Less product, higher prices for Europe plasticiser buyers

26 July 2010 14:39  [Source: ICIS news]

By Libby George
LONDON (ICIS news)--European plasticiser buyers hoping for a summer respite to high prices and prevailing market tightness are now bracing for the opposite, market sources said on Monday. 
After last week’s force majeure declaration from BASF, market supply is set to contract even further, and all varieties of plasticiser are likely to get more expensive.
“The market is so short that if one supplier is out, the other suppliers cannot replace them,” one plasticiser buyer said. “Some companies will be very much in trouble.”
Dioctyl phthalate (DOP), di-isononyl phthalate (DINP) and other plasticisers are primarily to make polyvinyl chloride (PVC) soft and flexible for end uses ranging from pipes and cables to flooring, medical devices and toys.
This year – marked by low stocks, consolidated DOP production and a series of unplanned production outages – had already been tough for buyers, nearly all of whom have been on allocation for several months.
But after the 21 July BASF force majeure, end-use PVC producers are even more concerned than they were before about getting the plasticisers they need to produce – and passing on enough of the rising costs to maintain a decent margin. 
“Every month we are fighting to find material,” said another buyer. “I’ve never faced such a difficult situation in the plasticiser market.”
BASF made the declaration on DINP and three other varieties of plasticisers following an “unforeseeable technical defect” in its iso-nonanol (INA) plant in Ludwigshafen, Germany. The seller said it hoped to have the plant up and running in 14 days.
The outage could hardly come at a worse time for the market. For several months, demand has outstripped supply at such a fast clip that even sellers have expressed frustration with their inability to produce more. Meanwhile, a coming maintenance season – nearly every seller has a turnaround ranging from one to four weeks at some point in the August-October period – has forced them to hold back product from the market.
“A lot of customers could overflow us with inquiries, because in their need, they will take each and every kilo,” said one DOP seller. “I have not a single kilo for another customer.”
It has gotten so bad that some PVC compound sellers have not been able to meet their own commitments, and have sought to purchase either the end product, or feedstock plasticisers, from other sellers. Thus far, none contacted said they could spare either.
Imported material from Asia has served as a respite for some buyers, but it has come at a high price - €1,900-2,000/tonne ($2,451-2,580/tonne) for DINP, according to market sources. But traders said it is small amounts - not much more than 400 tonnes in total - and that a coming maintenance turnaround at a Taiwanese plant will further hinder imports.
Imported material “is definitely not disturbing the market and it is definitely not meeting demand”, one trader said.
While all market players had been hoping for the situation to balance out during the usually quiet summer period, the continual demands, and the BASF troubles, have dashed those hopes.
“It will be even worse than before…I’m afraid that prices will jump further,” one buyer said. “Just after the force majeure coming from BASF, [sellers] started talking about price increases.”
While prices were stable the week ended 23 July, it is likely the calm before the storm. Sellers are discussing hikes of €40-70/tonne for DOP, and potentially twice as much for DINP.
Meanwhile, prices for both products have already skyrocketed since the beginning of the year; both have climbed 66% above the average levels of January to €1,650-1,700/tonne FD (free delivered) NWE (northwest Europe) for DINP and to €1,525-1,575/tonne FD NWE for DOP, according to data from ICIS.
During the same period, PVC prices have risen roughly 15% for both spot and contract, to €810-840/tonne FD NWE for spot, with gross contract prices in the major German market at €1,040-1,070/tonne FD as of 23 July.
Plasticiser sellers, which in addition to BASF include Arkema, ExxonMobile, Oxeno, Oxea and Polynt, are quick to note that market tightness – and not speculation – has dictated increases. Additionally, every supplier has also examined postponing or rescheduling planned turnarounds, but in each case, they determined it was not possible.
“We have announced it since last year,” said one seller that said it found it “virtually impossible” to change its outage. “We cannot delay it or find another date.”
But such assurances are little comfort to buyers, who are bracing for what the prices will be – if they can even get material.
“Unfortunately for us, we are not as good at increasing prices as plasticiser producers,” one buyer said. “We lose margin every month. That’s really the problem.”

Quoted from www.ICIS.com

($1 = €0.77)
For more on DINP, DOP or PVC visit ICIS chemical intelligenceFor more on BASF, Arkema, Oxeno, Oxea and Polynt visit ICIS company intelligence
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Sub-$3 US Natural Gas Will Not Last - Sources

HOUSTON (ICIS news)--US natural gas trading at seven-year lows below $3/MMBtu has underscored low market fundamentals - record supply overhang, poor demand and depressed production - but sources said on Tuesday that prices will break upward by the end of the year.

"The market's view is that the current overhang is temporary," said Jeff Fetterly, a natural gas analyst with CIBC World Markets in Calgary. 

NYMEX contracts for September settled on Tuesday at $2.882/MMBtu, lows not seen since August 2002. But a contango in futures has November prices trading in the low-$4s/MMBtu. 

Further out, the first few months of 2010 have futures prices in the low-$5/MMBtu.

"The market is thinking there will be a balancing early next year at some point," said Eric Nuttall, an associate portfolio manager at Sprott Asset Management in Toronto. "I don't think those prices are unrealistic. If there's a drop in rig count, there is going to be a dramatic drop in production."

North American gas drilling activity is down by 56% from the same time last year when the rig count was at nearly 1,600 wells, according to the latest weekly data from oil and gas service firm Baker Hughes. 

Analysts said the reduced output - down year over year by about 1bn cubic feet (bcf)/day in July - will start to free up pipelines in the coming months, especially when large amounts of natural gas are taken out of storage in November and into early 2010. 

"That's what the futures curve is looking at," Fetterly said.

But prices at a level that dissuades capital investment from drillers, the question comes down to at what price do gas producers restart production at substantial levels.

"At five dollars they start," Nuttall said. "At six dollars they really start and seven dollars it's really game on again."

Fetterly said that even though demand for natural gas has seen a recent uptick from the electrical power sector, the fuel's wider recovery hinges on a comeback in industrial use. 

The fall out in industrial demand as the economic slump set in worldwide was what prompted commodity prices to drop quickly off their all-time highs in July, when natural gas futures topped out at $13.694/MMBtu. 

But enough gas production continued and US underground storage continued to pile up at a rapid pace.

Pipelines have bulged from newly-tapped shale fields boosting US output while a falloff in industrial use has put demand in a rut.

Unconventional production of natural gas from shale fields such as the Barnett in the Dallas-Forth Worth, Texas area; Fayetteville in Arkansas; Haynesville in Louisiana and east Texas; and Marcellus in the northeast accounted for 1,200 bcf of gas in 2007, according to the Energy Information Administration (EIA). 

The government agency projected shale output will make up 18% of total US production, at 4,200 bcf, by 2030.

"Everything has come together for natural gas to really hammer it," said Phil Flynn, senior research analyst at PFG Best, a brokerage in Chicago. "All of this stuff is having a major impact on the marketplace. We are trading in a totally different market than a few years ago."

Back then, US natural gas players were panicking about the domestic supply situation and the prospects of being an importing nation while prices stayed high, Flynn explained.

Now, domestic supplies are well above 3,000 bcf, the traditional storage benchmark that the industry considers ample enough to handle the winter heating season. The US market hit that number at the end of July, the earliest in history by a month's time.

The EIA said in its short-term energy outlook that total storage would reach around 3,800 bcf by the end of October, when weekly storage reports start recording draws for the cold weather instead of injections. 

But Nuttall said no one truly knows what maximum storage is in the US. 

Estimates are that it is between 3,800 and 3,950 bcf, Nuttall said, but the US natural gas market has never been in the supply position to really test its limits.

Flynn predicted storage might get close to 4,000 bcf, which he said "is unheard of".

The worst-case scenario is that pipelines become so backed up with fuel that operators force producers to stop sending in material, rig activity comes to a halt and spot natural gas prices could slide down to $1/MMBtu or lower, Nuttall said.

But Nuttall said that is highly unlikely and would be a short-term phenomenon as heating needs would free up pipelines as inventory starts to pare down amid light production.

Petrochemical chemical producers have taken advantage of the soft natural gas as prices go in the opposite direction of strengthening crude oil values.

More petrochemical crackers are switching feedstocks from oil-based raw materials such as naphtha to natural gas liquids (NGL) like ethane. 

In an opposite reaction to the lower natural gas prices, a move to lighter feedstocks pushed lower crude C4 output and caused prices for a C4-dependent chemical like butadiene to rise. 

Natural gas is also a major power fuel for the US petrochemicals industry and downstream chemicals manufacturers.

quoted from: ICIS.com

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Another Natgas Shortage Chokes Argentina Petchems

BUENOS AIRES (ICIS news)--Several producers in an Argentine petrochemical complex are contending with natural gas cutbacks, as the government rations supplies during the southern winter, an industry source said on Monday. 

Already, Carboclor has had intermittent gas cuts, Nestor Ramirez, general manager. 

