Domestic production of climate-polluting fossil natural gas and oil is booming. Oil stocks in the U.S. are well above the five-year range. The price of oil in Midland, Texas, at $75 per barrel, is $35 cheaper than the global benchmark, Brent crude. And, consumption of transportation fuels is stagnant or declining. What will this mean for the future of advanced biofuels?

The Energy Information Administration (EIA) had both good news and bad news in its revised energy forecast for 2040 released this week. First, the good news. In the Annual Energy Outlook 2013 , the EIA forecasts that the U.S. will become less dependent on energy imports by 2040 as net imports decline from 19 percent of consumption in 2011 to nine percent in 2040. That could be good for energy security (were it not for the fact that the U.S. will nonetheless remain heavily dependent on oil, the price of which is dependent on global factors affecting supply and demand, not just domestic ones). The consumption of liquid fuels by light-duty vehicles is likely to decline steadily, thanks to improved fuel economy standards and other factors. And, energy-related greenhouse gas (GHG) emissions will remain more than five percent below 2005 levels through 2040.

However, the bad news is that the production of oil is likely to jump 25 percent in the next decade, and natural gas production will keep increasing, with more of it being used in the transportation fuel market. Meanwhile, the EIA cut its projection for renewable biomass use by 22 percent for 2035 compared to its projection last year. The EIA does not see the advanced biofuels industry growing as fast as previously estimated, and thus low-carbon biofuels will have a smaller share of the transportation fuels market. As a consequence, energy-related GHG emissions will not be reduced as much as they could and need to be. It would be far better if more climate-polluting natural gas and petroleum were left in the ground and more advanced biofuels were produced much sooner for the transportation fuels market.

In the EIA’s U.S. monthly crude oil production report this week, the trends in domestic petroleum production and stocks were made clear: " Crude oil production (including lease condensate) averaged almost 6.5 million barrels per day in September 2012, the highest volume in nearly 15 years. The last time the United States produced 6.5 million barrels per day or more of crude oil was in January 1998. Since September 2011, U.S. production has increased by more than 900,000 barrels per day. Most of that increase is due to production from oil-bearing rocks with very low permeability through the use of horizontal drilling combined with hydraulic fracturing. The states with the largest increases are Texas and North Dakota. "

A Financial Times article, "Texas Crude Glut Sparks Oil Price Swings," [registration required] describes some of the short-term impacts of the rapid surge in U.S. oil production on regional prices.

Of course global and domestic oil prices can be and have been quite volatile over time. Prices may be low today in some regions of the country, but this will change as pipelines and infrastructure are put in place to move oil to global markets more efficiently. And, as it has been for the past few decades, the threat or outbreak of war or violent conflict in an oil-producing region, or a damaging hurricane or refinery explosion in the Gulf, or a labor strike, can send global and domestic oil prices soaring.

So what does this mean for the future of advanced biofuels? Just as the glut of domestically produced natural gas has not been good for the advancement of climate-friendly renewable energy, so the surge in domestic oil production, to the extent that it puts sustained downward pressure on global oil prices, will not be helpful to growing new, competing sources of low-carbon renewable fuels. Advanced biofuels will have a much better chance competing over the next decade with $100 per barrel oil than with $75 oil.

Establishing a price floor on petroleum or a steadily increasing carbon price on fossil fuels – to reflect the high climate and environmental costs of fossil fuels - would go a long way toward creating the conditions for accelerating the commercial scale production of low-carbon advanced biofuels. In the meantime, extending tax credits and incentives for renewable bioenergy and renewing mandatory funding for Farm Bill energy programs seems the least Congress should do.