29 December 2009 16:42 [Source: ICIS news]
By Ben Lefebvre and William Lemos
Biofuels producers are awaiting the roll-out of the updated renewable fuels standards (RFS2) by the US Environmental Protection Agency (EPA).
Most bioufuels refiners built their business plans on those standards, which would require 13bn gal/year (49n litres/year) of ethanol and 1bn gal/year of biodiesel to be blended into the nation's fuel supply.
The EPA originally intended to implement the mandates by 2009.
Going into 2010, producers are wondering if and when the EPA will establish its rules and save their business models.
"You're just going to see total chaos in biodiesel next year," a source close to the industry said.
"Nobody knows what the rules will be. No one knows what's going to happen," the source said.
Just as dismaying is the delay in Congress in extending a $1/gal tax credit that the industry considers crucial for its survival.
A report commissioned by the National Biodiesel Board (NBB) predicts that without the credit extension, the industry will cease to exist.
At the same time, the European Biodiesel Board (EBB) is approaching EU trade administrators to extend the tariffs to smaller blends, which are not covered by the existing duties. Additional tariffs will give US refiners another thing to worry about in the new year.
The biodiesel industry was at low ebb for most of 2009. Hammered by EU tariffs, US production during the first eight months of 2009 dropped to 313m gal, down 40% year over year, according to the US Energy Information Administration (EIA).
What is left of the industry has survived on individual state mandates and exports to Europe below the 20% blend mark.
On the ethanol side, the challenges lie almost entirely in the domestic market.
Market participants said ethanol will continue to struggle with an image problem, maintained by worries that the biofuel causes food shortages and deforestation. The industry will also contend with newer claims, including concerns that ethanol pollutes more than or just as much as gasoline.
A more pressing matter will be pushing a seemingly reluctant US government to mandate higher blends of ethanol in gasoline.
US ethanol production has surged since 2006, and the industry now fears the market may be oversupplied next year unless regulators allow more ethanol to be blended in gasoline.
The US limits ethanol blending in gasoline at 10% (E10). The industry wants the government to lift that to 15% (E15), claiming the higher blend will be good for the environment and will save the US billions of dollars by reducing crude oil imports.
Ethanol critics see it differently, and the push for E15 has revived opposition against the biofuel, particularly among those who claim ethanol is really no better for the environment than fossil fuels.
Two ethanol producer groups filed a lawsuit on 24 December challenging the constitutionality of a ?xml:namespace>
Initial tests support the higher blends, the EPA said, raising the prospect that the government will at least allow part of the increase.
The EPA was expected to rule on the issue in early December. Instead, the regulator said it needed more time to run additional tests.
Maintaining the existing 10% could kill future funding for cellulosic biofuels, as investors may avoid a product with few prospects.
The US had some 25 second-generation ethanol projects at the end of 2009.
However, additional funding for those projects - both public and private - was nearly non-existent, leading most in the industry to believe that the US will fail to meet the advanced biofuel targets set for the next five years.
The US plans to begin blending cellulosic ethanol in 2010, mixing 100m gal of the product in its gasoline supply. That level will jump to 250m gal in 2011 and 16bn gal/year by 2022.
For more on ethanol visit ICIS chemical intelligence
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