“Even though the industry in general has not been working to its full extent - due to lower demand - and the winter season has not been very cold, the gas supply cutbacks continue to happen. This is a sign of the seriousness of the energy situation in Argentina,” Ramirez said.

“Replacing gas for fuel oil or gas oil can cost twice as much, and this is only an option for companies that use this product as an energy source, not for the ones who need it as a raw material,” Ramirez said. 

Another company at the complex, Cabot, said it has restricted production due to the natural gas cutbacks. 

Gas-cuts have also been experienced by Profertil, Dow Argentina and other local petrochemical companies. 

Ethane is a crucial feedstock for Dow's polyethylene (PE) plant, which is in the Bahia Blanca petrochemical complex. 

Due to the lack of ethane, the Dow plant is operating at 70% of nameplate capacity, an industry source said. 

Concerns about Argentina’s energy supply were also raised by a report released by eight ex-energy secretaries. 

The report criticised the nation's energy policy, saying it lacked a long-term outlook. 

Argentina's petrochemical industry has frequently struggled with cutbacks in natural gas, as the nation's regulators rationed the fuel to make more available to heat houses. 

Industrial supplies were cut in 2008 following a cold snap. 

In 2007, the cutbacks and the resulting production disruptions were severe due to a particularly cold southern winter, in which it snowed in Buenos Aires.

quoted from: ICIS.com

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Oil Supply Crisis Unlikely in Five Years

PARIS: The world may escape an oil supply crisis for the next five years because a slow recovery from the economic downturn would hold down growth of demand, the IEA said on Monday.

The International Energy Agency (IEA) slashed its mid-term estimate for world oil demand, which it said may now rise by an average 0.6 per cent a year in 2008-14, down sharply from its forecast of 1.6 per cent growth made last year.

‘Relative to the medium-term profiles presented in previous years, this scenario paints a delayed picture of threatened ‘supply crunch’ later in the projected period,’ it said in its Mid-Term Oil Market Report.

That forecast was based on a world growth estimates by the International Monetary Fund. The IEA also provided a model based on a less optimistic forecast, according to which demand could actually decline.

‘Whether we end up facing a supply crunch again by mid-decade, or with a more comfortable buffer of supply flexibility, depends largely on the pace of economic recovery and government action on efficiency,’ the IEA’s director Nobuo Tanaka said in a statement.

The IEA, the energy-monitoring arm of the 30-nation Organisation for Economic Cooperation and Development, had warned in April that a sudden easing of tension on the oil market, and rapid price fall, had crimped long-term investment in new fields for the day when demand recovered.

Under the most optimistic scenario, demand could reach 88.99 million barrels a day, from 85.76 million in 2008.

The price of oil had rocketed to $147 a barrel in July 2008 before plunging to around $32 in December. It has since recovered to nearly $70.

The IEA also said that ‘for the first time in 50 years, the world will witness a drop in global gas demand.’—AFP

quoted from: DAWN.COM

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CAS Announced Success of “Coal-to-MEG” Process

Chinese Academy of Sciences (CAS) held a news release on May 7th 2009 in Beijing on the successful commercial demonstration of the world first “Coal-to-MEG” process.

Fujian Institute of Research on the Structure of Matter, Chinese Academy of Sciences (FJIRSM, CAS), based on its technology accumulation of over two decades and jointly with Jiangsu Danhua (Danyang Chemical) Group Co Ltd and Shanghai Jinmei Chemical Novel Technology Co Ltd, has accomplished the development of a process package of CO gaseous catalytic synthesis to oxalate and oxalate catalytic hydrogenation to mono-ethylene glycol (coal-to-MEG), which recently passed through CAS organized expert panel appraisal. The achievement is an indication that China has realized the process development and commercial application of the Coal-to-MEG route as the first on the world.

According to the statistics from ASIACHEM Consulting, China consumed 5.64Mt of MEG in 2006, 6.68Mt in 2007, and the figure increased to 7.14Mt in 2008. On the other end, domestic MEG supply only grew modestly as the output of 2006 was 1.58Mt, which increased to 1.88 and 1.95Mt respectively in 2007 and 2008, accounting for less than 10% of the global total production.

It was also reported that a 200kt/a coal-to-MEG plant is now under construction in Tongliao City, Inner Mongolia and was expected to be complete by August or September of this year. Danhua Technology recently raised CNY1.1bn by non-public issuance of A-stock, in order to invest in the said Tongliao MEG plant construction and hold 51% shares the project. 

After completion of the said 200kt/a EG plant, called as Tongliao Jinmei Phase I, it will become one of the top 5 Chinese MEG producers. Tongliao Jinmei also plans to furnish 1.2Mt/a MEG capacity in next 5 years to become the No.1 MEG player in China.

quoted from: Asia Chemical Weekly

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Korea to Enhance Auto Energy Efficiency

The government will help automakers enhance energy efficiency in cars and offer incentives for businesses that save energy, officials said yesterday. 

To achieve its goals, the government will devise policies to cut energy use in both the public and private sectors and inject state funds to develop energy efficiency technology. 

These plans were highlighted at a meeting President Lee Myung-bak chaired at Cheong Wa Dae, officials at the Ministry of Knowledge Economy said. 

Under the plans, the government will invest 150 billion won ($120 million) for R&D activities on fuel efficiency improvement for the next five years and 550-720 billion won to automakers and auto parts makers. 







Local cars are currently about 70 percent as fuel efficient as those made in Japan, officials noted. An average Korean car can go about 11.2 kilometers per liter of fuel, compared with 16.0 km per liter for Japanese vehicles, they added. The United States aims to improve fuel efficiency to 16.6 kilometers per liter of fuel, with Japan pushing for 16.8 kilometers starting in 2016, they added. 

"The country needs to raise fuel efficiency of locally produced vehicles close to the standards set by governments in the United States and Japan," Kim Young-hak, second vice knowledge economy minister, told reporters. 

"The plan will also help local carmakers export their products to overseas markets (that require higher fuel efficiency than now)," he said. 

The government will also implement measures for businesses and public corporations to join the state-led energy-saving campaign. 

The ministry will discuss with the Finance Ministry whether to levy consumption tax on energy-hungry products and offer tax incentives for businesses operating low energy facilities. 

Officials also said the government would set aside about 1.6 trillion won to improve the energy efficiency of consumer and industrial products such as boilers and electronic motors. 

The government is considering asking public companies to use only energy-efficient products. It will also ask private firms and big buildings to voluntarily set energy-saving goal. 

The government will raise the price of electricity and gas supplied to homes. 

"To reduce energy use as a whole, suppliers have to invest in developing renewable energy technology, but consumers also have to bear inconvenience to save energy. The latter is more convenient and costs less," Kim said. 

The official added that the government was considering adopting daylight saving system during the summer months. 

The government announced the package of measures as the country's energy consumption has been rising in recent years. 

Energy consumption by households and the transportation sector gained 2.73 percent from 1997 to 2007 while Japan and Germany saw increases of 0.05 percent and 0.04 percent, respectively. 

The government also expects international oil prices would rise sharply. 

"This is a comprehensive and preemptive measure to save energy in the face of a rising crude oil price by imposing effective rules to control market demand," the vice minister said. 

The price per barrel of Dubai crude, Korea's benchmark, reached $66.3 on Monday, compared with the average $57.9 per barrel recorded in May. 

Korea relies heavily on imported fuel, which makes the country more vulnerable to increases in crude oil prices. 

(christory@heraldm.com) 


By Cho Chung-un
Quoted from: The Korea Herald

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Four N-Power Plants to Be Built Near Kanupp

KARACHI: Four more nuclear power plants will built by the Pakistan Atomic Energy Commission (PAEC) near the existing Karachi Nuclear Power Plant (Kanupp) as part of a plan to build more energy units in the country to meet the target of 8,800 megawatts from nuclear energy by 2030.

The chairman of the PAEC, Dr Ansar Pervez, said this in his address at the Kanupp Institute of Nuclear Power Engineering (KINPOE) convocation 2009 held here on Tuesday.

Dr Ansar saw better prospects for nuclear energy plants because of what he called a ‘renaissance of nuclear power’ in today’s world. The other reasons for the revival of nuclear power plants, he said, were the good performance of more than 400 already operating plants all over the world, uncertain oil prices, and international concerns over carbon dioxide emission.

‘Nuclear power plants do not emit greenhouse gases and they have showed that they are more cost-effective, safe and reliable,’ he claimed.

‘From its early days, the generation of electrical energy through nuclear power has been one of the PAEC’s primary objectives. For this purpose, it established nuclear power plants and a complex network of associated fuel cycle technology. It has also been providing benefits of sophisticated nuclear techniques to the medical and agriculture sectors,’ he said.

He said that the cooperation for a peaceful application of nuclear energy between Pakistan and China was progressing because of good relations between the two countries.

He said that the PAEC had been assigned the task of generating 8,800MW of nuclear electricity by 2030 and some of the new plants would be built near Kanupp.

