OUTLOOK ’14: US biodiesel uncertain as politics take center stage

MEDELLIN, Colombia (ICIS)–The highly politicised US biodiesel industry looks uncertain going into 2014 amid stagnant US Environmental Protection Agency (EPA) blending mandate proposals and doubt in the sector that the $1/gal federal tax credit will be renewed.

The industry once again finds itself moving into a new year on political precepts rather than a solid supply/demand-driven market.

While 2013’s US biodiesel production likely met Renewable Fuel Standard (RFS2) levels of 1.28bn gal (4.85bn litres) for the year, federally mandated production proposed levels looking to 2014 are steady with current mandates.

However, complicating the picture is that 20% of volumes produced this year can be carried over to 2014, meaning that less production will be needed next year to meet renewable volume obligations (RVO).

Refiners must produce biodiesel each year, with their contribution determined by their share of the fuel market, according to the federal law.

Under rules set by the EPA, instead of producing fuel themselves, those refiners can buy credits from other producers to fulfill their obligations.

The fate of the RFS standard and the $1/gal federal tax incentive is considered critical by most biodiesel producers.

The tax credit’s fate in 2014 is questionable and is set to expire on 31 December 2013.

Argentina
Biodiesel production in Argentina, one of the world’s largest producers, also remains uncertain going into 2014 amid a continued trade row with Europe.

The new EU Regulation 1194/2013, which took effect in late November, imposed definitive anti-dumping duties (ADDs) on biodiesel imports from Argentina and will be in place for five years.

Duties of €216.64-245.67/tonne have been applied to product from Argentina. These duties were much larger than anticipated in the market.

Argentine biodiesel sales to Europe, the main foreign buyer for local producers, have plummeted since May, when the EU set provisional tariffs of 6-10% for imports.

Analysts have said that during the first seven months of 2013, Argentine exports declined more than 70% during the same time period year over year and producers only ran at about 40% of capacity.

Approximately 90% of all Argentina’s biodiesel historically moved to Europe, with the balance going to Peru.

To counter the loss of its biggest consumer, Argentine biodiesel producers have been looking for solutions.

The Argentine government announced in December that the blend rate for biodiesel with fuel and for use by power plants will increase to 10%. The current blend rate is 8%.

The measure will absorb about 450,000 tonnes/year of biodiesel and would mean savings of about $50m, as it will offset expensive fuel imports, a large regional producer said.

The implementation of the increased blend rate in both the fuel pool and the electricity complex will allow about 33% of installed capacity to fulfill domestic demand, the source added.

European trade relations with Argentina have worsened since April last year, when President Cristina Fernandez seized control of oil firm YPF from its parent company, Spain’s Repsol.