ISSN 1822-6760. Management theory and studies for rural business and infrastructure development. 2011. Nr. 3 (27). Research papers. POTENTIAL FOR THE MARKET OF BIOFUEL OF AGRICULTURAL ORIGIN IN LATVIA Arnis Lēnerts Latvia University of Agriculture To meet the requirement of EU Directive 2009/28/EK regarding renewable energy sources, the agricultural industry has become an important supplier of resources for biofuel producers. Since the emergence of the biofuel industry, its output has significantly increased. It develops dynamically in the entire world. In Latvia, problems are observed in achieving the target set by the Directive. The present research is based on analysis of theoretical literatures and statistical data; it is carried out in 2011, applying the following research methods: analysis, synthesis, the logical and constructive method, and the monographic method. The possible obstacles in selling biofuels of agricultural origin in the Latvian market were analysed. Key words: RES (renewable energy sources); GHG (greenhouse gases); biodiesel fuel; bioethanol; biomethane. JEL: C88, D29, O38, Q28, Q42, R11. Introduction Getting out of the recession, climate change, and concerns over energy supply security are sufficiently topical issues for political and economic discussions of international and national levels. The European Union has done a series of significant changes in its policies and legislation to stabilise climate change and implement a scenario of sustainable development. After joining the European Union, Latvia has to fulfil all regulations and directives passed by the European Commission. In accordance with Part A of Annex I of Directive 2009/28/EK, the general target of Latvia, envisaged by a draft of the Action Plan, is to increase the share of energy produced from RES (renewable energy sources) from 32.6 in 2005 to 40 in 2020 of its gross final energy consumption. The use of RES, along with the issue of energy supply security, could reduce emissions of GHG (greenhouse gases). The geographic position and climate of Latvia is a good prerequisite for the industries of agriculture and forestry to supply necessary RES. It is necessary to ascertain whether the Latvian domestic market is ready to use Latvia s RES of agricultural origin. Given the extent of work within the present research, the biofuel industry was selected as the research object, but the research subject that helps us to identify the causes of the research problem is the fuel market in Latvia. The research aim is to investigate the possibilities to sell energy resources of agricultural origin in Latvia. 113
Research results Biofuel a liquid or gaseous fuel, produced from biomass, for internal combustion engines. Biomass a biologically degradable fraction of products, wastes, and residues (including substances of plant and animal origin) obtained from agriculture, forestry and related industries as well as a biologically degradable fraction of industrial and household wastes (Biofuels,,,. 2005). There are four main kinds of biofuel: biodiesel fuel (produced from plant oils, first of all rapeseed oil, and animal fats); bioethanol added to petrol (dehydrated ethyl alcohol produced from agricultural raw materials or by-products, first of all grains); pure plant oil extracted from oil plants; it is not refined or refined, but not chemically modified and is useful as fuel in internal combustion engines of certain types, besides, it meets the emission standard; biogas produced from biomass and/or biologically degradable fractions of wastes; it can be purified to the quality of natural gas (by separating hydrogen sulphide H2S). It is produced in the process of anaerobic fermentation of biomass. After producing a biofuel in accordance with the quality standard accepted in Latvia, it is sold in the market to be used in internal combustion engines as a fuel (Possibilities, 2007). The quality standard for biofuels is set by Regulation of the Cabinet of Ministers No. 772 Regulations regarding Requirements for Biofuel Quality, Conformity Assessment, Market Supervision and Procedures for Consumer Information. It is legal in Latvia to sell the following blends of biofuels and conventional hydrocarbon-based fuels for internal combustion engines: 5 biodiesel, 95 petrodiesel (B5); 30 biodiesel, 70 petrodiesel (B30); 100 biodiesel (B100); pure rapeseed oil and other unrefined or refined plant oils obtained from oil plants that are useful as fuel for internal combustion engines (AE100); lead-free petrol blended with dehydrated (at least 99.5 ethyl alcohol) bioethanol; a fuel mixture of 5 anhydrous ethanol and 95 petrol (E5); lead-free petrol blended with dehydrated (at least 99.5 ethyl alcohol) bioethanol; a fuel mixture of 85 anhydrous ethanol and 15 petrol (E85); biogas, the quality of which is similar to that of natural gas. Biofuel production in Latvia The area sown with grain crops totalled 540.8 thousand hectares, and the total output of grains was 1663 thousand tons in 2009. Two bioethanol enterprises operated in Latvia in 2009: Jaunpagasts Plus and Biodegviela with a total output of 35.9 million litres (The Activity..., 2011). 114