‘We have already purchased 585 acres near Kanupp to build additional plants. Although the cost of the land amounting to Rs350 million has already been paid, and the lease agreement was signed in August 2008, the mutation and demarcation of the land have not been carried out yet,’ he said.

Dr Ansar said that he had requested the authorities concerned to expedite the case of the land so that PAEC could start development work at the site. He said that based on the experience gained from the reverse osmosis plant, Kanupp was now working as a consultant for 100,000 gallon per day capacity reverse osmosis plant at Gwadar.

The PAEC could also offer its technical assistance in setting up large-sized desalination plants, he said.

Dr Ansar said that Kanupp was setting up a nuclear desalination demonstration plant with the capacity of 400,000 gallons per day, which is indigenously built in PAEC with some assistance from the IAEA. ‘We can also offer technical assistance to the Karachi city government for its planned 50 million gallons per day desalination plant,’ he added.

He also pointed out that among all developing countries; Pakistan took the lead in the generation of electricity from nuclear power plants by setting up the Karachi Nuclear Power Plant.

‘It has been kept operational despite many embargoes imposed on us. It is now operating on extended life through modifications and safety retrofits done entirely by our own experts,’ he added.

He also enumerated the services rendered by the PAEC towards the socioeconomic uplift of the country by running 13 cancer hospitals across the country with five more under construction, agricultural, biotechnology and genetic engineering institutes and a series of human resource development and goal-oriented research centres.

He said that PAEC’s agriculture and biotechnology institutes were contributing at the national level by developing crop varieties that have higher resistance to disease, mature early and give higher yields.

The vice-chancellor of the NED University, Abdul Kalam, who was the chief guest at the convocation, awarded degrees of MSc nuclear engineering to 86 successful graduates of the 13th and 14th batches along with merit certificates and gold medals.

quoted from: DAWN.COM

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Asia's Palm Oil Derivatives Market Takes a Hit from Biodiesel and Oleochemicals

Asia's palm-based biodiesel and oleochemicals markets haved been hit by myriad challenges. What does the future hold?

MENTIONING THE humble palm tree to the man on the street more often than not brings to brings to mind visions of summer vacations at idyllic beaches. In Asia, however, the palm tree has evolved to become far more than an anchor for vacationers to hang their hammocks on.

Transesterified palm oil, or palm-based biodiesel, has proven to be a feasible alternative to conventional diesel in various countries that have mandated or subsidized the use of renewable fuels.

However, with lower energy prices, high natural oil prices, weak demand for oleochemicals and the unique challenges for Asia's biodiesel industry, the palm-based derivatives market is getting slapped around.

Palm trees' clusters of fruit are harvested in order to produce palm vegetable oil. Edible palm oil is the world's most widely used vegetable oil for cooking purposes, with soybean oil coming a close second, according to data from the US Department of Agriculture.

Besides food, crude palm oil (CPO) can be fractionated and refined into fatty acids and fatty alcohols, which can be substituted for petrochemical products for manufacturing a myriad of consumer end-use products.

The tropical Southeast Asian archipelagos of Malaysia and Indonesia are the world's largest planters of oil palms, as well as the most active producers and sellers of its derivative products, with millions of workers employed in the CPO and downstream industries. 

CPO has also been commoditized, with the Crude Palm Oil Futures contract traded on the Bursa Malaysia exchange, which is regarded as one of the key price benchmarks in the world vegetable oils market due to its ample liquidity.

Malaysian palm oil and derivative product exports accounted for ringgit (M$) 64.8bn ($17.9bn) or 9.8% of the nation's total exports in 2008, the second-largest export sector, behind electrical and electronic products, according to the Malaysia Statistics Department.

In the past few months, however, almost no export-oriented economy has been spared by the recession.

A combination of various factors has left the oleochemical industry hurt by ailing demand, with downstream production in a spectrum of industries screeching to a halt: Production margins were already severely squeezed by the recent uptrend in CPO levels compounded by poor supply-demand fundamentals due to the trading activities of speculators who are heavily vested in the upstream vegetable oils market. And the rapidity of feedstock price movements has also capped demand, keeping most oleochemical buyers sidelined.

OLEOCHEMICAL DEMAND TEETERING

Traders and producers agree that 2009 will be a tough year for most oleochemical manufacturers.

Demand for southeast Asian palm-based fractionated fatty acids has fallen by up to 30% since the beginning of 2009, sellers report. As a result, operating rates at various Asian oleochemical production plants have been slashed in a bid to curb inventory pressure.

The natural fatty alcohols market has also not been spared by the falloff in demand, with large multinational corporation end-users reported to have been offloading their excess fatty alcohol inventories procured earlier - also due to growing stockpiles of unneeded cargos.

Major producers of detergents and personal care products such as UK and Netherlands-based Unilever, Japan's Kao and US-based Procter & Gamble have made pledges to go green by making use of surfactants made from renewable feedstocks instead of their petrochemical-based synthetic alternatives such as linear alkyl benzene (LAB).

Initially, there was optimism that end-user demand would not be too adversely affected. 

"No matter how bad the recession is, people still have to bathe and wash their clothes," says Rugvedaya Dubhashi, the general marketing manager of India-based fatty alcohol major Godrej Industries.

On the other hand, hikes in vegetable oil prices in recent months resulted in upward movements in natural fatty alcohol offers, amid comparatively less extreme movements in crude oil values.

As a result, several natural fatty alcohol sellers have attributed part of the falling demand to quiet reformulations from detergent and personal care product manufacturers to include more synthetic chemicals because of the cost savings due to more competitive pricing.

"In today's economic climate, everybody is trying to cut costs. Yes, we have lost some market share to synthetics," one seller from Indonesia points out, adding that several natural fatty alcohol producers in Asia are running at around only 50-60% of their nameplate capacities.

PALM BIODIESEL CHALLENGES

It looks good on paper - ample availability of a renewable crop that can be processed into an alternative to the finite supply of traditional fossil fuels. 

With statistics released by the Malaysian Palm Oil Board showing Malaysian excess stockpiles of palm oil at 1.4m tonnes as of the end of March, it seems rather straightforward to process the CPO into biodiesel for either domestic use or for exports to European countries that have mandated the use of biodiesel for transportation.

The 92 licenses issued by the Malaysian government to local companies allowing them to produce 10.2m tonnes/year of biodiesel would also paint a glowing portrait of the growth of the Malaysian biodiesel industry.

On the other hand, the plummeting value of mineral crude, from highs last summer approaching $150/bbl to current prices of around $50/bbl, have quickly dampened the fervor for alternative fuel use.

"There are 16 plants on the ground from 92 licenses issued [in Malaysia], with most unable to operate due to negative margins," said UR Unnithan, executive director of Malaysian biodiesel producer Carotino, adding that only five or six of the plants were running regularly over the past two years, and mostly well below nameplate capacities.

The uncertainties on whether palm biodiesel would count against strict sustainability criteria set by the EU weighed on European demand for Asian palm-based material. The $300/tonne tax credit for US exports to Europe also sidelined most Asian biodiesel producers from off-loading their cargoes.

"There is no way that we can sell our material now with CPO so high and crude oil so low," the trading manager of a Malaysian biodiesel producer said.

Further dampening the Asian biodiesel export market was the advent of new ASTM standards announced late last year for biodiesel use in the US, which requires both domestically produced as well as imported cargos to pass a "cold soak" test, with which most southeast Asian palm-based material is unable to comply to due to its higher cold filter plugging point without substantial capital investment.

DOMESTIC USE HINDERED

Domestic demand in Indonesia and Malaysia was also soft, with previous attempts to mandate biofuel demand coming stymied by logistics and financial difficulties, as the hikes in vegetable oil prices rendered biodiesel use economically unfeasible.

Malaysian Minister of Plantation Industries and Commodities Peter Chin lays some of the blame for delays in the implementation of earlier announced plans for a 5% biodiesel blend on technical complications from oil companies in blending the biodiesel for commercial use.

"Petronas is not ready [to blend]. While they are working with us, they are not 100% ready - neither is Shell, nor is Exxon. We have to give them time to adjust to this new environment," Chin says.

Managing director of Malaysia's integrated oleochemicals firm Future Prelude, Jake Sow, whose biodiesel project in Pulau Indah, Malaysia, is under construction and tentatively scheduled to be completed by late 2009, also points out the general lethargy in the industry.

"It seems like a good thing that our plant is delayed. Everybody I've met tells me that the market is really bad now," Sow says.

quoted from: www.ICIS.com

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US Biofuel Makers Rail Against New California Fuel Standards

HOUSTON (ICIS news)--US biofuels producers criticised on Friday new low-carbon fuel standards (LCFS) in California, saying the state effectively shut the door on renewable fuels made from corn or soy. 

The standards, the first in the nation to target greenhouse gas emissions from transportation fuels, aim to cut 16m tonnes/year of greenhouse gas emissions in the state by 2020. As approved by the California Air Resource Board (CARB) on Thursday, they are also expected to be a template for federal policy makers as they seek to implement national renewable fuel standards. 

