlikely whether different paths for producing liquid biofuels will be able to co-exist in the long term, or there will be only one dominant path possibly controlled by large oil companies.

► Analysis of the underlying motivations of oil major investments in liquid biofuels.
► First generation biofuels investments focus on compliance with government blending mandates.
► Infrastructure physical assets may facilitate first steps into future second generation biofuels.
► Vertical integration and diversification are part of oil major strategies in liquid biofuels production.
►  Technological lock-ins may persist and reinforce biofuels' complementary role in road transport.