US biodiesel investment trickier than chemistry

29 June 2006 23:50  [Source: ICIS news]

HOUSTON (ICIS news)--Potential investors must be warned that while the basic chemistry in producing bidiesel is simple, complexities rapidly emerge as the alternative fuel enters the US commercial market, industry experts said on Thursday.

A relatively simple chemical reaction called trans esterification is necessary to produce biodiesel from vegetable or animal oils. But Shaine Tyson, a consultant with at Rocky Mountain Biodiesel, told a conference in Houston that many of the various feedstock options require pre-treatment.

Buying refined oils as feedstock is the easiest but most expensive route, according to most biodiesel production hopefuls, but cost and quality factors play primary roles in the race to get into this budding US fuel market. Feedstock decisions are among the first of numerous risk choices and investment options facing new entrants, Tyson said.

Soybean oil, palm oil, rapeseed oil, and oil from animal fat rendering are some of the most popular feedstocks being considered in US biodiesel production. Soybean oil is the dominant domestic choice because the crop is widely cultivated in North America, while rapeseed - a Canadian crop that is marketed in the US as canola oil - is also used. But imported palm oil offers the greatest percentage oil yield, she said.

But a big problem with palm oil is that most of it is grown in Asia. That conflicts with basis of the political support for biofuels in the US - a desire to reduce the country's dependence on energy imports.

Another challenge for biodiesel producers is the regional divergence of supply and demand. Most plants are in rural areas in the Midwest, away from prime demand areas. Logistics and transportation costs can offer formidable economic challenges to producers not already linked to tank storage and truck or rail shipping infrastructures, said Lou Ross, president of TexCom Resources. The Houston-based company has two biodiesel projects underway.

Quality issues are another potential pitfall. Crude biodiesel requires a "washing out" process to remove excess fatty acids and methanol, among many other contaminants that can emerge, depending on the feedstock. Top quality fuel must also meet American Society for Testing and Material (ASTM) standards as well as the National Biodiesel Board’s BQ9000 pilot accreditation program, sources said.

The market fundamentals are also largely undefined, several conference participants noted. Less than 100m gallons of biodiesel were produced in 2005, but capacity could rise to around 500m gallons by the end of 2007 if current projects remain viable. Although demand figures up to 1bn gallons/yr have been discussed based upon national, state and municipal vehicle fleets, bidoesel use in these segments is yet to be firmly established, the participants said.

The uncertainties surrounding the future of US renewable fuel subsidies and pending legislation add another layer of complexity to the investment picture.
By: Judith Taylor
+1 713 525 2653

< previous article(ICIS Chemical Business podcast November 2, 2009)

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly