Biodiesel roars back with mandate, tax credits, B20 OKs

Turns out that predictions of biodiesel’s demise were a tad premature.  The fuel’s boosters are gathering this week at the National Biodiesel Conference & Expo, touting a stream of good news. Highlights:

“The EPA has said that they are going to enforce the 800 million gallon volume RFS2 requirement” said National Biodiesel Board CEO Joe Jobe to Biodiesel magazine, “and we will have the tax credit in place. Last year we had neither in place.” He described the combination as a “powerful policy framework” and predicted that 2011 would be the biggest year yet for US biodiesel sales.

At the same time, more good news on vehicle acceptance. Jobe is touting that “We’ve got all of the Big Three American automakers accepting B20 in their vehicles.”

At the same time, there are challenges on the feedstock front. Bottom line, jatropha, camelina and algae are still emerging feedstocks, soy and canola are pricey, waste oils & greases are tough to find at scale, and palm is politically radioactive.

The bad news on feedstock pricing

The historic mainstay of biodiesel – soybean oil – is trading at 58.98 cents per pound on the Chicago Board of Trade – that’s $4.50 per gallon for the soybean oil, before the 10 percent or so in glycerine is removed (which has negligible value), which puts soy biodiesel (if made from spot soybean oil) at way, way over the $2.63 wholesale price for diesel, even considering a $1.01 tax credit, which can’t be counted on forever, and that’s without considering the capital and operating expenses of the, er, biodiesel production process.

Plus, the biodiesel industry has been operating at a fraction of its capacity – somewhere in the range of 20-25 percent, the past year or more, and that capacity is not going to just snap back. Plants have to be restarted, teams have to be re-trained, and some companies with less than stellar production efficiencies, feedstock options, or production scales may not ever come back.

At these rates, will blenders buy and blend the fuel, or simply pay the fines? Certainly, there’s a market for biodiesel, but no one can be just quite certain yet where the line will actually be drawn – at the 800 million gallon mandate for this year – or will it be lower?

Biodiesel as an advanced biofuel

For sure, the biodiesel industry is in a right jolly mood in comparison to 2009 or 2010, and has set its theme as “Advance”. In part, that’s a recognition of biodiesel, under the rules of the Renewable Fuel Standard, as an “advanced biofuel’ and that’s a market position that the biodiesel industry would like to have in the mind of every renewable fuels stakeholder – they want to leave the muddy waters of “first generation fuels” behind and join the more popular ranks of the more exotic fuels – which is to say, they are getting plenty tired of being lumped in with corn ethanol.

They well may achieve that wish – and why not? For what is not advanced about biodiesel? It remains a fairly sublime fuel, and has a stable, lo-cost processing technology that is well-understood and financeable. It’s great on emissions, too, and generates jobs in rural economies.

Of course, a lot of that applies to corn ethanol – which is the only fuel currently not classified as an advanced biofuel – and if indirect land use change is dropped as a consideration in the emissions equation, corn ethanol qualifies as an advanced biofuel, too. The term “advanced biofuel” will lose a lot of meaning along the way. But that’s tomorrow’s issue.

Feedstock, feedstock, feedstock. Is help on the way?

Vinod Khosla says, “Plant oil based biodiesel (like soya bean/canola) [is] unlikely to be economic in the near to mid-term. Even newly fashionable plant oil based methods (like jatropha or camelina) will not scale adequately due to their low yield per acre (200 to 300 gallon per acre).    Meanwhile, Palm oil based biodiesel is an environmental disaster.”

Is Khosla right?

SG Biofuels says it can produce $1.40 per gallon of jatropha oil based on the productivity of its JMax jatropha optimization platform, and is aiming at $1.00 per gallon. SG Biofuels announced in October that it has established a proprietary technology for large-scale Jatropha hybrid seed production. Hybrid seeds result in greater yield, uniformity and vigor while significantly reducing handling and deployment costs for plantation developers. We also note that Chromatin’s gene stacking technology for yield optimization is available for jatropha.

Meanwhile, companies like Jatoil and Mission NewEnergy are hitting new milestones in planting and shipment, with Mission saying it has 64 million trees in the ground.

In camelina, last year, Biomass Advisors projected that one billion gallons of Camelina biofuel would be produced for the aviation and biodiesel sectors by 2025, creating 25,000 new jobs; producing over $5.5 billion in new revenues and $3.5 billion in new agricultural income for U.S. and Canadian farmers. (“Camelina Aviation Biofuels Market Opportunity and Renewable Energy Strategy Report,” is 116 pages, and includes more than 60 figures, tables and charts, along with regional crop forecast maps for visualizing business opportunities and planning infrastructure needs).

Since then, Bombardier has announced a forthcoming camelina aviation biofuels trial in Q400 aircraft, Alaska Airlines, Boeing, WSU, airports form “Sustainable Aviation Fuels Northwest” project, and Camelina biofuels broke the sound barrier in a Navy F-18 trial and passed with flying colors in a Navy helicopter test

The report follows recent announcements by Sustainable Oils and Alt-Air among others, to provide 100 million gallons of Camelina-based jet fuel to a consortium of 15 airlines starting in 2014.

The Bottom Line

We continue to see biodiesel as a growing fuel, but not yet do we see the near-term feedstock availability, at affordable prices, for the fuel to have major US advancements beyond mandated levels in the billion-gallon range, before mid-decade, without importing jatropha oil from abroad (if it is not snapped up by the military or aviation sectors first).

We note research that has just come to light from ARS, determining that farmers can provide for their own farm-based fuel needs by devoting roughly 5-7 percent of their land to bioenergy production.

Produced at cost, we believe that channel, combined with the existing mandates which utilize feedstocks sources developed for the commercial market (such as brown and yellow grease, and energy crops), represent the near-terms “wins” for biodiesel. Farmers utilize an estimated 1 billion gallons of diesel fuel picking up the US corn and soy harvest – B100 used for this channel, and roughly B2 for the general market, would give biodiesel a very big push, and in the mid-term we may well see revolutions in feedstock availability from the likes of algae and new oilseeds crops to advance the story even farther.

More on the B2 for road transport, B100 for farm equipment.

More on the status of algal biofuels development. More on camelina. More on jatropha.

Other feedstocks of note: kenaf, castor, pennycress, canola/rapeseed