Biodiesel Growth Slowing

From yesterday’s OPIS:

It has been a tough year for biodiesel markets as well as for biodiesel producers. Plants are struggling to break even against high feedstock costs including near-record high soy oil prices. That has made an issue of liquidity as many producers shut down for extended periods or run well below capacity. A number of new plant projects have also been taken off the table.

The result is biodiesel production will grow this year, but industry sources expect it will not see the fantastic growth rates of previous years. Some biodiesel sources expect that only about 300 million gal may end up being produced this year – that would still be up around 33% against last year but far less than capacity and still just a tiny fraction of conventional diesel output.

I expect to see similar trends for ethanol, as high corn prices and overbuilding of ethanol plants squeeze producers on both ends.

14 thoughts on “Biodiesel Growth Slowing”

  1. Robert, Feedstock coast will always be an issue… The entire ag processing business has always operated on rather slim margins (much like the oil business). We will use the oil (and corn) we need for food, the rest will be turned into energy as long as energy prices stay relatively high — this will happen with or without government subsidies. Subsidies just raise prices for all (farmers, consumers, etc.)

    I find it interesting that you can be so bullish oil stocks and bearish biofuels. That seems unlikely. Yea, the biofuels industry will overbuild, but much like the dot.com bubble, reality will return and the industry will continue to grow.

    As a farmer, I have not invested one dime in a biofuels plant b/c I think it will be a tight margin business dominated by big players, much like the rest of the energy world. But I think you are being a little harsh.

    Another note, at this point, the marketplace is paying very little attention to the EROEI concept, and therefore, the marketplace is screaming to produce corn (ethanol) rather than soybeans (biodiesel) due to the much higher ethanol value per acre. So logically, biodiesel producers will be the first to struggle the worst.

  2. Their are two big issues ignored by many of the biodiesel plants built.

    They don’t have guaranteed feedstocks and they don’t have customers they can rely upon as a distribution channel. The secret in any business most of all one ruled by commodities is to have customers who buy consistently and are willing to pay higher than market prices for some value attached to the product. Any biofuel manufacturer attempting to make it on the rail car market is daft.

    There are a few smaller biodiesel producers doing well as they focused on market development prior to construction. If a refiner of any product doesn’t own customers they are at the mercy of larger petroleum players who are fickled at best in choosing a supplier of biodiesel.

    Beyond the Renewable Energy Group there are only a few smaller (sub 5 million gallon plants) that I consider really credible. What makes them credible is they have customers who hold contracts and dedicated customers through petroleum jobbers.

    Also, most of these biodiesel plants out there claiming 5 million, 10 million, or 20 million gallons of production can’t find feedstock to produce anywhere near that.

    The market isn’t glutted with product its glutted with fast talking nonproducers. As someone who consistently is short on B100 I notice its a hard time getting many of these plants around the country to provide a certificate of analysis for their product.

    Just because BBI builds one of these entrants into the market a plant doesn’t mean they actually are really in the business.

    Ethanol on the other hand is another thing. From what I understand there are only four really proven technologies which take a real credible team to license. The Pacific Ethanols and other longtime players will do extremely well as long as gasoline stays around $2. They bought corn during the tough times and have the relationships to line it up longterm in the boomtimes of today.

  3. I think there is another issue that will ultimately wipe large-scale biodiesel production out. Second generation hydrotreating technology is cheaper and yields a superior product: Green diesel, which is chemically exactly the same as petroleum diesel. You don’t have the glycerin byproduct, and you don’t have the cold weather issues.

    Of course the small producer making biodiesel in his garage will probably always make his own.

  4. I find it interesting that you can be so bullish oil stocks and bearish biofuels.

    I am bullish oil because the world is incredibly dependent on oil, and supplies are short. I am not bearish on all biofuels, but I think many of the options we are using now don’t have long-term staying power.

  5. To harp on my favorite issue: The sooner we stop converting food -> fuel the better. Biodiesel may be a better way to the wrong thing, but it is still the wrong thing.

    I know, biodiesel can be made from waste vegetable oils, waste fats, etc. It’s just that no large producers are doing it. Well, at least Connoco-Phillips and Tyson Food will soon fix that…

  6. In North America “Green Diesel” is far from a solution to our current energy crunch.

    Called “Renewable Diesel” here in the states it has all the draw backs of petroleum. Used in existing infrastructure, requires petroleum, does not expand or diversify the existing petroleum infrastructure, and most of all its an extension of old technology as opposed to a new entrant.