Name of biofuel producer Table 1. Characteristics of bioethanol enterprises in Latvia in 2009 Financially eligible Output capacity (litres)fuel production in quota granted for bio- 2009 (litres)** Output of biofuel (litres) for which support was granted *** Jaunpagasts plus Ltd 24500000 24500000 17128868 Biodegviela Ltd 11400000 1057135 57135 Total 35900000 25557135 17186003 * Information of biofuel producers ** In accordance with the Cabinet s of Ministers Regulation No.280 Regulations regarding Financially Eligible Quotas for Biofuel of 15 April 2008 *** Information of the Ministry of Agriculture Source: Informative Report According to data of the State Revenue Service (SRS), 59 of bioethanol produced in Latvia in 2009 was exported. By implementing the Action Program developed by the national government, the use of biofuel in vehicles increased from 0.43 in 2009 to 0.9 in the first half of 2010. The capacity of producers of biodiesel fuel and the quantity of fuel produced are summarised in Table 2. Table 2. Characteristics of biodiesel fuel enterprises in Latvia in 2009 Name of biofuel producer Output capacity (litres)* Financially eligible quota granted for biofuel production in 2009 (litres)** Output of biofuel (litres) for which support was granted *** LPKS Latraps 34090909 1023559 - SIA Mamas D 7954545 1669834 1669834 SIA Delta Rīga 15330000 3218022 2362643 SIA Mežrozīte 45454545 7198864 5691587 SIA Oniors 15000000 2374432 2374432 SIA Bio-Venta 113250283 23756654 23756654 VL Bunkerings 20000000 531362 - Total 251080282 39772727 35855150 * Information of biofuel producers ** In accordance with the Cabinet s of Ministers Regulation No.280 Regulations regarding Financially Eligible Quotas for Biofuel of 15 April 2008 *** Information of the Ministry of Agriculture Source: Informative Report An analysis of the data in Table 2. indicates significant problems in the market of biodiesel fuel. The quantity of biodiesel fuel produced accounts for only 14 of the producers production capacity. 115
Table 3. Latvia s binding target for renewable energy sources for vehicles by the year 2020, 2005 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 RES- vehicles 0.9 4 4.1 4.2 4.4 4.5 4.6 5.5 6.3 7.2 8.2 10 Source: Informative Report 2009 The author concludes that the capacity of Latvian producers of biofuel is sufficient to provide a 5 blend of biofuel and fossil fuel (petrol and diesel fuel). To provide the necessary quantity of a 5 blend of bioethanol sold in Latvia, it is required to produce approximately 20 thousand tons of this biofuel a year. However, to produce the necessary quantity of a 5 blend of biodiesel fuel, approximately 40 thousand tons of this biofuel is annually required. Data of the SRS indicate that in the first half of 2010, only 63 of the quantity of biofuel used for the compulsory 5 blend is produced by the Latvian enterprises. The activity of the Republic of Latvia regarding renewable energy sources to fulfil European Parliament and Council Directive 2009/28/EK of 23 April 2009 envisages that the share of RES has to be 10 of total energy consumed in the transport sector. The author believes that to achieve the 10 target, additional measures will be necessary, and one of the resources which is not exploited is biogas as fuel for vehicles. In 2009, the Latvian Ministry of Economics prepared amendments to the Energy Law s several sections regarding their coming into force. The Law stipulates the date of liberalisation of the natural gas market 4 April 2014. The Parliament adopted the amendments to the procedure of coming into force of several sections in the Energy Law on 3 December 2009. Fuel consumers in the transportation industry If analysing changes in the number of vehicles in Latvia, one can see that their number increases among almost all types vehicles; the only exception is buses (their number decreased on average 1 a year over the recent five years; mostly the number of busses running on petrol decreases). Despite the decline in economic activity caused by the global financial crisis, according to the Road Traffic Safety Directorate, the number of vehicles increased 25 in 2009 compared to 2006. The distribution of vehicles by kind of fuel consumed is summarised in Table 4. Table 4. Distribution of vehicles by kind of fuel consumed in Latvia in 2010 Kind of fuel Lorries Cars Buses Total number number number number Petrol 29089 27.6 583980 70.1 2448 29.4 615517 65.0 Petrol &Gas 2353 2.2 27036 3.2 107 1.3 29496 3.1 Diesel fuel 73662 70.0 222356 26.7 5778 69.3 301796 31.9 Gas 124 0.1 29 0.0 5 0.1 158 0.0 Source: RTSD 116
