Legal Perspective

Competing in the New Biodiesel Arena; Developing Viable Projects Developing Viable Projects
By Pete Moss, FBA Cousulting | March 01, 2006
The biodiesel industry is rapidly emerging as one of the hottest markets in the world and for good reason. We consume nearly 65 billion gallons of diesel fuel each year, yet it is estimated that we produced less than 100 million gallons of biodiesel in 2005. The Energy Policy Act of 2005, Hurricane Katrina, impending ultra-low sulfur regulations and rising fuel prices have all contributed to the abundant optimism that surrounds the industry. Such optimism, however, must be viewed with caution as investors look to develop multi-million dollar production facilities.
Many different factors can impact the viability of a new biodiesel project, including site selection, organizational structure and strategic partners. Generally speaking, however, the most important factors fall into three main categories: feedstock, process technology and product marketing. If mistakes are made in these three main categories, the resulting pain could sour the most enthusiastic biodiesel proponent.

The biodiesel industry is exciting because the product can be produced from such a wide array of feedstocks. Renewable fuel is being produced from virgin vegetable oils, animal fats and recycled grease. No other fuel has such a broad spectrum of options for raw material. When developing a new biodiesel project, one must always consider the source, cost and quality of the feedstock, as each of these factors can seriously impact the success of the plant.

Process technology
Technology providers have responded to the demand for processes that can handle multiple feedstocks in various quantities. For developers, technology selection may at times seem like a trip to the roulette wheel, but in all fairness to the providers, they are dealing with a multitude of issues:

  • A wide range of project sizes from 1 MMgy to 60 MMgy

  • Low free fatty acids/high free fatty acids

  • Crude, partially refined and fully refined feedstocks

  • Crude versus technical versus USP or Kosher-grade glycerin

  • Increasingly stringent quality standards

These are just a few of the issues. Technology selection is one of the most difficult and important decisions a potential biodiesel producer will make.

Product markets
The size of the potential market for biodiesel is almost hard to comprehend. The government has certainly helped by making the price differential more competitive and removing barriers to entry. Diesel fuels (and distillates in general) are projected to be one of the fastest growing segments of the U.S. and European fuel industry. Potential biodiesel producers must identify the proper market channels to distribute their products and coproducts, develop a pricing strategy, and deliver a product that meets or exceeds current and future ASTM specifications on a continuing basis. The only way to remain competitive over the long-term is to develop a reputation for providing quality products at competitive prices. BQ-9000 will become a critical differentiating factor that biodiesel buyers will come to expect.

There are many aspects to developing a new biodiesel project, or evaluating an existing one. It is perfectly acceptable to be optimistic; just be sure to remain realistic and diligent in your endeavor.
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