It is very easy to obtain, so it is a good use for an early supply of energy. Any form of plant life can be turned into a bio fuel. Simple life such as seeds will produce 1 bio fuel, whereas more complex life such as saplings, reeds, wheat, or potatoes will produce 2 bio fuel. To actually create it simply take your plant life and stick it into a powered Crusher. The crusher will not accept Watermelon and pumpkin as plant matter, to use these convert them to seeds and then crush it.