Auto manufacturers determine which vehicles can use biofuel, observing the fuel standards that are available/expected in the market. Presently automobiles running on blends of biofuel and fossil fuel are available in the Latvian market. As of the end of 2010, the target of Latvia for the use of RES in vehicles is 44 thousand tons in oil equivalent. In 2009, Latvia was able to reach a RES share of 4.6 thousand tons for vehicles, which accounts for only 10 of the quantity required. To achieve the binding target for the share of RES in transport, the consumption of biofuel has to be increased 10 times. Fuel sellers in Latvia According to expert estimates, approximately 80 of petrol and 30 of diesel fuel, consumed in Latvia, is delivered from the Lithuanian enterprise "Mažeiķu nafta". Yet, according to the information provided by the management of company Tirdzniecības nams Mažeiķu nafta to the author, the Latvian market is too small it accounts for only 6 of the total exports of "Mažeiķu nafta". Of the total exports, its exports to the USA account for 17, to the European Union s countries 45 (www.mnth.lv). Three completely vertically integrated oil companies are present in Latvia: Neste, Statoil, and Lukoil. Neste 15 Lukoil 9 Virši A 5 Trest 3 Dinaz 2 Astarte nafta 2 Statoil 26 Other<1 32 Kurši 1 Viada 1 Ziemeļu nafta 2 Latvijas nafta 1 Liepiņš 1 Source: constructed by the author according to SRS data Fig. 1. Market shares of fuel retailers in Latvia Since 2005, the market leaders are Statoil, Neste, and Lukoil with a total market share of 50. The fuel market in the same way as the entire Latvian economy experienced fluctuations over the recent 5 years. Yet the author wants to point that the government s legal acts stipulating the compulsory 5 blend of biofuel have given positive results for the use of biofuel produced in Latvia in the national economy. 117
900000 800000 700000 600000 500000 400000 300000 200000 100000 0 tons 2006 2007 2008 2009 2010* Bioethanol (+5 blend) Petrol Biofuel E85 Diesel fuel (DF) Biodiesel fuel (100) DF+BioDF (5-30) Autogas * data for the first half of 2010 Source: constructed by the author according to SRS data Fig. 2. Changes in fuel consumption in Latvia According to the data, one can conclude that gas plays a very insignificant role in the fuel market. The analysis of the output and use of biofuel in the leading EU countries showed that there is a huge potential for the use of biogas. Therefore, investments in the production of biogas and its further use as fuel in the transport industry do not have to be postponed. Conclusions 1. The quality standard for biofuels is set by Regulation of the Cabinet of Ministers No. 772 Regulations regarding Requirements for Biofuel Quality, Conformity Assessment, Market Supervision and Procedures for Consumer Information. 2. The main resources used in the production of biofuels of agricultural origin. 3. The output of bioethanol significantly exceeds that of biodiesel fuel in the world. The largest producer country is the USA, producing 22 million litres of bioethanol in 2007. 4. Plants producing biodiesel fuel and bioethanol have been constructed in Latvia. Operating at full capacity, these plants can meet 30 of the demand for fuel in the Latvian market. 5. Latvia has set a 20 target for RES by the year 2020 in its total final consumption of vehicle fuels. Road vehicles consume 85.9 of the total fuel quantity in Latvia. 6. Transport traders encouraged by the biofuel-powered vehicles Latvian trade. 7. The use of German, Swedish and Austrian experience using biogas as a transportation fuel, while reducing environmental pollution and greenhouse gas production. 8. There are three fuel retailers in Latvia Statoil, Neste, and Lukoil whose total market share is more than 50. Such a situation causes threats of imposing disadvantageous commercial rules on Latvian biofuel producers. 9. To determine that the Latvian traded fuels is mandatory 10 biofuels of fossil fuels. 118
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