    In order for breakthroughs to take place lower barrier’s to entry and new entrants are required. Look at banking, finance, consumer electronics, information technology, and any other large industry thats gone through major changes allowing for an expansion of availablity and falling prices. They all took reformers from outside the industry.

    Biofuels offer this. Renewable diesel does not. Synthetic diesels from biomass on the other hand may provide a far superior middle ground between the two.

  7. Biofuels offer this. Renewable diesel does not. Synthetic diesels from biomass on the other hand may provide a far superior middle ground between the two.

    I have several problems with your comments. First, the biofuels we produce in this country are also heavily dependent upon fossil fuels. So saying that biofuels are superior to renewable diesel on this account is completely in error.

    Second, when speaking strictly of biodiesel, the FAME process wastes a fair chunk of the energy value of the molecule by lopping it off and turning it into glycerin. That process also uses methanol, made from natural gas. The renewable diesel process is much more efficient – no wasteful glycerin produced.

    If you are concerned about low barriers to entry, the synthetic diesel from biomass has the highest entry barriers of them all. Estimates I have seen place the per daily barrel cost at something like 7 times that of a conventional refinery.

    Bottom line: You are pointing to vastly inferior technology, and supporting it as the way to go, because the entry barriers are lower. Yet these technologies are completely dependent upon petroleum.

  8. Clean Tech Said—

    “Heavily dependent upon fossil fuels”

    Big deal. Emerging computer technologies are heavily dependent on legacy systems as well. The auto industry didn’t replace horses in five years either.

    Your current complaint is similar to pointing at a Comodore64 and showing a highly evolved mainframe as a peer. Biodiesel is an emmerging technology. Petroleum hydrocracking (which is really what Renewable diesel is) took over seventy years to evolve.

    If you do a total energy cost analysis you might show a heavy reliance on petroleum but this changes radically when you drop away the energy that would be expended in the creation of the feedstocks if you didn’t use if for biodiesel production.

    The inputs for soy oils as a lowgrade off-take of the more profitable side of farming wouldn’t go away if biodiesel production stopped. The waste oils are already being collected and instead of being consumed as a motor fuel are the lowest grade animal feed. There is little petrleum required to make the fuel and the emmerging biodiesel industry is creating a higher value product (diesel) than typcial uses.

    As for “losing” energy content. In my neck of the woods glycerine is a highly sought boiler/burner/kiln fuel. It does an amazing job of raising stack temperatures and reducing emmissions in hog-fuel systems that burn waste wood. Biodiesel plants are evolving into multi-spec fuel providers in a similar fashion as petro-chemicals took a century ago and its happening on a much accelerated curve.

    As for the bleeding edge technologies costing alot. Again, another big deal. The revenues and investment being attracted to biofuels (specifically the distributed business model of smaller scale biodiesel plants) those that are succesful will innovate and are already looking at reducing the costs of fisher-tropsch and other concepts.

    You call it inferior. I call it in-development. You also fail to address the fact that renewable diesel (as a superior technology) will fail to offer additional refinery capacity, additional motor fuel blendstocks, diversity of supply, and additional supply in tankage. Which frankly is the real reason for support of domestic biofuels.

  9. In order for breakthroughs to take place lower barrier’s to entry and new entrants are required. Look at banking, finance, consumer electronics, information technology, and any other large industry thats gone through major changes allowing for an expansion of availablity and falling prices. They all took reformers from outside the industry.
    In an ideal world, yes. In the real world I see things unfolding a little differently.

    Liquid hydrocarbon fuels have definite advantages (such as high energy density meaning ease of storage and transportation) that few other fuels offer. If any fuel is to replace liquid hydrocarbons it would either have to beat them at their own game, or offer significant other benefits without lagging behind the strong points of liquid hydrocarbons.

    I know many biofuel proponents dream of the day that they force Exxon-Mobil into brankruptcy, in their minds the happy day when they bring a long overdue ending to a dark era. I just don’t think it is going to happen that way. As soon as anybody develops a viable biofuel alternative Big Oil is going to buy it. You tell me, who is going to outbid Big Oil?

    Contrary to popular believe, Big Oil won’t toss the viable technology into a bottomless pit, to rot away with other alternative technologies: engines driven by water that cause no pollution, electric cars with multiple hundreds of miles as their operating range, to name a few. For a simple reason: they can’t afford to.

    Take a look around the world of oil: Big Oil (meaning large privately held oil companies) are getting kicked out of all the best oil fields around the world. High oil prices have emboldened the authoritarian regimes with oil. Things are set to get a lot worse, before it gets any better. So Big Oil is getting cut from all the best oil fields, as oil regimes discover that pumping oil is easy money, at least compared to refining and distribution.