But in a blow to biofuels producers, the state will measure not only a fuel’s direct greenhouse gas emissions, but also life cycle and indirect land use emissions related to its production. 

Renewable fuel makers said such measurements, which take into account changes in land use stemming from increased crop production, were based on flawed data and would preclude fuels made from grains.  

“This standard is based on flawed analysis and selectively enforced penalties against biofuels only. In unfairly penalising ethanol, CARB is relegating California to more petroleum use as biofuels are the only viable alternative liquid fuel,” said Bob Dinneen, president and CEO of the Renewable Fuels Association (RFA). 

Dinneen said he was “cautiously optimistic” on the board’s decision to review the standard’s measurement methods. 

When factoring in greenhouse gases emitted in growing fuel crops, changing cropland to accommodate more grain growth, biofuels refining and fuel consumption, corn-based ethanol emits 97g/megajoule, according to CARB's Wes Ingram. 

After measuring emissions from extracting petroleum, refining and vehicle fuel consumption, gasoline emits 96g/megajoule, Ingram said.  

“Emissions from land use changes are real, large and positive,” Ingram said.  

Advanced biofuel manufacturers also railed against the standards, saying they were not applied to all fuel makers. 

“We have some concerns about what goes into that model,” Greg Luli, vice-president of Massachusetts-based cellulosic ethanol company Verenium Biofuels, told the board. “We know there are some errors in assumptions. And if indirect land use is so important, why isn’t it applied to all fuels?”

Stephan Lemieux, a government researcher for CARB, said most fuel producers have a much smaller land footprint than those who depend on farmland to make biofuels.

“The story for indirect impact for other fields is that there isn’t a story,” he said.  

quoted from: www.ICIS.com

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Shell Goes to Paradise in Search of Cheap Biofuel

The Hawaiian island of Kona, a volcanic stump with white sand beaches and aquamarine waters in the middle of the Pacific, has long drawn adventurers and paradise-seekers. It was here that Captain James Cook was stabbed by islanders and left to die face down in the surf. 

More than two centuries on, new pioneers are stalking its shores. Last week a small company backed by the oil giant Royal Dutch Shell provided the first batch of a locally made oil to the American government for testing as aviation fuel. It has the combustion properties of fuel derived from crude oil but it is made from algae. 

The advantages over conventional biofuels are clear – it is not made from crops grown on agricultural land so it cannot be blamed for driving up food prices or using scarce fresh water. 

It sounds almost too good to be true. It probably is. The technology to convert algae into usable fuel on a large scale is still at least a decade away, and it is unclear if it will ever be practical on a large scale. 

Shell refuses to say how much it has invested in the project. Nonetheless, it has put the full weight of its PR machine behind this and the handful of other renewable technologies it is developing, giving it a nice green sheen even as it deepens its involvement in controversial areas such as the Canadian tar sands. 

The company has had to deal with a $100 drop in the price of oil and lower demand for its products, so it is cutting spending and has pulled out of several renewables sectors altogether. Chief executive Jeroen van der Veer confirmed last week that the company will stop investing in hydrogen technologies and wind power – it has pulled out of all its British projects in the past year. Solar has gone the same way. That leaves clean coal technology and “second generation” biofuels such as algae as its primary focus. 

The fast-growing algae are native to the seas off Hawaii – cultured in tanks fed with sea-water in a pilot plant run in collaboration with the local firm HR Biopetroleum. If its scientists can perfect the algae-to-oil process, Shell says it will fund an industrial facility of 20,000 hectares, built by Cellana, the Shell-HR Biopetroleum joint venture, on coastal land unsuitable for farming. 

A facility of that size could produce 16,000 barrels of oil equivalent a day. At that rate, seven such plants would be needed to generate as much oil as one reasonably productive offshore platform. The good news is that algae can double their mass several times a day using sunlight alone and the supply would never run dry. 

On the Kona coast, Cellana has already built some photo-bioreactors – essentially high-tech greenhouses that use natural light and a carbon-dioxide injection system to speed up natural growth rates. The company is testing new strains of the plant to find the most oil-rich and fast-growing varieties. The conversion process is similar to that for other biofuels: the algae are dried and broken down into oil and protein. 

The process is still in development. Gordon MacManus, an analyst at the research firm Wood Mackenzie, said that, as a biofuel source, algae hold great potential but the technology is at a “very early stage”. He said that it could be “more than a decade” before it is commercially practical. 

It is one of several “second-generation” biofuels that could one day overtake Shell’s other efforts in making biofuels from crops. It has recently increased its stake in Codexis, an American group that develops enzymes to improve the process of creating ethanol from lignocellulose, the woody part of plants, that another Shell partner Iogen is working on. 

Such fuels are many years from making it to the market – if, indeed, they make it at all. And Shell leaves most of the scientific challenges to its partner organisations; it provides the cash and research support. Meanwhile, the company remains one of the world’s biggest providers of often-ma-ligned “first generation” biofuels such as corn-based ethanol. 

Just as the first drum of algae-produced oil was flown from Kona to America’s Defense Advanced Research Projects Agency, Shell said that it was abandoning renewables, except for some biofuels. 

When the announcement was made last Tuesday, critics accused Shell of a sell-out. But the company said it was responding to a change in the economic climate and the new reality that crude oil is now about $100 a barrel cheaper than a year ago. 

Shell was never that green in the first place. It has the largest investment programme of any private enterprise in the world, spending $90 billion (£62 billion) in the past five years on projects ranging from the Gulf of Mexico to Iraq. Over that same period it gave back $68 billion to shareholders through dividends and share buybacks. 

By comparison, its investment in alternative energy is tiny, amounting to only $1.7 billion – less than 2% of its total spending over the same five years. That investment programme is about to dwindle further. Van der Veer’s message last week was straightforward: it’s not that renewables don’t make money, it’s that they don’t make enough. “We do not expect [renewables] to grow much from here, due to portfolio fit and the returns outlook compared with other opportunities,” he said. 

Far from abandoning renewables, Shell said, it is simply narrowing its focus on the areas where it has the most expertise and can effect the most change. 

Environmentalists fear that Shell’s efforts to go green could end up like Captain Cook on the shores of Kona – left to die in the surf.

quoted from: Times Online

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Opec Rejects Pressure from Hawks for New Cut in Oil Output after Price Slide

The Opec cartel has resisted calls from hawkish members to reduce oil output and instead urged better compliance with the cut agreed in December of 4.2 million barrels per day. 

The cartel pledged yesterday to remove an overhang of surplus oil in the market by not exceeding its target production of 24.8million barrels per day (bpd). The 11-strong club of oil exporters is overshooting the agreed quota by 800,000 bpd. 

Russia said yesterday that it would be appointing a permanent observer to attend the cartel's meetings, a signal of the closer interest that the Kremlin is showing in Opec's deliberations. 

Before yesterday's Opec meeting, Igor Sechin, the Russian Deputy Prime Minister, promised to join in any cut and said that Russia had joined in the recent cut with a 1.9 per cent fall in Russian output in January against a year earlier. He promised to host a meeting of oil producers in Russia at the end of the year. 


The Russian gesture was, however, dismissed by oil analysts, who said that Russia's output fall was a result of lack of investment rather than voluntary restraint. 

Abdalla Salem el-Badri, Opec's secretary-general, said that better compliance “will reduce the overhang” of oil in the market. Mr el-Badri said: “If we have more compliance, we can reduce [the overhang] further. We've called another meeting in May. If something happens between now and May, we will have to correct the market in May.” 

Opec members have suffered a huge cut in revenue because of the two thirds fall in the price of crude oil since July last year. The output cut agreed in December arrested the decline and Brent crude has hovered at about $45 per barrel, but Saudi Arabia has said that it believes $75 to be an appropriate price for crude.

quoted from: Times Online

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Surge of Cheap Gas May Put Coalmines Out of Action

A price war between liquefied natural gas and coal could lead to the temporary closure of coalmines, according to leading energy consultants, because of a surge in shipments of the gas from the Middle East into Europe and North America. 

Gas prices, already tumbling as a result of the recession, are suffering a triple whammy, according to Cambridge Energy Research Associates (Cera): from recession in the Far East; a long-awaited build-up in new supplies of liquefied natural gas (LNG); and unexpected discoveries of new gas reserves in the United States. 

The emerging gas glut could even displace coal in the supply of fuel to power stations in Europe, Michael Stoppard, managing director of Cera, said. 

In the teeth of a recession, the LNG industry is about to take a big upward step, Mr Stoppard said. “Over the next 18 to 24 months, LNG capacity will increase by 30 per cent,” he said. “Where is the stuff going to go? The answer will be in the Atlantic basin.” 


Spot prices for LNG – natural gas that has been super-chilled to -160C – have collapsed in the Far East, falling from $20 per million British thermal units (BTU) to only $6 per million BTU. Power stations in Japan and South Korea account for almost half the world’s LNG consumption, but last week Japan’s ten big utilities revealed that their electricity output had plunged by 15.8 per cent in February, compared with a year earlier. 

