An overview of biodiesel developments within Europe and further afield

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1 World Congress on Oils and Fats & 28th ISF Congress Sydney, Australia September 27-30, 2009 An overview of biodiesel developments within Europe and further afield Werner Körbitz Austrian Biofuels Institute

2 The biodiesel industry experienced a remarkable boom Legislation caused the boom Changes in legislation have caused a crisis The outlook for oils and fats in renewable fuels is still bullish 2

3 The biodiesel industry is accounting for an ever larger share of European fresh oil consumption EU fresh oil consumption million tons Biodiesel Other Source: Oil World, European Biodiesel Board Note: EU-25 until 2005, 3 EU-27 as of 2006

4 Biodiesel production has boomed but the industry is battling overcapacity European biodiesel production and capacity million tons Capacity Production Source: European Biodiesel Board 4 Note: capacity at mid-year

5 The biodiesel industry experienced a remarkable boom Legislation caused the boom Changes in legislation have caused a crisis The outlook for oils and fats in renewable fuels is still bullish 5

6 Legislation created the boom Overview Biofuel production is generally more expensive than fossil fuel production If there is to be a large market for biofuels, it usually has to be legislated In order to combat climate change, help local farmers, and diversify the energy supply, legislation was created 6

7 Financially, it became very attractive to produce biodiesel Effects of legislation on biodiesel Tax breaks made biodiesel cheaper for the end customer than fossil diesel Blending mandates required petroleum companies to buy biodiesel almost regardless of the price There was a boom in biodiesel production, profits, and plant construction 7

8 The biodiesel industry experienced a remarkable boom Legislation caused the boom Changes in legislation have caused a crisis The outlook for oils and fats in renewable fuels is still bullish 8

9 Changed public perceptions caused politicians to change legislation Factors driving legislative changes Food vs. fuel debate Spike in food prices CO 2 savings questioned Technical problems when high percentages of biofuels are blended into petroleum fuels Less political support for biofuels Protectionism Desire to increase tax revenues 9

10 The reduced political support caused a crisis in the industry Biodiesel consumption in Germany Effects of legislative changes quarterly consumption in th housand tons B100 Biodiesel blends The B100 market in Germany is being taxed out of existence, blending mandates have been reduced elsewhere, and high tariffs are imposed on exports from the USA to Europe Market growth rates have been lowered and less production capacity is needed Overcapacity, price competition, and low margins have resulted 0 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Source: UFOP 10

11 The biodiesel industry experienced a remarkable boom Legislation caused the boom Changes in legislation have caused a crisis The outlook for oils and fats in renewable fuels is still bullish 11

12 The outlook for biofuels is still positive Fundamentals As long as biofuels remain more expensive to produce than fossil fuels, they will only be sold in large quantities if legislation supports this The factors that caused legislation supporting biofuels to be enacted in the first place are still present Competitors to biodiesel are emerging but fresh oils are likely to remain the most important feedstock for diesel substitutes for the foreseeable future 12

13 Legislation will support renewable fuels if they are perceived to be good for people and therefore votes Continued support for biofuels is dependent on Impact on climate change Impact on food availability and prices To a lesser extent, impact on farmers and security of energy supply 13

14 Almost all scientifically reputable studies show that the ongoing production of biodiesel does help reduce greenhouse gas emissions Greenhouse gas savings achieved by substituting a liter of diesel with biodiesel by raw material, including all life-cycle emissions except the one time carbon release due to land use change 100% 90% Greenhouse gas reduc ction_ 80% 70% 60% 50% 40% 30% 20% 10% Most optimistic study Most pessimistic study 0% Canola Rapeseed Sunflower Soybean Coconut Palm Recyc. fry. oil Animal fat Source: Institute for Energy and Environmental Research Heidelberg, analysis of all published studies worldwide 14

15 If land must be cleared to produce feedstocks, a one-time release of CO 2 usually occurs. How much is released depends on the local vegetation Carbon emissions due to land use changes (above and below ground) tare_ 40 Tons of carbon per hect Forest into farmland (Europe) Grassland into farmland (USA) Forest into oil palm plantation (Malaysia) Semidesert into farmland (India) Source: IPCC 15 Note: The data from the UN FAO differs from that of the IPCC. The FAO data is more favorable towards biofuels.

16 Developing nations can often make up for the one-time carbon release faster than developed nations did Years of farming required to make up for one-time CO 2 release (preliminary calculation) Temperate forest cleared to produce rapeseed oil methyl ester Tropical forest cleared to produce palm oil methyl ester Notes The carbon stock of the native vegetation, the carbon sequestration and annual yield of the crops planted, the value of the by- products, etc., vary widely Reliable data and methodologies to calculate the effects of direct and indirect land use change are just now being developed Land use changes will not be included in US greenhouse gas calculations until an accepted methodology emerges Source: IPCC, Oil World 16 Aside: How much CO 2 is released during the construction of a deep-sea oil platform, of a windmill, or of a solar panel and how often will it have to be replaced?

