Biodiesel: A Global Perspective

In 2007, Europe and the United States were the leading biodiesel producers. Heading into 2008, Biodiesel Magazine takes a look at which countries are struggling and which show potential.
By Bryan Sims | November 20, 2007
The rapid development of the global biodiesel industry has been closely observed by countries interested in stimulating economic growth, improving the environment and reducing dependency on imported oil. According to a report published by global information service company Fuji Keizai USA in early October, "the global biodiesel market is estimated to reach 37 billion gallons by 2016 growing at an average annual rate of 42 percent." The report predicted that Europe would continue to dominate for the next decade, followed by the United States.

Within in the next year, government incentives, local mandates and investors in countries like Brazil, Argentina, Indonesia, Thailand and Malaysia will enable some of them to participate in the bourgeoning global biodiesel sector, according to a report released in mid-October by the Nelson Institute's Center for Sustainability and the Global Environment at the University of Wisconsin-Madison. SAGE doctoral candidates Matt Johnston and Tracey Halloway ranked 226 countries according to their potential to produce large volumes of biodiesel, while maintaining low production costs. The doctoral students conducted the report to find out if developing countries that grow and export significant amounts of vegetable oil have considered or have the ability to refine it into biodiesel. Johnston was encouraged to conduct the study after he and his wife visited the remote island of Fiji about three years ago. The locals there rely primarily on imported petroleum diesel to run their generators. The fuel is transported by boat at a cost of more than $20 per gallon. At the same time, the Fijians were processing coconut oil on the island and exporting the raw oil to the mainland. Johnston wondered why they couldn't produce their own fuel using the raw coconut oil, and what other countries possess this kind of potential.

Overall, the study ranked Malaysia, Thailand, Colombia, Uruguay and Ghana as the countries most likely to attractbiodiesel investments, not only because of their strong agricultural industries, but also their relative safety and stability, lack of debt, and availability of biodiesel feedstocks such as soy, palm or jatropha oil. "[The report] is a global study from a national perspective," Johnston tells Biodiesel Magazine. "My focus was originally on the development aspects, and to address if biofuels could be used as a development resource for these countries. I think it's a very realistic assessment in terms of a country looking at itself."

Biodiesel Capacity Production, Europe vs. U.S

Johnston and Halloway's findings also included the usual suspects. The United States and Brazil, both top soybean producers, and several European nations including Belgium, Germany, the Netherlands and Spain were in the top 10 for volume potential.

In late 2007, the National Biodiesel Board pegged U.S. production capacity at 1.85 billion gallons with 80 projects being constructed and scheduled for completion within the next 18 months. Although Europe currently dominates the biodiesel market, the industry is plagued by high oil prices(as are U.S. producers) and government policies that aren't supportive. Producers there also contend that subsidized U.S. imports are undercutting their prices. Biodiesel Magazine took a closer look at the situation in Europe and the United Kingdom.

A report released by the European Biodiesel Board, an organization committed to promoting the production and use of biodiesel, pegged total capacity in 2007 in Europe at 11.2 million metric tons (3.3 billion gallons) with 185 facilities in full operation and another 58 under construction. The increase in capacity is intended to help meet the European Commission's target of blending 5.75 percent biofuels by 2010.

The European biodiesel industry could be stalled, however, as producers are reeling from high feedstock prices. They also claim subsidized U.S. imports have devalued domestically produced biodiesel and eroded their operating margins. The EBB, which represents European biodiesel producers, is considering legal action along with intervention from the EU and the World Trade Organization. "The subsidized B99 exports from the U.S. are not only damaging the European biodiesel industry, but it's an issue that's damaging biodiesel worldwide exiting the U.S.," EBB Secretary General Raffaello Garofalo says. "A number of plants have slowed down production and a lot of those plants are suffering because of the effects of the subsidized B99 imports from the U.S. If nothing changes in the U.S., the conclusion will be that legal action must be undertaken."

European Biodiesel Capacity

The extent of damage, if any, caused by U.S. imports is yet to be determined. In the meantime, there are other issues causing tighter production margins. For example, Germany's largest biodiesel producer, Petrotec, temporarily suspended production until the end of this year citing poor market conditions. The company says the German government's decision to start taxing biodiesel in August 2007 is a prime factor. Germany's renewable fuels trade association estimates that plants in the country are operating at only 40 percent to 50 percent production capacity because of the tax and subsidized B99 imports. Germany is the largest biodiesel producer in Europe with capacity expected to increase to a record 5 million metric tons (1.5 billion gallons) at the end of this year. "The market is going to develop, but the question is if small-scale producers will be able to participate, and clearly it will be difficult for them to do so," says Uwe Fritsche, coordinator for the Energy and Climate Division at Oeko-Institute for Applied Ecology in Darmstadt, Germany. "It's more or less that consolidation will be inevitable and take out the smaller scale producers."