    So if a viable biofuel comes along, you can bet Big Oil will be all over it. And if that alternative is miscible in existing fuel supplies without causing any change in fuel properties, it’s a big step forward. That’s why Connoco-Phillips spending money on renewable diesel makes perfect sense.

    So, here’s the bottom line: In future we will be buying our biofuels from Big Oil, if from anybody. If it helps, think of Robert as the green face of Big Oil…

  10. The auto industry didn’t replace horses in five years either.

    You misunderstand. Your complaint about renewable diesel is that it has all the drawbacks of petroleum. Given the high dependence of biofuels on petroleum, so do they. You can’t take it as a given that this won’t continue.

    The waste oils are already being collected and instead of being consumed as a motor fuel are the lowest grade animal feed.

    Soy oil is actually the most widely eaten oil in the U.S. Most vegetable oils are soy oil.

    In my neck of the woods glycerine is a highly sought boiler/burner/kiln fuel.

    That must be why the world wide glycerin price is in the crapper, glycerine plants are closing down, and rewards are being offered for people who can come up with alternative uses for glycerin.

    As for the bleeding edge technologies costing alot. Again, another big deal.

    Again, did you forget what you wrote? You wrote “lower barrier’s to entry and new entrants are required.” Synthetic diesel, which you enthusiastically mentioned above, is the polar opposite of this. I am bullish on processes like Choren, but realistic about costs. (And of course Choren is backed by Shell).

    You also fail to address the fact that renewable diesel (as a superior technology) will fail to offer additional refinery capacity, additional motor fuel blendstocks, diversity of supply, and additional supply in tankage

    Do you realize that the scale-up in biofuels is dwarfed in recent years by the scale-up in refinery capacity? It is much easier (and cheaper) to add new refining capacity. And despite the scale-up of biofuels, refinery capacity has scaled up faster. That’s true even in the past 2-3 years when biofuels have scaled so quickly. I don’t think most biofuels advocates recognize this.

    So, renewable diesel certainly offers new supply. The capacity is there to process it, and the fats and oils can be run through the refineries. It offers all the supply biodiesel offers, and then some (because instead of worthless glycerin, you end up with propane as a byproduct).

    In the long run, biodiesel is dead. Take it to the bank. Second generation fuels produced by hydrocracking fats and oils will put biodiesel out of business. There aren’t the cold property issues, the cost of production is lower, and hydrocracking technology is well-developed. Biodiesel will be produced in people’s garages. But on a larger scale, it won’t compete with green diesel.

  11. If it helps, think of Robert as the green face of Big Oil…

    Our biofuels director asked me last week why I wasn’t working for her. I told her it’s because I have an aversion to Houston, or I would be in the biofuels group. She said “Fair enough, but we would like you to have some involvement.” And I have been talking to them a lot lately.

  12. The waste oils are already being collected and instead of being consumed as a motor fuel are the lowest grade animal feed.
    TRUE: If it is clean enough to feed to animals, that would be the best use of the available energy. I don’t think that all waste oil would be suitable as animal feed – it would have to be fairly clean to qualify for that. For input into a refinery the product spec would be much lower.

    In my neck of the woods, people think it is very clever to put waste oils into anaerobic digesters (wastewater treatment plants use them to reduce sludge volumes) to convert it into biogas, which is subsequently turned into electricity.

    You have to think that converting the waste oils into liquid fuel would be more profitable. There is also the security aspect: converting waste oil into diesel means less oil needs to be imported.

  13. And I have been talking to them a lot lately.
    Just as a matter of interest: How hard is your (generic) oil company looking at renewable fuels? Would you say they have a good grasp of the issues? Can we look forward to some big anouncements soon, or is it mostly desk studies, etc.?

    I know you can’t get too specific, but I’d like to get a general sense of what is going on over there.

  14. Three years ago, we were saying things like “We are an oil company, and we are going to stick to the business that we know.” I actually had a chance to question our CEO about this position, and I told him that I really thought we should be developing expertise in biofuels. Even if the company position is that oil will continue to dominate for 40 years, we need that expertise as a hedge; an insurance policy.

    So, two years later we started making announcements that we were jumping into biofuels. Again, I had the chance to ask our CEO why he had a change of heart. And in statements that he also repeated publicly, he said that he has come to accept the seriousness of Global Warming, and he recognizes that we are in a position to help do something about it. Unstated, but also important to his change of heart (I believe) is that laws have been passed making it more lucrative to move into the biofuels space. Hence, the Tyson deal.

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