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Saturday, November 11, 2006

The Biodiesel Market

Despite the common knowledge of ethanol incredible growth in recent years, Biodiesel growth far outpaced that of ethanol. Global production of Biodiesel reached 3.9 billion liters, up from 2.1 billion liters in 2004. Biodiesel production increased by 75 percent in the EU, led by increases in Germany, France, Italy, and Poland, and tripled in the United States. Germany alone accounted for half of global Biodiesel production in 2005. Nine EU countries began producing Biodiesel for the first time in 2005, bringing to 20 the number of EU Biodiesel producers.[i]

World capacity, production and consumption of Biodiesel grew on average by 32% per year during 2000–2005, and the industry looks set for even faster growth rates—115% per year for capacity, and 101% per year for demand—in the years to 2008 and beyond.[iii]

Although growing rapidly, the global Biodiesel market is an order of magnitude smaller in size compared to the global ethanol market. The European Union is the world’s largest producer of Biodiesel, making it primarily from rapeseed. Soybeans are the primary feedstock for Biodiesel in the United States.

It is difficult to estimate how much consumption would be in the world for Biodiesel. There is two main markets for Biodiesel in the future without considering local legislation and incentives of each of the countries that have vast plantation of related feedstock. The two markets are United States (U.S. or US) or European Union (EU).

In the United States there are several assumption that need to be consider. First the Ultra Low Sulfur Diesel standard imposed to the Petro-Diesel (Diesel Fuel from Petroleum) that would increase the usage of Biodiesel as additives; second, the EPACT05 that mandates for a certain amount of Biofuel usage; and third, the AJCA04 that creates tax incentives for Biodiesel producers. All of these factors are explained better in later sections.

For instance, the EIA (Energy Information Administration) suggests that in the US if considering a 1% blend into ULSD (Ultra Low Sulfur Diesel) would drive demand to 1.6 million tons by 2010. Currently the U.S. Biodiesel production is estimated in 500,000 tons per year.

On the other hand, the European Commission has set as a goal that by 2010, 5.75 percent of the energy used for transportation shall be biofuel. The most important biofuel in the EU is Biodiesel, which represents some 80 percent of the biofuel production. These goals are part of the main energy policy target of the EU which is to double the share of Renewable Energy Sources (RES) in gross inland consumption from 5.4 percent in 1997 to 12.0 percent by 2010. These measures are taken to meet the Kyoto goals, and to decrease the EU’s vulnerability in the energy sector. The goals set by the Commission are not mandatory, however the Member States (MS) have to report to the Commission yearly about their progress, and MS must have good reasons if they are not to comply. On the basis of findings in MS reports, the Commission can propose changes to the system of targets, including mandatory targets if it seems that national targets will be missed without good reason. [vi]

The goal set by the European Commission on 5.75 percent renewable energy for transportation by 2010 will according to different forecasts be hard to accomplish without importing Biofuel from third countries. The Directorate General for energy and transports estimates that the fuels for transports in EU25 by 2010 would be 330 million tons. To meet the Commission biofuel goal for 2010 it would take 19 million tons. Currently in 2005, the EU produced 3.9 million tons of Biofuels (Biodiesel + Ethanol). If the EU wants to meet the Commission goal by 2010 it needs to grow it Biofuel production by 23% every year. Given that countries that have fueled the recent growth (i.e. Germany) are likely to decrease its growth trend, InterConsorcio expects that there are great opportunities on the Biodiesel EU import market.[vii]

EU's Biodiesel production capacity may exceed 4 million tons by mid-2006 as a result of the bloc's efforts to promote cleaner fuels, according to the EU's vegetable oil industry federation (Fediol). The European Biodiesel Board (EBB) confirms that Biodiesel production in the EU has risen by 35 percent compared to production in 2003. The production in 2004 was 1,85 million tons, and in 2003 1,45 million tons.[viii] For 2005, the Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century estimates that production of Biodiesel in the EU had increased to 3.1 million tons.

Most of the countries in the EU have incentive the usage of Biodiesel through tax-breaks. Britain for example has a goal of 5 percent of road fuels coming from renewable sources by 2010. That policy, known as the Road Transport Fuel Obligation, called for a 2 percent usage rate by now but the actual current figure stands at only 0.3 percent.[x]



[ii] Graph built using information from Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century, WORLD FUEL ETHANOL ANALYSIS AND OUTLOOK By Dr. Christoph Berg April 2004, and CEH Report Biodiesel By Ralf Gubler Published November 2006

[iii] CEH Report Biodiesel By Ralf Gubler. Published November 2006

[iv] Graph built using information from Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century, WORLD FUEL ETHANOL ANALYSIS AND OUTLOOK By Dr. Christoph Berg April 2004, and CEH Report Biodiesel By Ralf Gubler Published November 2006

[v] Data taken from Contribution of Biodiesel to US Economy (LECG) June06 and National Biodiesel Board, Biodiesel Fact Sheets, Production Capacity.

[vi] Biofuels situation in the European Union. Date: 3/23/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report Number: E35058.

[vii] Biofuels situation in the European Union. Date: 3/23/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report Number: E35058.

[viii] Strong Growth Anticipated For EU Biodiesel Production. Date: 5/3/2005. USDA Foreign Agricultural Service. GAIN (Global Agriculture Information Network) Report - E35085

[ix] Renewables - Global Status Report 2006 Update by Renewable Energy Policy Network for the 21st Century.

[x] UK Parliament Urges More Tax Breaks for Biofuels by Reuters (November 20, 2006)