8/4/2004 Renewable Fuel News - World production of oilseeds and palm oilis increasing and according to the U.S. Department of Agriculture (USDA),that is due in part to the increased use of biodiesel.

Oilseeds and palm oil production are forecast to expand in 2004/05 to379.1 million metric tons (up 12% from 2003/04) and 29.84 million metrictons (up 3% from 2003/04), respectively, according to USDA's ForeignAgricultural Service.

"Worldwide interest in biodiesel is expanding rapidly," USDA said, notingthe alternative fuel uses both oilseeds and palm oil as its feedstocks,among others.

According to USDA, "the current high world price for crude oil (lightsweet crude for August delivery on the New York Mercantile Exchangesettled at US$40.77 on July 15) makes biodiesel production moreattractive." The agency pegged the top hotspot for biodiesel production inEurope, where the region produces than 1.4 million tons/yr.

Specifically on European biodiesel production, output continued to expandin 2003, increasing 35%, to 1.43 million tons, up from 1.07 million in2002, USDA said. What helped the region further promote the use of thefuel is that the EU Council of Ministers adopted rules in late 2003 thatallows member states to reduce excise taxes on biofuels, includingbiodiesel, the agency noted.

EU Biodiesel Industry Continues to Expand

Biodiesel production in EU's new 10 member states is unclear. However, theCzech Republic has reduced its value- added tax on biodiesel production,Poland is considering a draft law to increase biodiesel consumption and inLithuania, the construction of the country's first biodiesel plant isbeing planned, USDA said.

According to the National Biodiesel Board, U.S. biodiesel sales in 2003were 80,000 metric tons, up 67% from 2002 and up a whopping 400% from2001. While biodiesel is being used in the U.S., many believe the use ofthe product would expand significantly if Congress passed an energy bill,which would promote alternative fuels, including biodiesel. A Senateversion of the energy bill would also offer a biodiesel tax credit of$0.50/gal, compared with the current cost of biodiesel production around$1.50/gal, USDA said, citing an industry source. "If one adds the cost ofdistribution and taxes, the retail price is pushed too high to becompetitive with mineral diesel, but the proposed tax credit would offsetthe cost differential for certain ranges of crude oil and vegetable oilprices," the agency said.

The U.S. is moving ahead with removing sulfur from diesel fuel, which willreduce the lubricity of the fuel, the agency noted. "This will requiregood lubricating characteristics, which biodiesel gives...[conventional]diesel in concentrations as low as 0.5%."

"This may give biodiesel access to fuel markets as an additive, if not asa principal energy source," USDA said. However, the new, low emissiondiesel engines will require stricter guidelines in fuel injection systems,which means tighter fuel specs. That may make it more difficult fortruckers to switch between conventional diesel and biodiesel during theoperation of their vehicles, the agency warned.

Brazil is the world's leader in producing sugar-based ethanol and is noweyeing biodiesel production, USDA said. On Oct. 30, 2002, Brazil launcheda biodiesel program with the Ministry of Science and Technology, with theaim of developing technology for the production, industrialization and useof biodiesel, in blending with diesel using both pure and residualvegetable oils. "Brazil's Probiodiesel Program is still in its infancy,but may offer great potential," the agency said. For example, thecountry's soil and climate diversity mean several crops can be used asbiodiesel's feedstocks, including soybean, palm, coconut, castor seed,cottonseed and sunflower oils. While soybean oil is the most viable forthe region, since its processing sector is already well developed in theregion, "other commodities [such as castor seed or palm oil] are betteroptions for Brazil's remote North and Northeast interior...[but] theremoteness and isolation of these areas makes it highly unlikely that theycould be significantproducers or exporters," USDA said.

USDA did not offer much information about Colombia, except to cite anarticle in El Tiempo, which reported on a biodiesel plant being developedin Gaviotas. The biodiesel plant is being built in cooperation with theUniversity of Colorado, at a local agricultural center, although notimeline was given, and will produce 400,000 gal/yr. "The Government ofColombia has not yet developed legislation to provide tax incentivessufficient to encourage widespread new investments, but local universitiesare engaged in feasiblity studies," the agency added.

The Philippines government is already moving ahead with its promotion ofbiodiesel, USDA said. On Feb. 9, the government directed all departmentsto use 1 vol% coconut diesel blends (coconut oil methyl ester, or CME) ingovernment-fueled diesel vehicles, the agency said, noting the Philippinesis the first country to develop the use of coconut oil for motor fuel. Themain purpose of the directive is to promote cleaner air and also to createa new market for coconut farmers, the agency said. Apparently the CMEmixture does clean the air, since test results from the Philippine CoconutAuthority, the Technological University of the Philippines and theDepartment of Energy showed the CME blend significantly reduced blacksmoke emissions, USDA said. However, oil companies have been lukewarm tothe idea, expressing concern that CME may end up being more expensive thanconventional diesel, claiming the 1% CME blend will result in a US 0.9c/liter increase in diesel prices over current retail prices.