Frost: Legislation Buoys Euro Biodiesel, Feedstock Market
October 29, 2007 // Published as a news service by IHS
That, coupled with Europe's desire to be less dependent on oil imports, has revived interest in alternative fuels and encouraged legislation from individual European Union (EU) member state governments for the biodiesel market.
Recent analysis from Frost & Sullivan of the European biodiesel and feedstock market found earned revenues of €2.93 billion in 2006, with estimates to reach €9.75 billion in 2013.
"The biodiesel market has enjoyed excellent European Commission support by way of the Kyoto agreement and Directives 2003/30/EC and 2003/96/EC, which specifically seek to promote biofuels and establish indicative targets for their use in the transport industry," said Frost & Sullivan industry analyst Robert Outram.
These regulations are expected to encourage biofuel use and make them cost-competitive with mineral, analysts said.
Encouraged by the EU legislation, individual member states have implemented their own incentives, such as tax relief, renewable transport fuel obligations (RTFOs) and blending mandates.
Analysts said blending mandates have particularly aided the biodiesel market and fuel industry. This legislation requires oil companies to blend a set percentage of biofuel in all its fuels, presenting them with a huge logistical challenge.
"Oil companies will require large volumes of biofuel to meet the mandate levels, even though percentage levels are usually low," said Outram. "This means the oil companies are likely to team up with biofuel producers in long-term agreements or even invest in their own plants."
Such helpful mandates however, are expected to contribute to escalating feedstock prices. Analysts said since the production of vegetable oil in Western Europe has touched full capacity and has remained constant over the past decade - between 11 and 12 million tonnes (t) - the intensely competitive biodiesel market is hard-pressed to procure feedstock at competitive prices.
Even with the new EU member states contributing an additional 1 million t, analysts said approximately 9.5 million t of biodiesel will be required to meet EU directives that aim to make biodiesel account for 5.75% of all transport fuels.
"Assuming a 1-1 conversion of vegetable oil to biodiesel by volume, over 80% of all the vegetable oil currently produced in Europe would be required for the biodiesel market," said Outram.
The overwhelming demand for finite commodities such as feedstock will inevitably hike biofuel prices to a level where producer margins will start thinning. Analysts said as feedstock costs account for 70% of the total plant operating expenditure, biodiesel producers will rely heavily on an effective feedstock procurement strategy and reduced logistics costs.
To this end, analysts said biodiesel manufacturers will team up with agricultural concerns and look to achieve downstream integration, as well as leverage related business activities to lower costs and increase profit margins.
Source: Frost & Sullivan.