To remain competitive in a market where cost is the determining factor, BD must have a final selling price at or below the price of Petroleum based Diesel. The retail price of PD is mainly determined by cost components similar to BD, mainly the source material (crude oil 64%) and processing (refining 21%). Additionally, distribution and marketing account for 5% and taxes 10%. [DOE EIA]
Of the major components in the retail price, everything but the crude oil is relatively fixed. Refining costs do not increase with the cost of oil, and taxes are levied at a fixed amount per gallon. Distribution costs do go up with the price of PD because trucks and trains fueled by PD are used in transport, but the amount is relatively small compared to the total selling price. Because the price of crude oil is the largest component of the final retail price of PD, the price of PD tracks the price of oil.
The figure above shows the correlation of oil prices to the retail price of diesel [DOE EIA]. As the price of oil rises, the price of PD rises. Because the retail price of BD is not dependent upon the price of oil, as oil increases, the price gap decreases. In 1995, the ASP concluded that the price of a barrel of oil would need to be approximately $59 for algae based BD production to be cost competitive. Historical information from the EIA shows that oil surpassed $60 in 2006, and has since been climbing, meaning that cost competitive algae based BD production may now be viable.