Overview of Markets and Production Technology for Biodiesel Fuel

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). According to the National Biodiesel Board, the industry's trade association, in 2004 the U.S. production of biodiesel was about 30 million gallons. A blend of 80% diesel and 20% biodiesel can be used as a fuel in conventional diesel engines without modification, proponents state.

Sales of biodiesel are expected to reach 125 million gallons per year, within the next few years, as a result of an excise tax credit, which was signed into law on January 1, 2005. This law is the American Jobs Creation Act of 2004. Its objective is to increase the market for vegetable oils and animal fats. The jobs bill is a two-year tax credit that will trim 20 cents off the price of the blend, bringing it close in cost to straight diesel. A major customer of biodiesel is the U.S. military.

Biodiesel is made by a trans-esterfication reaction between methanol and vegetable oil, or tallow (animal fat). The animal or vegetable fats are triglycerides, wherein fatty acids are chemically bound to glycerine. The reaction with methanol produces the methyl ester of the fatty acid (the biodiesel product) and yields (liberates) glycerine as a coproduct. About three-quarters of a pound of glycerine is produced for each gallon of biodiesel.

Glycerine is made as a by-product (coproduct) of soap and fatty acid production, which depends on splitting off fatty acids from glycerine. Producers of soaps and fatty acids depend on the value of glycerine sales to provide added income to sales of their primary products. With the advent of biodiesel, which also produces glycerine during manufacture, the world has become flooded with additional quantities of glycerine. The price of glycerine has dropped by almost half in the past few years, to less than 50 cents per pound today. The worldwide market for glycerine is about 2 billion pounds per year.

Producers of glycerine are scrambling to find outlets for all the additional supply. Current market targets, among others, are to replace propylene glycol as a deciding fluid and to look at using glycerine to replace ethylene glycol. A possibility is to use glycerine as a coolant in automobile engines. Glycerine, propylene glycol, and ethylene glycol are chemically related in that they are all polyols (having more than one hydroxyl group attached to a carbon molecule), although the three products have different viscosities and molecular weights. The Soap and Detergent Association sponsors a $5,000 prize for research into new applications for glycerine.

The National Biodiesel Board lists over 20 producers of biodiesel. There are two groups of producers. The first is large soybean processors that have forward integrated into biodiesel, such as Ag Processing Incorporated (Omaha, Nebraska) and West Central Soy (Ralston, Iowa). The second group is chemical producers with spare manufacturing capacity to make biodiesel. The largest chemical companies making biodiesel are Proctor & Gamble (NYSE:PG) (Cincinnati, Ohio) and Dow (NYSE:DOW) (Midland, Michigan). P&G sells through Peter Cremer North America (a distributor). Dow sells through World Energy, which manages four other toll arrangements in addition to Dow.

European biodiesel production rose to 420 million gallons in 2003, with the aid of tax incentives. There are strong indications that Asian palm oil producers will start to make biodiesel, which would increase the already overproduced supply of glycerine. Today, it is estimated that the biodiesel industry gets about 70 percent of its revenue from biodiesel and 30 percent from glycerine - but industry observers say that you should assume that glycerine won't be worth very much in the future.

Over the past three years several new biodiesel plants have been proposed. Industrialinfo.com tracks these projects as part of its Synthetic Fuels Industry. Recently, three projects have been proposed for the Houston, Texas, area alone. For details on these projects, see related news article - Southeast Texas To Become Biodiesel Mecca - Three New Area Projects Could Produce More Than 70 Million Gallons Annually.

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