Biodiesel production across the world is feeling the strain of the global economic crisis, but the industry is still striving to expand and grow.
Government mandates and competitiveness to diesel are two drivers for the biodiesel industry, said Rahul Kale with The Wilmar Group, during a presentation on the international biodiesel market at the 2009 National Biodiesel Board’s Conference & Expo. Global mandates for 2009 will require total usage of 12.2 million tonnes of biodiesel.
Each country has its own mandated levels, taxation policies and preferred feedstocks, noted Russell Teall, Biodiesel Industries. New and improved oilseed crops are a global need, he said. Nations should emphasize sustainable agriculture practices using marginal land that does not require extensive irrigation or fertilization.
Gordon Qualattini, president of the Canadian Renewable Fuels Association (CRFA), said the world is on the verge of a policy consensus that there is an absolute need for biodiesel and renewable fuels as part of an energy diversity imperative. The bioevolution envisioned, he said, can be every bit as transformative and economically lucrative as the information age was in the 1990s.
"New jobs can and are being created, new wealth can be generated, and new opportunities as part of this demand," Qualattini said. "It requires each of you in your respective jurisdiction to foster and grow our industry."
South America, consisting of 21 countries and 550 million people, is where industry leaders believe the biofuels of the future are going to be grown, said Carlos St. James, president of the Argentine Renewable Energies Chamber.
"Countries like the U.S., with great research facilities and access to venture capital, are places that will develop future feedstocks and conversion technologies," St. James said. "Those conversion technologies will be sold into Latin America. We will produce the biodiesel and sell it back to you. I think this is the direction we’re going in overall."
Argentina is the top biodiesel producing country in South America with a capacity of 1.4 million tonnes and production in 2008 of 1.1 million tonnes. Most all of the biodiesel is made from soybean oil and exported to the E.U., St. James said. Demand for the fuel internally will start next year, when a 5% mandate begins.
In 2007, Argentina was the sixth largest producer behind the U.S. and European nations. With production capacity expected to reach 2.4 million tonnes this year, the nation will become the third or fourth largest producer in the world. Capacity is estimated to reach 3.9 million tonnes by 2011.
The Argentinean government approved a biofuels law in 2006, and regulations were enacted in early 2007. It calls for the 5% mandates, which will create a demand for 700,000 tonnes of biodiesel and 250,000 tonnes of ethanol per year.
The law creates three distinct market segments: domestic market, export market and consumption for agricultural usage. Within the domestic market, the law created tax incentives including accelerated depreciation or accelerated reimbursement of VAT, and shareholder restrictions which include a guarantee that the Argentinean government will buy 100% of production for 15 years.
For the export market, the law does not provide any tax incentives or shareholder restrictions. Biodiesel exports pay a 20% export tax and soy oil exports pay a 41% export tax. Soy oil used in Argentina is exempt from this export tax, so producers making biodiesel pay one-fifth less for soy oil than international producers.
Brazil is another major South American biodiesel producer with 1 million tonnes production capacity. About 80% of the 800,000 tonnes of biodiesel the country produced last year was made from soy oil. Brazil has a B2 requirement that is transitioning to a B5 requirement. Almost all of its biodiesel is currently used internally, St. James said.
Colombia is quietly building its biodiesel industry, which currently has a production capacity of 500,000 tonnes. Most of the biodiesel is used internally and made from palm oil.
Both Paraguay and Mexico are building their biodiesel industries with tallow and soy. Paraguay adopted a biodiesel law in 2005 and has a production capacity of 200,000 tonnes.
"The law is wonderful in its simplicity," St. James said.
In contrast, the Mexican law is very confusing, which has kept biodiesel production capacity low at 100,000 tonnes and zero actual production in 2008.
Peru also is having trouble getting its industry off the ground. Although it has a production capacity of 100,000 tonnes and a B5 mandate, no biodiesel was produced in 2008.
Canada’s biofuels industry has a bright future, CRFA’s Qualattini said, because it is a critical part of addressing global climate change as well as rural economic development.
"All of this is even more imperative in the shadow of economic turmoil," he said. "We must still grow beyond oil."
The government has committed to requiring 5% renewable content in gasoline and diesel fuel by 2010. Several provinces also have adopted mandates including British Columbia (5% in 2010), Alberta (2% in 2010), Saskatchewan (2.5%) and Manitoba (5% in 2009). In addition, Ontario and British Columbia are working on low carbon fuel standards similar to California in the U.S. Most provinces have exemptions from provincial road taxes and/or producer incentives.
Billions of dollars have been set aside to grow the biofuels industry, Qualattini noted, including programs to encourage expansion of production capacity, fund next-generation biofuels and increase farmer participation.
In 2008, Canada had the capacity to produce 1.2 billion liters of ethanol and 120 million liters of biodiesel. The capacity needed by 2010 to meet the government’s commitment is 2 billion liters of ethanol and 500 million liters of biodiesel.
Risks to further growth include rising input costs, falling biofuels prices, political instability and waning investor interest, Qualattini said.
Asian countries have more biodiesel capacity and production than is consumed in the region, with the excess being exported. Most of the region’s 5 million tonnes of capacity is located in Malaysia and Indonesia.
The feedstock of choice is primarily palm oil, although nursery plantations of jatropha and pongamia are under development. Early results show that yields are not as good as other feedstocks that can be grown on the same land at lower costs, Kale said.
Governments in Asia are not giving much financial support for biodiesel consumption, but mandates are being adopted. The Philippines have required 2% usage since 2007; Thailand 5% since 2007; South Korea 1.5% since 2007; Taiwan 1% since 2008; Indonesia 2.5% since 2009; and Malaysia 5% since 2009.
Issues in Asia include idled capacity and sustainability concerns. Kale said most of the palm oil available can meet criteria set by the Roundtable on Sustainable Palm Oil (RSPO). He estimates that 3 million tonnes of palm oil will be RSPO certified this year.
The E.U. biodiesel industry is facing a homemade crisis from remarkable, steep growth, said Carl Philipp Riedel, manager of biofuels research for LMC International. E.U. policies and mandates stimulated the rapid growth with capacity growing from less than 5 million tonnes in 2001 to more than 25 million tonnes this year.
This rapid growth, however, caused about 15 million tonnes of production capacity to be idled in 2008, Riedel said. Some facilities have been dismantled and sold. The capacity growth is expected to slow this year, he said, and demand is expected to increase overall by 1.5 million tonnes.
Still, Riedel said 2009 will be a challenging year. Imports of B5 will continue from South America and Southeast Asia. Usage of B100 in Germany will continue to decline, he said. The margin squeeze will continue with large, flexible and low-cost producers well placed to survive.
Continued high volatility of feedstock prices and product markets, Riedel said, highlights the importance of risk management.
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