FOCUS: Europe's biodiesel bubble - ready to burst?

26 April 2007 16:34  [Source: ICIS news]

By Mark Watts

 

LONDON (ICIS news)--The feasibility of Europe’s rush to biodiesel has been called into question this year as margins have been squeezed, legal blending quotas pulled back and doubts raised over its environmental benefits.

 

The real pinch has been felt in Germany, Europe's leading producer, where biodiesel sales have fallen with the introduction of new fuel taxes in summer 2006 and a lower compulsory blending legislation. Rising crop prices and the winter dip in crude oil prices have added to the pressure.

 

Leading German biofuels producer Verbio last month said it expected 2007 profits to be as little as a tenth of last year’s, while shares, along with rivals BDI Biodiesel, Biopetrol and Petrotec have slipped in the last six months.

 

Biopetrol’s chief executive Klaus-Ulrich Henschel said in a recent interview that he expected a lot of consolidation in the German biodiesel industry, leaving only a handful of big players remaining.

 

“The German market is oversaturated and many small companies in poor logistical locations are likely to disappear, this has begun already,” he added. The company currently operates two plants in Germany and one in the Netherlands.

 

The European Biodiesel Board estimated the 2006 capacity in the EU at around 2.7m tonnes/year (see table). The US department of agricultures puts it at around 4.4m.

 

ICIS news has reported almost 10m tonnes/year worth of new capacity was due to come on stream by 2009.

 

The surge in new projects comes as the European Commission has lowered its biofuel blending targets in conventional fuel to 10% by 2020 instead of the original target of 20%.

 

Analyst Milen Blagoev of SRI Consulting said on Thursday the key to success or failure in European biodiesel was in national and EU decision making.

 

“When Germany changed the excise rule on fuel last year consumption diminished and if this continues we are going to see oversupply,” he said.

 

“However, if the EU is serious about its targets and enforces them then the situation would not be so bad,” he added.

 

He said margins were falling in biofuels across the region but the industry was still a work in progress and it was too early to predict the fate of many companies.

 

The increasingly competitive market in Europe has been fuelled by increasing imports from the US helped by unfair subsidies on blending tiny amounts of fossil fuel with biodiesel (B99 diesel), according to European producers.

 

“The competition is price-setting,” said the European Biodiesel Board in a letter to EU trade commissioner Peter Mandelson.

 

“It is progressively disrupting the margins of EU biofuel producers who are already confronting important market difficulties because of late implementation of EU biofuels in many countries and subsequent overcapacities,” it said.

 

 

Estimated EU biofuel capacity in summer 2006

 

COUNTRY	2005 Capacity (000's tonnes)	2006 Capacity (000's tonnes)
Germany	1,903	2,681
Italy	827	857
France	532	775
UK	129	445
Spain	100	224
Czech Republic	188	203
Poland	100	150
Portugal	6	146
Austria	125	134
Slovakia	89	89
Belgium	55	85
Denmark	81	81
Greece	35	75
Sweden	12	52
Other EU	46	72

 

Source: European Biodiesel Board

Calculations based on 330 working days per year, per plant

(01/07/2005 and 01/07/2006)

By: Mark Watts
+44 20 8652 3214

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