Meanwhile, the gas market is braced for a surge in LNG output from Indonesia, Russia, Yemen and Qatar. Britain will be a significant beneficiary of imports of frozen gas from Qatar when South Hook LNG, a regasification terminal at Milford Haven, Pembrokeshire, receives its first cargo, expected next month. 

Natural gas prices have tumbled in recent months, falling in the United States from an average of $12.61 in 2008 to $4.54 in February. In Britain, the fall has also been precipitous, from $13.46 to $6.79. 

According to Mr Stoppard, it was assumed that America’s demand for power for air-conditioning in the summer would absorb any excess Asian LNG that found its way West. However, the unexpected discovery of new gas reserves in shale deposits has changed the equation. 

The gas price could begin to test the marginal cost of coal production, Mr Stoppard believes. “It is a truly dramatic turnround. Below $3 per million BTU, you would expect to see coalmines suspending production.” 

That could be happening in Russia soon, according to John Howland, of McCloskey Group, the coal pricing consultancy. He said: “Gas has been chasing down the coal price. There is an oversupply of coal in the system and as we move into summer, gas will fall beneath coal.” 

The price of coal has collapsed, peaking last year at $220 per tonne for deliveries into Europe and presently trading at about $60 per tonne. According to McCloskey Group, the price is dropping close to a level at which the economics of some Russian coalmines may come into question. “Prices for coal out of the Baltic are around the level of cash costs,” Mr Howland said. 

A glut of LNG in Europe should have environmental benefits if it can displace coal from the power generation market. The cheapness of coal and gas is weighing heavily on British utilities, which are under political pressure to shift towards greener fuels and away from carbon-heavy fuels such as coal. Plans by E.ON, the German utility, to build a new coal-fired power station at Kingsnorth, in Kent, have aroused protest, but recent falls in the price of carbon dioxide permits on Europe’s Emission Trading System alongside the collapse in the coal price have increased coal’s financial appeal. 

The key question is whether enough LNG can make its way into the European market and displace other energy sources, according to Mr Stoppard. Britain will become a leading market for LNG with the launch of ExxonMobil’s South Hook terminal and the expansion of National Grid’s Isle of Grain facility in the Thames Estuary.

quoted from: Times Online

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EU Biodiesel Import Probe Blasts US Subsidies

HOUSTON (ICIS news)--Subsidised US biodiesel suppliers hurt their European competitors by undercutting EU material by up to 33%, the European Commission said on Thursday following its months-long trade investigation. 

“The pressure exercised by the surge of low-priced subsidised imports ... did not allow the [EU] industry to set its sales prices in line with market conditions and cost increases. The [EU] industry was only able to pass to its customers a price increase limited to 4% while its full costs increased by 20% over the same period,” the commission stated in its findings. 

The investigation's findings led the EU to impose temporary anti-dumping and countervailing duties on all US biodiesel. Anti-dumping duties ranged from €24/tonne ($31/tonne) for US producer Archer Daniels Midland (ADM) to €208/tonne for distributor Peter Cremer.

Anti-dumping duties ran from €211/tonne for distributors Peter Cremer, Vinmar and World Energy Alternatives to €237/tonne for ADM. The duties are in place for six months, after which the EU is scheduled to vote whether to extend them for another five years.

Only blends higher than B20 (80% mineral diesel, 20% biodiesel) were included in the investigation, leaving some traders ideas for ways to avoid the new fees. 

The duties come after the commission investigated complaints the European Biodiesel Board (EBB) filed in June. EBB Secretary General Raffaello Garofalo celebrated the decision, saying “it will re-establish the level playing field that our producers have long hoped for.”

The commission avoided the issue of “splash-and-dash,” saying US export statistics did not differentiate between domestic suppliers and those from outside countries who brought material to the US to claim the $1/gal blending credit before re-exporting it to Europe.

But the investigation found that subsidised US suppliers undercut their European producers’ prices by 19-33% during the investigation period. US suppliers grew their market share in Europe to 17% from 0.4% in 2005, according to commission statistics. 

Although EU suppliers saw their sales volumes increase to 2m tonnes during the investigation from 1.2m tonnes in 2006 and their average sales price grow by 23%, discounted US imports kept them from passing increased feedstock costs through to customers, the commission said. 

US producers, who expected the temporary duties, still called the decision “protectionist”. The lack of US biodiesel would make it more difficult for the EU to meet its renewable fuel mandates, they said.  

The new import duties will not be good for European biodisel buyers, said Gene Gebolys, president and CEO of World Energy Alternatives, one of the US companies investigated. "As prices rise in Europe, Europeans will be paying more for less biodiesel, putting even more pressure on their already dwindling diesel stocks. 

“I am confident that the Europeans will soon have all the evidence they need to conclude that their protectionist impulse must give way to more enlightened policies,” he added.

quoted from: www.ICIS.com

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EU Predicted to Back Duties on US Biodiesel - Sources

HOUSTON (ICIS news)--The EU appears ready to announce temporary duties on imports of US biodiesel, after a European Commission trade panel met with EU member state representatives earlier in the week, industry sources said on Wednesday.

“Nothing has been announced officially, but it looks as if it will go through. There are reasonable chances that these measures will be applied in the next few days,” said European Biodiesel Board (EBB) project manager Amandine Lacourt. 

The duties would be in response to an anti-dumping complaint the EBB filed in June.

US producers enjoyed an unfair advantage from receiving a federal $1/gal blending credit, the EBB said.

US biodiesel manufacturers have said their burgeoning industry needs the credit to survive and that the EU market suffer from problems of its own making. 

A European Commission representative was not immediately available for comment. 

According to sources close to the matter, the commission would levy duties ranging from €280-290/tonne ($354-367/tonne, $1.18-1.22/gal) on imports from US producers ADM, Cargill, Green Earth Fuels, Imperium Renewable and World Energy Alternatives. Distributor Peter Cremer North America and most other US biodiesel companies would have to pay €410/tonne.

Sources at the companies declined to speak on the record, but most said that duties at those levels - nearly one-half to two-thirds the current price of US biodiesel - would severely limit, if not kill, the flow of exports across the Atlantic. Before the current market downturn, the US shipped as much as 70% of its biodiesel to Europe. 

US soy methyl ester (SME) was assessed on 26 February at $783-813/tonne, according to global chemical market intelligence service ICIS pricing.

“The duty would put US material on par in the EU market, take away the subsidy advantage,” said one source knowledgable about the situtation. “But the bigger issue for the industry is that there’s just no demand. Exports to the EU have just stopped." 

The temporary duties would last for six months. EU member representatives and the commission would then decide whether to extend them for another five years, sources said. 

Lacourt said the duties would “level the playing field” for EU biodiesel producers, who have seen US imports of the renewable fuel grow from 50,000 tonnes in 2006 to more than 1m tonnes in March 2008, a market share of 17%, according to commission data. 

Representatives of the US biodiesel industry have said they expect the commission to approve the temporary duties but to shy away from making them permanent. 

Manning Feraci, vice president of federal affairs for the US trade group National Biodiesel Board (NBB), said lawyers for the US would still be able to prove that the downturn in the EU biodiesel industry was caused by factors other than subsidies. 

“As the case proceeds, the NBB will continue to highlight this fundamental shortcoming in the EBB’s complaint,” Feraci said. “Those companies that are faring poorly, it is ... bad business models; high feedstock costs; and detrimental changes in EU member state policy that are the cause.”

quoted from: www.ICIS.com

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Schwarzenegger Stars at CeBIT

The world’s biggest high-tech fair kicks off tomorrow hosting guest-of-honor California Governor Arnold Schwarzenegger and offering cutting-edge solutions promising to beat the economic crisis as well as climate change.

Schwarzenegger, whose state’s IT industry will be center stage at Germany’s CeBIT, will join German Chancellor Angela Merkel for speeches today and tour the fair with her when it opens early tomorrow.

Some 4,300 firms from 69 countries will display the latest in information and communications technology in the northern city of Hanover — a quarter fewer than last year due to the global economic slump, organizers said.

“Given the depth of the world economic crisis, this number represents a success,” Deutsche Messe board member Ernst Raue said, admitting that small hardware and telecommunications suppliers from China, Taiwan and South Korea had pulled out in droves.

It is the first time the CeBIT is honoring a state as opposed to a nation and Schwarzenegger will lead a delegation of around 50 firms from California, most from Silicon Valley.

While in Hanover, the governor will also pick up an award tomorrow from the American Chamber of Commerce in Germany for “his exceptional commitment to the global issues of environment and energy.”

Hot topics at the CeBIT this year are to be “green” technology and innovations on mobile Internet use — two areas that industry experts said could be particularly appealing in tough economic times by allowing people to save money in the long run.

CeBIT vice president Sven Michael Prueser said energy-saving products had major growth potential and would be spotlighted for the second year at an expanded section of the fair organized by the German environment ministry.

