18 June 2012 00:00 [Source: ICB]
Biodiesel is a clean-burning alternative fuel produced from renewable sources of vegetable or animal fats and oils. It contains no petroleum, but can be blended at any level with petroleum diesel.
The US biodiesel industry once again finds itself struggling with political and legislative hurdles, rather than enjoying a solid supply and demand-driven market.
With stalled Environmental Protection Agency (EPA) mandates aimed at increasing production and use of all renewable fuels, an expired tax credit and continued revelations of Renewable Identification Numbers (RINs) fraud, the US biodiesel industry has reason to worry about the future.
Biodiesel continues to lack consumer visibility since it is not commonly found at the 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 healthy demand. Other states continue to try to gain footing in biodiesel demand after state incentives have been either not established or lost in a muddle of conflicting legislation.
US biodiesel production was said to be dropping in recent months amid a decline in demand and the lack of the federal tax credit. Soy methyl ester (SME) and fatty acid methyl ester (FAME) biodiesel bid/offer prices in the US Midwest and the US Gulf (USG) have dropped by double digits. The bid/offer range for SME B100 FOB US Midwest since January has moved from a high of $4.90s/gal down to $4.20s/gal in June. Meanwhile, FAME values in the US Midwest also declined from $4.70s/gal to $4.20s/gal in June.
Biodiesel is made by transesterification, a chemical process involving the methylation of fatty acid from a triglyceride molecule of animal or vegetable fat or oil. The process is catalyzed by an alkaline catalyst. In addition to biodiesel, the process produces glycerin.
A major concern for the industry is that biodiesel RINs for 2011 and 2012 have trended lower during the year following the US EPA's crackdown on RIN fraud. Trading action in the biofuels markets is said to be down by half since the end of last year and, as fraudulent RINs surface, will get worse.
Legislation that would have extended the US biodiesel tax incentive through the end of 2012 was voted down by the US Senate in March. The latest $1/gallon credit expired on December 31, 2011.
When the credit lapsed in 2010, dozens of plants shut down and thousands of jobs were lost as production plummeted. With biodiesel production at record levels last year, which followed the 2011 reinstated federal tax incentive for biodiesel, the fate of that incentive is considered to be critical by most biodiesel producers.
In recent months, the US biodiesel industry has continued to urge the federal government to raise the volume standard for boosting biodiesel use under the critical Renewable Fuel Standard (RFS) in 2013.
The Obama Administration is reviewing an EPA proposal to grow the biodiesel volume requirement under the RFS to 1.28bn gallons in 2013. Late last year, the Administration delayed the decision, saying it needed further review.
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