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August 2006


Biodiesel producers expect strong demand

“Biodiesel production projects are a hot sector,” said Rob Elam, founder and president of Propel Biofuels – a biodiesel distribution and services firm headquartered in Seattle. “Demand is rapidly increasing due to the increasing cost of petroleum, state and federal mandates, and business concern over health and global warming issues.”

Seattle has the highest individual adoption rate of biodiesel of any city in the country, Elam said. The demand is coming from both the public and private sectors, benefiting firms like Propel Biofuels, which owns and operates biodiesel pumps for both fleets and public use. It also provides refinery design and build-consulting services.

The strong demand for biodiesel is not just a West Coast phenomenon, however. The United States used approximately 100 million gallons of biodiesel in 2005, Elam estimated. Large biodiesel producers across the country include Minneapolis-based Cargill Inc. and Archer Daniels Midland Co. in Decatur, Illinois. Smaller producers are also entering the market. “Start ups are popping up in most every state,” Elam said.

The biodiesel industry tripled from 2004 to 2005 across the country, said Amber Thurlo Pearson, a spokeswoman for the Jefferson City, Missouri-based National Biodiesel Board (NBB) – a trade group representing the industry. “We foresee the industry doubling this year,” Pearson said. “We have confidence all the supply will be utilized. Many interested parties are looking at new or different feed stocks for making biodiesel.”

There are currently 65 plants producing biodiesel across the country. The NBB estimates that there are 50 or more facilities, either being built or expanding production. Biodiesel is made through a chemical process called transesterification whereby the glycerin is separated from the fat or vegetable oil, according to the NBB. The production process leaves behind two products — methyl esters (the chemical name for biodiesel) and glycerin (a valuable byproduct usually sold to be used in soaps and other products).

Biodiesel can be mixed at any level with petroleum diesel to create a blended product. It can be used in diesel engines with little or no modifications, said Kenneth “Pete” Moss, vice president of marketing services at Frazier, Barnes & Associates in Memphis, which provides consulting services to the biodiesel industry. “You could conceivably run 100 percent biodiesel in any diesel engine with little or no modification,” Moss said. “However, it is generally recommended that you run it in lower blends.”

Since the country uses around 65 billion gallons of diesel fuel every year, that leaves plenty of room for biodiesel production to expand beyond 100 million gallons a year, Moss said. He said their needs to be continued support from both the state and federal government to make sure the industry continues to develop. Another area that is needed is further research into higher yielding oilseed varieties for biodiesel production.

“That will be at some point the limiting factor in the growth of the industry. It is just a question of when. We certainly don’t have 65 billion gallons of biodiesel available,” Moss said. “Because we do have limited supply of biodiesel, it makes more sense to use it in blends than at a pure level and you get many of the benefits even when you blend it.”

Most biodiesel across the country comes from soybean oil, Moss said. But there are a few projects utilizing recycled vegetable oil as well as animal fat, either virgin or recycled. “Basically any vegetable oil or animal fat can be used. But the predominant usage right now is soybeans because of its availability and purity,” Moss said.

Paris-based Veolia Environment SA recently announced a project designed to use recycled vegetable oil. The water, waste management and environmental services company plans to construct its first biodiesel production plant in 2008. It will produce 60,000 tons of biodiesel from used food oils that will be blended with virgin vegetable oils. Veolia plans to spend over $25 million to construct the facility in France.

Veolia said the location of the facility near Paris will allow for water transportation of incoming materials and produced products. It will also provide energy exchange synergies within Veolia due to the facility being located by existing sites and the direct collection of used food oils from a dedicated subsidiary of Veolia.

“When you utilize waste vegetable oil from a restaurant it has to be cleaned up. But the characteristics of that oil are very good, because typically we fry with a high quality vegetable oil for edible purposes,” Moss said. “You can only use it so many times in cooking and you start to pick up different flavors. But if you clean it up, remove the contaminants; you still have high quality oil feed stock that can be used for biodiesel.”

While many farmers are joining together to build ethanol facilities across the country, there are not as many farmer cooperatives building facilities in the biodiesel industry, Moss said. “There is quite a bit of interest among capital investment groups and what I would call more investor type projects, versus farmer related projects,” Moss said.

Will the biodiesel market still be viable even if the price of oil drops? “Much of it depends on the price of the feed stock,” Moss said. “If you assume the price of the feed stock drops as well it would still be viable. People were making biodiesel and selling it when oil prices were low. It just so happens that those prices went up considerably.”

The market for biodiesel would not expand as quickly if oil prices would drop, however, Moss said. “There will still be a market for it,” Moss said. He said that the main reasons are the environmental benefits and additional lubricity in the engine.

“Some studies have shown that blended levels get an increase in fuel mileage, even though there is a slight British thermal unit (the amount of heat required to increase the temperature of a pound of water one degree Fahrenheit) content reduction,” Moss said. “It’s very clean, environmentally sensitive, and non-toxic. So I think there is a market for that.”

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