“At the heart of ‘Green IT World’ are issues relating to the energy efficiency of the IT systems themselves, but also the central question of what kind of efficiency gains can be achieved by industry through the intelligent use of IT,” he said.

Among the product highlights expected this year are new, ultra-thin, ultra-efficient Netbooks, including the first “zero-watt” laptop from Fujitsu-Siemens that uses no electricity when in sleep-mode.

New videoconferencing technology promises to allow more companies to save money on travel, while axeing more emissions-heavy flights.

And Japanese giant Toshiba is to show off televisions that use half the power of normal sets.

Although the CeBIT is primarily a trade fair for sector executives, each year it also showcases quirky new gadgets ranging from the brilliantly practical to the fancifully futuristic.

German premium sound specialists Blaupunkt plan to unveil prototypes for what they call the world’s first Internet car radio, promising access to “tens of thousands of stations” via cellular phone networks.

A Taiwanese firm will be showing off a waterproof GPS tracker allowing owners to locate stolen motorcycles, boats and caravans or even shut down engines remotely via text message.

A so-called gentle alarm clock will also be on display that monitors sleep rhythms as shown by the body movements of the sleeper.

It then chooses a shallow sleep phase within 30 minutes of the desired wake-up time to go off, encouraging what the German manufacturer says is a smoother start to a more productive day.

And visitors will be able to try out a German design prize winner: an age-simulation suit made to allow young people to understand first-hand the physical limitations of the average 75-year-old

source: Taipei Times

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CPC Cuts Liquefied Petroleum Gas Prices

State-run CPC Corp, Taiwan (CPC, 台灣中油) yesterday announced cuts in this month’s wholesale prices for liquefied petroleum gas (LPG) products to reflect the declining costs of energy.

Effective today, the company cut its prices for household LPG by NT$1 per kilogram and NT$0.5 per liter for LPG used in cars, a company statement said.

The price of a 20kg household gas cylinder — often used by families, restaurants and food stands — will therefore drop by NT$20 today.

INCREASES

The price cut for household LPG products follows two consecutive price increases in the previous two months, CPC said.

This month’s cut represented a 4.8 percent decline from last month’s level, the company said.

CPC said that the new wholesale price for household LPG would be NT$19.96 per kilogram, which is still NT$16.16 lower than the NT$36.12 price in South Korea, and the cheapest in Asia.

The company said its cut of NT$0.5 per liter for LPG used in cars was an adjustment of between 2.25 percent and 3.38 percent for various categories of the fuel.

SAVINGS

Motorists who drive 1,000km per month will see a drop of NT$50 in fuel charges each month by using LPG instead of gasoline, based on an industry average that 1 liter of LPG is needed for every 10km. 

source: Taipei Times 

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Oil Rises Above $44 After UAE’s Asia Cut

LONDON Oil rose above $44 a barrel on Thursday after the United Arab Emirates announced deeper cuts in crude supply to Asia for April in a possible signal that Opec will cut output further at its next meeting in March.

Abu Dhabi National Oil Co (Adnoc), the main oil supplier in the UAE, said it will sell customers less of its flagship Murban crude oil and three other main grades in April than in March.

The move came as a surprise to traders, who had expected the UAE to keep April supply curbs largely unchanged.

US crude for April delivery was up $1.80 at $44.30 a barrel by 1457 GMT, after hitting an intra-day high of $44.39. London Brent crude gained $1.40 to $45.69.

Europe’s leading stock markets jumped on Thursday, driven up by rising banking shares, dealers said, with London’s FTSE 100 index gaining 1.73 per cent to close at 3,915.64 points.

In Paris, the CAC 40 index gained 1.78 per cent to close at 2,744.84 points and Frankfurt’s DAX soared 2.51 per cent to 3,942.62.

In Asian markets, a key Japanese index, the Nikkei of the Tokyo Stock Exchange, lost 0.04 per cent to close at 7,457.93 points.

The Hang Seng, a key index of the Hong Kong Stock Exchange, also shed 0.85 per cent from its last close.

The dollar dipped against the euro as investors fretted once more over the plight of the troubled US banking sector, analysts said.

The euro also gained ground despite news that European consumer and business confidence slumped to a record low in February, they added.

In morning London trade, the European single currency rose to $1.2774 from $1.2721 late on Wednesday.

Against the Japanese currency, the dollar advanced to 97.87 yen from 97.37 yen on Wednesday.

“Investors remain concerned that some of the largest (US) banks face nationalisation in the immediate future,” said UBS analyst Geoffrey Yu.

“The lack of details on the government’s comprehensive plan to resolve outstanding problems in the financial sector is proving to be a serious hindrance to sentiment.”

But the greenback rose against the yen amid renewed hopes of action by Washington to help banks hammered by the credit crunch.

In London trading on Thursday, the euro changed hands at $1.2774 against $1.2721 late on Wednesday, at 124.89 yen (123.89), 0.8945 pounds (0.8955) and 1.4840 Swiss francs (1.4885).

The dollar stood at 97.87 yen (97.37) and 1.1629 Swiss francs (1.1699).

The pound was at 1.4267 dollars (1.4204).

On the London Bullion Market, the price of gold fell to $946.08 an ounce from $978.50 on Wednesday.

Edward Meir, analyst at MF Global in New York, said the market was expecting further cuts in production by the Opec countries.

source: OMAN TRIBUNE 

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Biofuels Impact on Food Prices is Challenged

Will the debate between biofuel supporters and food advocates finally cool down?

THE DEBATE between biofuel supporters and food advocates over pricing issues appears to have taken a sharp turn as food prices remain high despite falling energy and commodity prices.

"I think the inflation pressure from both oil and corn prices has abated substantially in the second half of 2008, and that is pretty well expected to continue into 2009. I expect the debate to be a little cooler during this year," says Scott Richman, senior vice president, commercial consulting lead, for Informa Economics, a commodity market analysis and management consulting firm based in the US.

"We haven't seen a change in food prices even though commodity and energy prices have dropped by half since their summer highs. In fact, one food manufacturer recently announced its profits rose during this time of economic turmoil due to price hikes on some of its most popular items," says Jin Chon, spokesperson for Growth Energy, a coalition of American ethanol producers.

"The scenario is certainly changing, and we don't know quite how yet. But certainly the whole ecomonic environment has changed," says Keith Wiebe, deputy director, agricultural development economics division, of the Food and Agriculture Organization (FAO) of the United Nations.

FOOD VERSUS FUEL?
A general consensus has arisen that biofuel production, namely ethanol, drove up food prices last year. Although biofuel production may have had an impact on food prices, a number of other factors have been just as significant, if not more significant.

"There are numerous global factors behind food inflation, including energy prices, increasing demand for food from a growing global population, regional droughts and commodity speculators. These are far bigger factors in increased grain prices than biofuels, which uses only 4% of world grain and has a minimal impact on food prices," says Chon.

Last year, food prices in general were very high, and there was clear concern that biofuels were one of the factors driving these high prices.

"Most studies found around 30-40% of the grain price increase between 2006 and 2008 was attributable to biofuels. Some of those grain prices even tripled. We believe it was related to the expansion of biofuels, but biofuel expansion was only one of a number of factors going on," says Wiebe.

Other factors that influenced grain prices were oil prices, trade restrictions and poor harvests in several key countries. 

"I think first of all, there have been a lot of things going on at the same time that have contributed to what has happened with food prices," says Richman. 

In fall 2006, grain prices started to take off, and oil prices had been rising steadily for a few years before that. During 2006 and following through to 2007, Australia was hit with a draught that destroyed its wheat crop.

"What happened this time last year is that oil prices were going up over $100/bbl at the same time that there were shortages in some agricultural commodities, like rice and Australian wheat. Given all these things, food prices went up in the first half of 2008," says Richman. 

Other events such as floods and extremely wet weather in the US Midwest delayed planting until past optimal times. Meanwhile, at that time crude oil prices were continuing to spike, reaching record levels in July. Concurrently, corn prices reached record levels the month before, Richman explains.

"After that, a succession of things happened. First of all, the US was able to get its crops planted, namely corn, and it was the second largest crop ever. There was also a bumper wheat crop in the summer/autumn of 2008 because of higher plantings around the world after the Australian draught in 2006. During the same time, oil prices began to fall because of the economic situation," says Richman.

All these events happening together created a frenzy in the commodities markets, as well as in the debate over biofuels' impact on food prices. 

"The Consumer Price Index (CPI) went up 5.8% in 2008, which was substantially above general economic inflation," notes Richman. 

Some of this gain was due to higher commodity prices and some due to higher oil prices, he adds.

"If you look at what happened, the compound annual rate of the CPI as reported by the Bureau of Labor Statistics in the last three months of 2008 was 1.7%, which is very consistent with historical inflation rates for food. It had just been during that period of peak frenzy that food prices went up substantially," says Richman.

