OUTLOOK ’12: Americas biodiesel has north hopeful, south rolling on

28 December 2011 20:46  [Source: ICIS news]

By Judith Taylor and Leela Landress

HOUSTON (ICIS)--Biodiesel in the Americas is a contrasting market, hopeful in the north; progressive in the south. 

The North American biodiesel industry is maintaining a hopeful outlook for 2012 because of mandates by the US Environmental Protection Agency (EPA) calling for increasing production and use of renewable fuels.

While 2011’s production is galloping along on the reinstated $1/gal federal tax credit, the credit’s fate in 2012 – and beyond – is still questionable, which is why 2012 is regarded as a year of hope but no certainty of heading to the winner’s circle.

The EPA has mandated 1bn gal of biodiesel production for 2012, a 25% increase from 2011.

The EPA mandated 800m gal of US biodiesel production for 2011 and the nation has exceeded that level, according to the latest EPA numbers.

The US industry produced more than 908m gal of biodiesel through November, compared with 2010’s production of about 315m gal (when the federal tax credit had lapsed), setting a production record by beating the previous high of 690m gal output in 2008, according to the latest release from the US National Biodiesel Board (NBB).

“This industry has shown without a doubt that it can meet and exceed the goals of this programme in a sustainable way, with a diverse mix of feedstocks,” said Anne Steckel, vice president of federal affairs at the NBB.

With the new record coming on the coat-tails of the reinstated federal tax credit, the fate of that incentive is considered to be critical by many, if not most, biodiesel producers.

The credit is due to expire on 31 December and would require congressional approval to extend it.

Steckel said, said: "This tax incentive is without a doubt stimulating production of biodiesel and creating jobs. We're clearly seeing that from our members across the country.

Consequently, the US biodiesel industry once again finds itself moving into a new year on political precepts rather than a solid supply-and-demand-driven market.

Going into 2012, biodiesel continues to lag consumer identification because it continues to be a rarety at the gasolene-station pump in many states.

Although biodiesel is not mandated into the nation’s overall diesel supply pool as a blendstock, major buyers are often large petroleum companies that use it as such.

The midwestern "energy corridor" states of Indiana, Illinois and Iowa have state mandates and incentives that uphold biodiesel production by creating good demand. In other states, producers are continuing to try to gain footing in biodiesel demand as incentives have either not been established or, in the case of Texas, have been lost in a muddle of conflicting legislation.

With EPA mandates aimed at increasing production and use of all renewable fuels, US biodiesel has reason to expect improving solidarity within the sector and stronger supply/demand fundamentals that would bode well for a healthy industry.

But the fate of the federal tax credit and the political winds of the general election of 2012 keep the outlook for continuing success in US biodiesel hopeful but not certain.

In South America, Argentina, one of the world’s largest biodiesel producers, continues to direct its exports primarily towards Europe amid steady demand, but potential changes in European regulations worry market players.

The EU's renewables directive mandates levels of renewable energy use within the 27-nation bloc. The directive requires member countries to produce an agreed proportion of energy consumption from renewable sources so that the EU as a whole obtains at least 20% of its total energy from renewables by 2020.

Biodiesel producers in Argentina worry that such new regulations will hamper trade. Approximately 90% of all Argentina’s biodiesel goes to Europe, with the balance sent to Peru.

“Right now, about 70% of biodiesel produced in Argentina would meet biodiesel specifications to certain countries,” a broker said. “The uncertainty of the regulations has everyone worried.”

At the same time, Argentina is considering a B10 (10% biodiesel, 90% petro-diesel) mandate for 2012, according to Monica Graciela Vazquez, technical service manager for Repsol YPF, the country’s state-owned oil company.

“Argentina has been using FAME (fatty acid methyl ester biodiesel) since January 2010 at the B5 level,” she said.

“We are looking at the B10 for passenger cars but are not yet finished with the lubricant tests.”

Vasquez said the use of biodiesel in diesel passenger cars is fairly common in Argentina, where about 20% of the passenger motor vehicles are diesel.

Biodiesel use as a diesel-fuel blendstock can add stress to engine lubrication systems, invoking the need for testing the lubricant blends and additives ahead of a B10 initiative, she said.

“Environmental protection is becoming a relevant issue in Argentina because of the fast impact of global quality changes in the base oils and lubricants,” she added.

Argentina also has B30 testing under way for its light vehicles.

Additional reporting by Brian Ford

By: Judith Taylor
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