The Jacobsen Biodiesel Bulletin; European Biodiesel Outlook

May 26, 2010

Courtesy of Alex Nimmo

The European commercial biodiesel market has been evolving at an exceptional pace since it first came into its own around the start of the new millennium. Since that time, arguments have raged back and forth over sustainability, emissions, food prices and costs. People have protested against a market that has been described as ‘political’, pointing out that the only reason it exists is due to subsidies and mandates and it cannot support itself without them.

Despite all this, it has become clear that there is a very real future in the renewable fuels industry which car manufacturers and airlines have committed to embracing. Part of the difficulty facing the market is that people will always go for the option that costs them the least amount of money. Biodiesel seems attractive with crude at its pre-crash highs, but the moment costs come down, interest evaporates. Recently, since the UK and the Netherlands increased the onus on using waste cooking oil to make biodiesel, prices for that feedstock have risen to become more expensive than the finished material. This is likely to remain a trend all the time that a government offers a subsidy or credit that favours one product over another. Even so, the price of rapeseed oil is now approximately €50 above the price of rapeseed based biodiesel. Logically this is not sustainable, and in fact, a quick look at the historic data shows that since June 2009 the price has hovered around the breakeven point, in the six months before that it was negative; in fact, the last time a biodiesel producer sold his biodiesel for more than the feedstock was in December 2008.

All this of course begs the question, ‘what is the point?’ It’s the ammunition that anti biodiesel campaigners use to try draw attention to the unsustainability of the industry. Well, in order to have a second or third generation biofuel made from waste or algae or left over tyres there has to have been a 1st generation product. This has been financed, gained momentum and allows governments to create the necessary legislation and put infrastructure in place. The 2nd generation is then a more refined version, as costs are less, final prices are lower, and people are accepting of the product. The biodiesel industry in Europe will of course undergo changes in the next five years every bit as large as the past five years. Part of the future will be the sourcing of the biodiesel. Europe is too small to grow all of its own biodiesel, particularly if airlines begin to use it. So it will have to come from the outside, from countries which also have their own requirements. As a result the costs will almost certainly increase, so will prices, and the food/fuel argument will re enter the spotlight. The most important point will be ensuring that the market remains as open and transparent as possible.

Alex Nimmo is a renewable fuels broker at SCB Group in Switzerland. 

Alex Nimmo can be reached by phone at 41-22 365 5305. 

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