In April 2008, a period when Growth Energry notes there was "rampant commodity inflation," a Texas A&M university study found important food items with high prices that were largely unrelated to ethanol or corn prices. Rather, these prices corresponded to fundamental supply and demand relationships in the world.

"Further, the study went on to state, 'the underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100/bbl oil.' Additionally, a US Department of Agriculture (USDA) study found that labor costs account for 38 cents of every dollar a consumer spends on food. Farm value accounts for roughly half of that, or 19 cents of the consumer food dollar," says Chon.

To date, ethanol production has had a very small impact on food prices, and this impact won't grow in the future, according to Growth Energy.

Between 1970 and 2005, corn yields increased by 90%. This was the result of increased corn productivity through better seed variety, better farming practices, and other agricultural measures.

The 2004-2008 five-year average crop size was 11.7bn bushels, compared to the 1999-2004 average crop size of 9.6bn bushels, according to Growth Energy.

"In the US, we're producing more than 150 bushels of corn per acre, far ahead of other parts of the world. China produced 90 bushels per acre in 2008, which was higher than the 82 bushels per acre it produced in 2007. Brazil produced 60 bushels per acre last year." says Chon.

REVERSAL OF FORTUNE
Pricing trends between between food, commodities and fuel have separated as prices of the latter two declined and prices of the former stayed up.

"Now, of course, you're getting the opposite argument, where people are saying the commodities prices and oil prices came down substantially, therefore shouldn't the food prices come down too? There hasn't been massive reversal of food price increases," says Richman.

"Commodity prices and biofuel prices moved up together over the past four years, but that relationship has turned the corner since last summer," Wiebe adds. 

"Oil was up at roughly $140/barrel and corn was up over $7/bushel last summer. Now oil is down 60-70% to roughly $40/barrel and corn is down to under $4/bushel," he notes.

"I think a part of that is if you look at food prices and the way costs go through the system, as you get closer to the consumer, there's a lot of hesitancy to pass on higher prices. But there's also higher hesitancy to change food prices around rapidly and dramatically," Informa's Richman explains. 

What tends to happen when prices first start to rise is that they are generally absorbed into the system. Margins at the time usually allow food processors and, in some cases, food retailers to do that.

"I think that food manufacturers and retailers felt they were at a critical point last summer and felt like they had pricing power, so they went ahead and started raising prices significantly. It was generally thought that these trends of higher oil, commodity and food prices were going to be set in place for awhile. What they did not expect was the severe reversal in commodity and oil prices," he explains.

Growth Energy asserts that erroneous claims around food and fuel were perpetuated last year by ethanol opponents. "The smear campaign won believers until the prices of commodities dropped, exposing the truth: food costs were high because oil costs were high, among other reasons."

source: www.ICIS.com

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Europe's Biofuel Industry Frustrated at Lack of Progress on Legislation

Continuing political inertia and lack of support for manufacturers in Europe are hitting the industry hard, bringing some players close to insolvency

FRUSTRATION HAS been mounting since the end of 2008 in the European biodiesel market over ongoing legislative uncertainty concerning product specification, taxation, mandated blending levels and provenance.

The start of 2009 has so far brought little comfort to the brokers that have seen trade levels drop off sharply. A decision taken to delay a vote in the German parliament regarding the future status of imported ­material, has also brought little joy, along with no firm feeling that a final decision on the import duty status of B99 US-origin material is around the corner (the 'B' signifies the amount of biodiesel - in this case 99%).

A major stumbling block for any national legislation is that it must conform with EU legislation and also not contravene any World Trade Organisation (WTO) law. Given that biofuels are an emerging field, new rulings are taken in these supranational bodies on a reasonably regular basis. 

However, the slow decision-making speed of international bodies often hinders nations that want to get legislation passed into national law more rapidly.

The proposed German legislation would make imports of biodiesel, which had already received subsidies (for example, B99 from the US), ineligible to receive further German subsidies, or count towards mandated blending requirements.

The law also proposed that soy and palm-derived biodiesel should not be eligible for use in Germany until production of these products met sustainability criteria. No firm explanation of these criteria was given.

A vote had been scheduled for late January. However, the European Commission voiced concerns that the legislation would not be compatible with WTO law, and the German vote has been postponed pending a rewrite to address this.

Further complications have arisen from the timetabling of the final decision on sustainability criteria for biodiesel at an EU level, which may drag on well into the second or third quarter. The German legislation may be affected by this ruling, as its criteria must be compatible with those decided at EU level. So there is pressure on Germany, and any other country considering legislating on biofuels before EU decisions, to hold off.

A court case is also pending, with a decision expected in April, about the status of imports of biodiesel from the US, which have already picked up a subsidy before entering the EU. 

At the moment, this B99 material is being sold significantly under the value of B100, non-US origin material. This is harming the production economics of European manufacturers, with production estimated to be running at a third of levels this time last year.

In the event of a decision against the import of B99 biodiesel, this material may no longer be eligible to pick up a second subsidy in Europe, or may not count towards blending mandates, or both. The main concern for market participants is that any decision and concomitant ruling on taxation might be retroactive.

Brokers and traders have reported that in the first quarter of 2009 they were seeing a tendency in the market for buyers to opt for B100 material which, despite being more expensive, was not at risk of being hit by any countervailing duty.

The bid to curtail cheap imports from the US has been called protectionist by US producers, with allegations that Europe is trying to protect their farmers and industry. Rapeseed farmers in Europe would be particularly hit by reduced production of biodiesel in Europe as rapeseed oil is a major feedstock. 

Amandine Lacourt, project manager at the European Biodiesel Board (EBB), said: "The EU perspective is not protectionist but is aimed at creating a level playing field. Nowadays, there is a lot of discussion on biofuels sustainability at the EU level. Germany may have to wait for approval for its measures at an EU level. The climate change vote in December outlined big ideas, but it will take a while to get details in place. However, it is difficult for any member state to bypass the process."

While politicians debate the finer points of biofuels legislation, the feeling in the industry is that any decision would be better than the current state of uncertainty.

A biodiesel broker said: "This is incredibly frustrating and disappointing. It is clearly not at the top of their list of priorities, but until the situation is clarified German buyers dare not buy imported material."

Further confusion has been introduced into the German market in particular with a law emanating from the Secretary of the Environment recommending that the biofuel mandatory quota should be reduced from the current 6.25% to 5.25% for the remainder of 2009. This law comes into effect this month.

A spokesperson for the Association of German Biofuel Industry (VDB) says: "This is causing a lot of trouble in the biofuels market. Petroleum companies do not know how much they will be blending, nor when. Producers don't know how much or what kind of raw materials to buy. The whole market is in shock."

Germany is Europe's largest market for biodiesel. However, domestic production has run at reduced capacities as cheaper imported product has prevented manufacturers from achieving required margins.

The proposed German legislation is likely to be backdated to the start of 2009, with the result that there has been scarce buying interest out of Germany in any fatty acid methyl ester (FAME) products, which typically contain palm and soy oil derived methyl esters. 

While rapeseed methyl ester (ROME) is more heavily used in the winter months anyway, because of its low cold filter plugging point (cfpp), it is more expensive than FAME blends and is therefore not used in the warmer months.

The climate of legislative uncertainty was harmful to trade levels and could hold back the development of this emergent industry, according to market sources.

Johannes Lackmann, chief executive at VDB, says: "Germany has a biofuels policy that is based on retroactive measures. We cannot work like this and urgently need a policy based on a long-term strategy."

Lackmann's sentiment is echoed across the industry, with market participants saying they had already resigned themselves to a slow first half of 2009.

While uncertainty is strongest around the German market, the unease has spread with the overall low liquidity levels seen.

While brokers lament the slow deal flow and traders find it difficult to take long-term positions, those with most to lose are arguably the investors in European biodiesel capacities. Rapeseed methyl ester has been selling below replacement cost for the start of 2009, with speculation from traders that producers do not have the facilities to store product, and need the income from selling volumes, even at a reduced price level.

If prices stay low then there is always the possibility of cutting output. However, biodiesel production in Europe already runs at a low level compared to capacity. Also, without income from product sales, there is a real risk of firms not being able to service their debt.

If biodiesel, and biofuels, generally, are to have a chance of becoming an economically viable product then investors must not be put off by a precarious legislative climate. The global economic downturn is bound to have many casualties, but hopefully the promising field of biofuels development will not be one of them.

AND THE RESULT OF ALL THIS MESS IS...

Switzerland-based biodiesel producer Biopetrol Industries expects to report a loss for 2008, and must take substantial restructuring measures to avoid insolvency.

The company forecast an operating loss of €11.5m ($14.7m) compared with a gain of €5.4m in 2007, but expects a 38% increase in annual sales to €300m. 

"Since the middle of the fourth quarter, Biopetrol Industries has experienced drastically worsened market conditions in Europe and in particular in the important markets of Germany and the UK," the company said.

Because of its weaker financial situation, it is unable to pay the interest on a €75m bond it issued in February 2007.

The company blamed European and German energy policies for deteriorating market conditions. Biopetrol said the market for pure biodiesel (B100) had "completely collapsed". 