17 Allowing developing nations to produce biofuels would reduce global greenhouse gas emissions and would support their development Assessment of land-use changes Developed countries have been farming their land for so long that the one-time carbon release has been worked off If developing countries were allowed to do the same, that could further reduce global greenhouse gas emissions in the medium to long term and it would help them escape poverty However, biodiversity is negatively impacted wherever land is cleared, be it in developed or developing nations 17

18 There is enough agricultural production to feed the world and support other uses Agricultural production and world population 300% Index (1961 = 100 0%) 250% 200% 150% 100% World agricultural output World population 50% 0% Source: UN Department of Economic and Social Affairs, Population Division UN Food and Agriculture Organization 18 Note: Droughts and floods caused bad harvests in recent years

19 1.3% of the global area harvested in 2007 supplied raw materials for biofuels - that contributed somewhat to rising food prices, but was not the only cause Global area harvested Million hectares Global area harvested Thereof: harvested for biofuels Source: US Department of Agriculture 19 Note: The area harvested in 2006 fell in Zimbabwe and in the world as a whole

20 Price spikes in agricultural commodities occurred before biofuels were invented. High prices followed the bad harvests of 1972 and 1995 and the oil crisis of 1973 Historical prices of agricultural commodities Inflation adjusted 500% 450% 400% Index (2000 = 100% %) 350% 300% 250% 200% 150% 100% 50% 0% Oilseeds Coarse grains Wheat Source: UN Food and Agriculture Organization, OECD 20 Note: Droughts and floods, speculators fleeing mortgages and investing in commodities, and rising oil prices all contributed to the 2007/2008 peak

21 The reasons for legislating support for renewable fuels are still there Drivers of legislative support Gasoline and diesel to be displaced by renewable energy following EU directives Climate change, helping farmers, diversifying energy supply The allegations made against biofuels regarding negative CO 2 balances, food availability, and prices do not hold up under closer scrutiny million tons % 10% Legislative support for renewable fuels, including biofuels, is continuing, but with sustainability requirements Source: European Commission 21

22 New competition to biodiesel as a renewable fuel is emerging Electric vehicles Liquid fuels Biomass To Liquid fuels Tesla Roadster Hydrotreated fresh oils 22

23 Electric vehicles will likely remain niche products for the foreseeable future Assessment of electric vehicles The 450 kg lithium-ion battery in the Tesla Roadster stores as much energy as 4.4 kg of diesel Quantum leaps in energy density are not expected soon and with their limited energy storage capacity, electric vehicles are not suited to traveling long distances For the foreseeable future, electric vehicles will make the most sense for rich city dwellers who have their own garage where they can recharge batteries overnight and who have different vehicles for different purposes (such as going on vacation with the family) 23 Note: Electric vehicles can be environmentally friendly when powered by renewable electricity, not night-time power from a coal plant

24 Biomass To Liquid fuels still have hurdles to overcome as well Assessment of BTL fuels It is much more expensive to process solid matter into a liquid fuel than one kind of high-energy liquid into another BTL fuels make sense if the raw materials processed are truly waste products that would not otherwise be used, for example to make wood pellets for heating purposes or particle board If feedstocks must be specially grown in temperate climates, the yield in terms of GJ per hectare may reach that of palm oil-based fuels, but it might not A BTL fuel produced from hybrid poplar trees grown in a temperate climate may require more land to be cleared than a fuel produced from a tropical oil and it will likely be much more expensive 24

25 Hydrotreated fresh oils may now be an attractive alternative to methyl esters Assessment of hydrotreated oils and fats same raw materials as biodiesel, same environmental impact approximately the same production costs investment costs are becoming comparable to biodiesel the end product is diesel, so no difficulties at any blending levels petroleum companies can produce it themselves so they don t have to outsource a part of their core business avoiding glycerin production 25

26 With 1000 kg of oils or fats and 50 kg of natural gas, one can make either biodiesel or a hydrotreated oil Process chemistry Mass balance Methyl Ester Hydrotreated oil Methyl Ester Hydrotreated oil C n -COOH CH 3 OH CH 3 -O-CO-R + C 3 H 5 (OH) 3 C n -COOH H 2 C n+1 H 2(n+1)+2 + H 2 O or C n H 2n+2 + CO 2 Main raw materials Oils & fats 1000 kg 1000 kg Methanol ~100 kg - (~50 kg nat. gas) Hydrogen - ~25 kg (~50 kg nat. gas) Products Liquid fuel ~995 kg ~880 kg (~37 GJ) (~37 GJ) Glycerin ~100 kg - Propane - ~47 kg Source: UOP, 26

27 The production and investment costs for both are similar according to UOP, a hydrotreating technology provider Indicative process costs (per ton feedstock) Indicative investment costs (for a 250,000 ton facility) Methyl Ester Hydrotreated oil Methyl Ester Hydrotreated oil Costs Feedstock oil Methanol 16 - Hydrogen - 16 Other chemicals 10 - Energy 16 1 Total Process equipment 28m 33m* Tank farm additional additional Infrastructure** additional additional Revenues Liquid fuel Pharma glycerin 30 - Propane - 26 Total Source: UOP, 27 *: varies depending whether an existing hydrotreater is refurbished or a new one is built ** : includes utilities such as power generation and hydrogen production, if not already available in sufficient quantities on site

28 Hydrotreated oils and fats are paraffinic hydrocarbons - they are diesel, not a methyl ester similar to diesel Comparison of fuel properties Petroleum Hydrotreated Biodiesel diesel vegetable oils (FAME) Cloud point -5 C -20 to +10 C -10 to +15 C MJ / liter Specific gravity Cetane Distillation C C C Oxygen 0% 0% 10% Stability good good fair Lubricity poor poor good Source: UOP, European Commission, 28

29 The demand for oils and fats from the renewable fuels industry will continue to grow, but the customers may change Potential changes to biofuel industry structure When relatively long term regulatory frameworks are enacted, such as the EU s Renewable Energy Directive that extends to 2020, capital investments have a longer planning horizon We believe petroleum companies may now make the required investments to increasingly produce renewable fuels from oils and fats themselves 29

30 In the longer term, our reserves of cheap petroleum will run out and biofuels will be price competitive without government support Outlook Our reserves of easily-drilled petroleum are finite and the price of fossil fuels will increase over time as the percentage of oil extracted from challenging deep sea fields, the arctic, and tar sands increases When the price of crude oil is high enough, renewable fuels should not need legislative support to be successful - as is already the case with ethanol in Brazil 30