Is Biodiesel market marked by uncertainty?

The biodiesel market in the U.S. faces important issues; however, biodiesel is a key component of a sustainable future, and the industry will have overcome many challenges. U.S. and global demand for biodiesel has soared in recent years, but growth slowed in 2008 as energy demand and petroleum-based diesel prices fell. U.S. biodiesel production in 2008 rose nearly 40% to 683 million gals, as soaring U.S. exports, mainly to Europe, more than offset a drop in U.S. demand, according to the Energy Information Administration (EIA; Washington). Considering current economy, it’s not a surprise that U.S. domestic demand fell 8% year-over-year in 2008, to 320 million gals. A surge in biodiesel capacity and production was caused by biodiesel mandates under the U.S. Renewable Fuel Standard (RFS), higher fuel prices over the last few years, and a $1/gal biodiesel tax credit, EIA says. The European Union recently imposed tariffs on biodiesel imports from the U.S., which could limit U.S. exports, and EPA has not issued rules for implementing biodiesel blending requirements under RFS, which creates uncertainty for market players. While world capacity and consumption of biodiesel grew on average by more than 50%/year from 2002–07; however, the outlook for the biodiesel market this year remains highly uncertain!

Evonik Starts Up Operations at U.S. Biodiesel Catalyst Plant (May 4, 2009), at its 60,000-m.t./year sodium methylate unit at Mobile, AL. Sodium methylate is a catalyst used to manufacture biodiesel produced from sources such as rapeseed or soybean oil.

On the other hand, a number of Biodiesel/Ethanol producers have filed for Chapter 11 protection; such as:

White Energy Inc. : (Reuters) - Ethanol producer White Energy Inc filed for Chapter 11 protection in a Delaware bankruptcy court on Thursday, citing adverse market conditions, court documents showed. In court filings, the company said that while cost of raw materials to produce ethanol were high, excess supply of ethanol in the market has kept ethanol prices low, resulting in “minimal or non-existent profit margins.” White Energy listed assets and liabilities in the range of $100 million to $500 million in its Chapter 11 filing.

Aventine Renewable Energy (April 08, 2009): Aventine Renewable Energy Holdings Inc. of Downstate Pekin became the latest U.S. ethanol producer obliged to seek Chapter 11 bankruptcy protection Wednesday, as the industry’s once-fat profit margins continue to shrink. Ethanol, an alcohol product made from corn and used as a gasoline additive, got a major boost a few years ago from government regulations designed to encourage use of the product to reduce the nation’s dependence on petroleum. ….

Panda Ethanol (Jan. 28, 2009): Dallas-based Panda Ethanol Inc.’s Hereford Biofuels subsidiary filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Northern District of Texas.

According to the company, it intends to sell its major asset—a 105 MMgy ethanol facility currently in the late stages of construction in Hereford, Texas—pursuant to a Section 363 sale process, pending approval by the bankruptcy court. The bankruptcy filing doesn’t include the parent company of the Hereford subsidiary, Panda Ethanol.

Verasun (Nov. 5, 2008): VeraSun files for Chapter 11 bankruptcy protection; The recent retreat in corn prices caught one of the nation’s largest ethanol producers offguard. VeraSun Energy Corp. and its 24 subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court in the District of Delaware on Oct. 31, allowing it to enhance liquidity while the company reorganizes.

According to the company, the filing was “precipitated by a series of events that led to a contraction in VeraSun’s liquidity, impairing its ability to operate its business and invest in new and expanding ethanol facilities.” In a statement, the company said it “suffered significant losses in its third quarter financial statement,” citing that a dramatic spike in corn prices attributed to its corn procurement and hedging arrangements resulted in “unfavorable operating margins.”

Many other biodiesel producer are struggling to survive and the the question is what is next!