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Market-force planets are aligning: biodiesel fuel
calendar25-07-2005 | linkSoyatech.com | Share This Post:

7/22/2005 USA - Some market-force planets are aligning, which may allowbiodiesel fuel to compete with its big petroleum cousin. Cost andsubsequently availability of the organic-based fuel have blocked anyserious entry into the market. Now, that may be changing. Rising petroleumprices and a new tax incentive are beginning to close the cost gap betweenpetroleum diesel and biodiesel.

According to the Energy Information Administration, petroleum diesel fuelsold to industrial customers jumped from an annual average price of 64.5cents per gallon in 1994 to $1.31 per gallon in 2004. Low-sulfur dieseltypically has sold for 4 cents more per gallon than regular diesel.

The price increase began in 2000 when the average cost per gallon was 99cents, up from 64.5 cents in 1999. The price gradually dropped over thenext two years to 90.7 cents and then to 82.6 cents. But by 2003 dieselfuel averaged $1 per gallon. The price climbed to $1.31 in 2004 and was upto $1.51 in February of this year (the most recent data available).

One likely reason for the price increase was growing demand. WorldwatchInstitute, a Washington, D.C., research group, says worldwide fossil fuelconsumption increased 3.4% in 2004. The group says this is the fastestrate of increase in 16 years. Of the 82.4 million barrels of crude oilconsumed per day in 2004, the United States used 20.5 million barrels perday ó that's 861 million gallons per day.

The National Biodiesel Board says that biodiesel fuel costs end usersabout $1 more per gallon than petroleum diesel. That variance tends tohold true as biodiesel is blended with petroleum diesel. A tank of 20%biodiesel and 80% petroleum diesel will cost about 20 cents more pergallon than 100% petroleum.

The arguments for using biodiesel are many. The chief among them beingthat it is domestically made and reduces our dependence on foreign oil.The fuel can be made from the oil of soybeans, canola or rapeseed. It alsocan be made from plant waste known as biomass. Most commonly, it is madeby extracting the oil from soybeans, with the pulp being the primaryproduct used as a protein supplement for livestock.

Another touted benefit is that it burns cleaner than petroleum fuel. NBBsays that compared with petroleum diesel, 100% biodiesel emits between 75%and 90% less unburned hydrocarbons, 78% less carbon dioxide, 50% to 90%less carcinogens, and nearly 100% less sulfur dioxide. It also is said tobe a better lubricant inside the engine than petroleum diesel. Yet, itscost has kept it out of many industries including aggregate mining.

But a tax law that went into effect in January should narrow that pricegap. In October 2004 President Bush signed the American Jobs Act (HR 4520)into law. One of the law's components is a federal excise tax credit thatamounts to a penny per percentage point of biodiesel blended withpetroleum diesel for first-use oils. For fuel made from recycled cookingoil, the credit is one-half cent per percentage.

Just what impact will this incentive have? NBB says Department ofAgriculture studies show that demand for biodiesel will increase by morethan 300% this year. Biodiesel sales already have grown from 5 milliongallons in 2000 to 30 million gallons in 2004. NBB says 2005 productioncould eclipse 130 million gallons.

But this estimate is based on more than ìpie in the skyî optimism. Thereare two biodiesel fuel plants in Minnesota set to open this year. In Iowa,one plant is expanding to produce an additional 12 million gallons peryear, and another is coming on line. And there are plans on the table toopen the first large-scale biodiesel production plant in Missouri.

All tolled, these five operations would be capable of producing 102million gallons per year. Additionally, between November 2004 and April,other plants have come on line in Texas, Mississippi, Minnesota, New York,Georgia, Colorado and Washington.

"As long as biodiesel is more expensive, there will be people out therewho are not interested in using it," says Jenna Higgins, NBB'sspokeswoman. Yet some companies are interested in it. NBB reports thatthere are 400 fleets across the nation that run on biodiesel. At least oneof those fleets is owned by a mining company.

For some mine operators, switching to biodiesel may be a way to reduceparticulate matter to meet federal guidelines and improve employee health.For some, it may be a way to reduce U.S dependence on foreign oil. And forothers, like Max Liby, it may be both.

Liby is vice president of manufacturing for Hutchinson Salt Co. Thecompany operates an underground salt mine in Hutchinson, Kan., which isabout 40 miles northwest of Wichita. Employing only 28, the mine sellsmost of its material as road salt; some finer product goes for cattle feedand hide tanning.

In 2003, the company switched its entire fleet to 100% biodiesel. BetweenJune 2003 and June 2004, the company used 31,229 gallons of fuel. Thatmove probably cost the company an extra $40,000. Part of that cost is fordelivering the fuel across the 300 miles between the mine and the nearestbiodiesel supplier. So why does a small Midwestern salt mine incur thisextra operating expense?

"I don't like to pay more,î Liby says. ìBut, I'd as soon pay it and havethat revenue stay in the Midwest than go to an Arab country that doesn'tlike us."

In addition to philosophical reasons for switching, the new fuel has apractical application. Liby says using biodiesel will help the companycomply with Mine Safety and Health Administration air quality standards.With petroleum diesel, the mine had 400 micrograms of particulate matterper cubic meter of air. With biodiesel fuel, that number has dropped to 90micrograms. MSHA's new diesel particulate matter rule sets the limit forunderground mines at 160 micrograms per cubic meter of air. And Liby sayshe told an MSHA inspector that those 90 micrograms were all soy andtherefore harmless."It's cleaned up our air," he says. "Our main concern is our employees'health. It has not been proven that diesel particulate matter causescancer, but in this case, it eases my conscience."

In the meantime, Liby and others are hoping the tax incentive brings downthe cost of biodiesel. Higgins says NBB is unsure what net effect the taxbreak will have for customers like Liby. But with more fuel producerscoming on line, competition should push the tax break to the end users,she says. Also, she does not expect steep fluctuations in biodiesel'sprice.

There is a lot of soybean oil on the market. Because the oil is not themain product of the soybean, fuel price fluctuations should not bedramatic, she says.

Greater demand for biodiesel will bring more production capacity on lineand help reduce the price, she says. NBB is marketing the product as ameans to meet sulfur emission restrictions. Higgins says that even a 2%blend of biodiesel to petroleum can cut sulfur emissions. The group alsois trying to get the product into the heating oil market, especially alongthe eastern seaboard.

"Biodiesel holds great hope to help reduce our dependence on foreign oiland improve our environment," said Sen. Charles Grassley (R-Iowa), whochampioned the tax incentive for biodiesel.

Auto Fuel may get Bio-Boost

A University of Florida researcher has discovered a way to use geneticallyengineered E. coli bacteria as an agent to convert biological waste intoethanol.

Up to this point, the gasoline additive ethanol has been made from cornstarch and cane syrup. But Professor Lonnie Ingram says he can convertwaste material such as corn cobs, stems and leaves into fuel. He says theengineered E. coli can convert all sugar types found in plant cell wallsinto ethanol fuel. Sugarcane residue, rice hulls and forestry waste alsocan be converted to ethanol.

BC International plans to build a biomass-to-ethanol plant in Louisianathat can produce 30 million gallons per year. The plant should beoperational by the end of 2006 and will use waste from that area'ssugarcane industry.