Subsidized biodiesel imports are also being blamed for poor market conditions in the United Kingdom. Middlesbrough, England-based biodiesel producer D1 Oils PLC scrapped its plan to increase refining capacity in the United Kingdom from 142,000 metric tons (157,000 tons) to 320,000 (353,000) by the end of 2008 due to the "asymmetrical trading regime" being practiced by the United States, according to D1 spokesman Graham Prince. "The market is pretty challenging here," Prince says, noting that other producers like Biofuels Corp. saw its production plummet as a result of the unfair trade and was delisted from the London Stock Exchange earlier this year. "We think this is something that needs to be sorted out by the EU and the U.S. in terms of getting a level playing field on subsidies. We want to see subsidized B99 [imports] stopped and get us back to a level where we can be competitive again."

D1 has a biodiesel plant in Middlesbrough with a capacity to produce 42,000 metric tons (46,000 tons) of biodiesel and a second site in Bromborough, England, which, when fully operational, would produce 100,000 metric tons (110,000 tons). However, D1 slowed the timetable for commissioning the first 50,000 metric tons (55,000 tons) of capacity at its Bromborough site from the end of 2007 to the first half of 2008. "If you're a refiner [in the UK] you're in a difficult situation particularly if you're sitting on 200,000 to 250,000 metric tons (220,000 to 276,000 tons) per year capacity," Graham says. "We've built out capacity very cautiously. I wouldn't say we're typical of the industry. We face the same challenges, but we're always starting at a different place and aiming for a different place."

Despite poor market conditions, D1 expects that the situation will be temporary. The company can be more flexible than other producers because it can use the smaller modular nature of its refineries to take in off-spec biodiesel from other producers Additionally, D1's long-term future shows promise as it is developing an alternative feedstock. Earlier this summer, D1 established a joint venture with oil company BP to accelerate the planting of jatropha, an inedible oilseed. Under terms of the agreement, the new company D1-BP Fuel Crops has invested about $160 million over the next five years to plant 1 million hectares (2.5 million acres) of jatropha in India, South Africa and Southeast Asia. According to Graham, the company aims to import the first commercial volumes of jatropha oil to northern Europe by early next year. "The whole thing is gradually building momentum now," he says. "We're very pleased with where it's going."

While producers in Europe and the United Kingdom struggle, the future looks brighter in one South American country.

Argentina, where high volumes of soybean and sunflowers are produced, is considered a potential hotbed for the production of biofuels. The country has three key resources that make investors lunge for their calculators: inexpensive land, cheap labor and abundant soybeans.

As the world's third-largest soybean producer, Argentina's oil crushing industry is the most efficient in the world. It has a crushing capacity of about 160,000 metric tons (176,000 tons) per day. In 2007, biodiesel production is estimated at 200 million liters (53 million gallons), according to a report issued by the USDA Foreign Agricultural Service. The report also indicates that production in 2008 is forecast to surpass 800 million liters (200 million gallons). More than 20 proposed biodiesel projects are expected to come on line. If those projects are completed, production could exceed 2 billion liters (528 million gallons) by 2010, which would position Argentina among the world's largest biodiesel producers and exporters. Following Brazil's lead, Argentina recently passed a law mandating that all gasoline and diesel sold in the domestic market contain at least 5 percent ethanol and biodiesel by 2010. However, the local market is not attractive because it's highly regulated and many key components including company quotas and prices have not been clarified. That has prompted the country to export more than 90 percent of its production. "It is feasible [to achieve the proposed mandate] if we give the right incentives and if we actually improve the investment climate in general," says Daniel Saslavsky, a representative of Argentina's Center for the Implementation of Public Policies Promoting Equity and Growth (CIPPEC), an Argentinean public policy "think tank" headquartered in Buenos Aires. "I think Argentina will be able to cope with it at its current stage of development."

One challenge the country has to overcome in order for the biodiesel industry to grow is its lack of technical components necessary to apply the transesterfication process in its operations. In addition, clarifying its nationwide biofuels standards and production incentives would be in order to foster domestic production and consumption. "There is a lot of interest because there is a lot of potential in this sector," Saslavsky says. "We have to continue to improve the law in order to give the right incentives to producers to be able to invest in the long term. The way that the law is set right now, it's somewhat ambiguous."

Bryan Sims is a Biodiesel Magazine staff writer. Reach him at [email protected] or (701) 746-8385.
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