Rachel Howat covers gasoline, methyl tertiary butyl ether (MTBE), ethyl tertiary butyl ether (ETBE), ethanol (fuel, beverage and industrial grades) and biodiesel markets for ICIS pricing.
source: www.ICIS.com

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Second-Generation Biofuels Need Work

The development of sustainable biofuel options is progressing well. Who will come out the winners?

ONCE SEEN as a promising alternative to gasoline, corn-based ethanol is being supplanted by a second generation of biofuels promising greater sustainability. Cellulosic materials, algae, pyrolysis and directed evolution are all contributing to these developments.

Pyrolysis

A combined pyrolysis/Fischer-Tropsch (FT) route to biofuels from cellulose is being demonstrated by French gas producer Air Liquide's subsidiary Lurgi at the science and engineering research institution Forschungszentrum Karlsruhe in Germany. Lurgi will be building a gasification plant in a joint project with the Karlsruhe Institute for Technology by 2011.

The Lurgi process takes three steps to turn straw to automotive fuel. The first stage uses fast pyrolysis at around 500°C to convert thin-walled plants, such as straw, into an energy-rich slurry.

This slurry is then transported to a central refinery, where it is heated with steam to produce synthesis gas. In the final step, the synthesis gas is converted into fuels by the FT process. 

Edmund Henrich, of theForschungszentrum Karlsruhe outlined the process in a presentation at the second European summer school on Renewable Motor Fuels, in 2007. 

Henrich says that, on average, the cereal harvest for rural Europe yields around 50 tonnes/km2 of straw that is not needed to maintain soil fertility. Square bales of this straw could be transported economically for between 20-30km (13-19 miles) to a pyrolysis plant.

"Taking the larger radius, the plant would convert around 200,000 tonnes/year," he says. "With a dry ligno-cellulose feed, the output is around 134,000 tonnes/year of a pyrolysis oil/char paste, a sludge or slurry with a density of 1,300kg/m³ and a higher heating value of 6 +/-1 kWh/kg." 

Henrich says the output of the pyrolysis paste is about eight times greater than the straw bales and this can make it economical to transport for long distances. Henrich adds that the slurry can contain around 90% of the initial bioenergy and is easily stored in tanks and silos. Because the energy density is much greater than straw, it is economic to transport this by rail to a central refining facility, which can be up to 500km away.

Henrich says about half of the initial biomass energy can be converted into raw FT products, about 80% of the FT raw product energy may be converted into super-clean diesel and gasoline, and he suggests that a synfuel energy yield of 42% is a realistic upper value. Available present-day technology is near 30%. Synthesis pathways via methanol may be more efficient.

How sweet it is

Cellulosic to ethanol via enzymes and fermentation is an area where Swiss-based agricultural chemicals firm Syngenta has been active. The company has partnered with other industrial biotech firms, notably France-based Proteus and US-based Verenium (formerly Diversa), to develop technology. 

Proteus and Syngenta announced in January that they will work together to develop novel, high-performing enzymes for next-generation biofuel production. 

Both diversity screening and directed evolution methods are to be used for the discovery and the optimization of enzymes for the conversion of biomass into biofuels.

Proteus has a range of technologies and a source of new genes. It also has tools to generate new proteins that enable it to produce tailored enzymes, as well as a protein manufacturing platform to generate them.

Just over two years ago, Syngenta signed up Verenium to develop a range of novel enzymes to economically convert pretreated cellulosic biomass to mixed sugars.

This route to producing ethanol from cellulose is likely to be a long haul. Syngenta says that converting biomass to biofuels requires breakthrough developments in three areas: chemical preparation of the cellulosic biomass (pretreatment), conversion of pretreated cellulosic biomass to fermentable sugars by combinations of enzymes (saccharification), and the development of novel microorganisms to ferment the sugars to ethanol or other fuels (fermentation).

Dutch chemical giant DSM is using its longstanding expertise in industrial processes that use yeast and enzyme technologies to help develop routes to ethanol from cellulose.

"Our focus is on how to bring conversion technology into play, into second-generation, second-wave technology," says John Monks, business director bioproducts. He is not interested in making biofuels as such, but rather in the processes that make them possible.

DSM has partnered with Spain-based biofuels firm Abengoa, and the combination has won a grant from the US Department of Energy to look at ways of turning agricultural residues into biofuels. The firm's focus is wheat straw and corn stover. "Will it be the best feedstock? Who knows?" says Monks, "Whatever is chosen, there are many hurdles to be overcome in getting the fuel from the field. The challenge is in delivering technology, which enables cost-effective production. People have to be broad-minded about what's out and what's in." 

Cost effective means biofuel from cellulose that can compete with oil at around $65/bbl. DSM's routes are currently "several orders of magnitude" above that price level, so there is plenty of room for development.

Wood's bioproducts business has pulled in yeast technology from Gist Brocades and a number of processes and ideas to develop yeasts that deliver enzymes capable of handling not only C6 sugars like glucose and fructose but also C5 saccharides produced by the decomposition of cellulose and lignin.

"Yeast classically consumes C6 sugars," says Monks. "Some of the work we're doing in the lab is to change the diet of yeast. Typically it turns its nose up at C5 sugars, and we're trying to persuade it to be more broadminded." This can be done through natural selection, protein engineering, or a combination of the two. 

One concern about using field waste as a source of biomass is the effect of removing cellulose on soil structure and fertility. Monks says that research needs to be done to ensure that the right level of cellulose is left on fields to protect the soil below. This is especially important in areas like the US Midwest, where wind erosion can be a problem if soils become too dry and lack organic matter. 

Aqueous solution

Algae, grown in freshwater lagoons or the sea, may be one answer. Algae can yield over half their biomass in oil, which can be converted to biodiesel. They also produce sugars that can be fermented to ethanol. 

However, there is still some way to go before biofuels produced from algae can become a reality, says Dominique Duvauchelle, chairman and CEO of France-based industrial biotech company Eco-Solution. Duvauchelle puts the current best yield at around 25g/m2 for algae from open ponds. His company, like DSM, sees its niche as providing technology and tools to make biofuels. 

Eco-Solutions started with a platform that enables it to stress a range of microbes from bacteria to yeast to algae, encouraging them to respond through accelerated evolution to the environments to which they are subjected.

According to a rule of thumb, bacteria will divide once an hour and algae once every day, says Duvauchelle. Eco-Solutions has a patented method for increasing this rate, so that algae placed in the reactor will mutate faster than naturally. After a short time a natural mutation in the algae will likely have developed to become the dominant form in the reactor, being the fittest for that environment. 

Duvauchelle says this process can be repeated as necessary and combined with high throughput screening to rapidly develop algae that will have high yield and high growth rates.

Eco-Solutions has been working for three years to understand algal metabolism in an attempt to tackle algae's problems as a biofuel source. 

"It is slow-growing and must be faster," says Duvauchelle. "There are some problems with contamination at the start of growth after the algae has been seeded in open ponds, and the amount of biomass required."

These problems go some way to explaining why the economics are still unclear. "We will need a 1ha (2.5 acre) pond to better define that," he says. 

The firm is in discussion with two companies that are interested in CO2 mitigation, he says, and a trial may be possible by the end of 2010.

Duvauchelle believe that a combination of open ponds and glassware might offer the best economics. His current strategy sees algae started in glass and then added to the ponds. But it is important that the biofuel algae grow quickly to minimize the amount of contamination from competitive algae. "There are about 30,000 species of algae," he says. "100 are well known and between 15 and 20 are used for production." So there is plenty of scope for competition.

But the diversity of algae also means that there is scope to produce niche algae for different conditions. He says it is unlikely that there will be single algae that works well in the cold climates, the tropics, salt and fresh water.

All of these technologies could offer considerable range for producing biofuel from nonfood sources. The pyrolysis route looks to be the closest to commercialization, but is some way off. For companies looking to bet for the longer-term enzyme, fermentation and algal routes could still pay off though.

CORN POWER: 
Corn-based ethanol still has a future, according to US biofuel company poet 

One biofuel company, US-based Poet, claims to be making around 20,000 gals/year (75,700 liters/year) of ethanol using corn cobs as feedstock. Poet has a research center in South Dakota, and it is pursuing an integrated starch and cellulose to ethanol refinery model. The company is supported by DuPont and Novozymes. 

Speaking in May 2006, DuPont executive vice president and chief innovation officer Thomas Connelly said: "We have worked over the last three years to develop a technology package that can efficiently break down the complex sugar matrix found in corn stover into ethanol from cellulose at a high yield. We are excited about the progress we have made and, while we still have to complete more research, we are ready to take the next steps to bring cellulosic ethanol to the market."

In 2004,Broin and Novozymes partnered in the development of a new enzyme for Broin's BPX technology, a patent-pending raw starch hydrolysis process that converts starch to sugar, which then ferments to ethanol without heat.

The innovative technology was taken to commercial-scale production after four years of research and development and eliminates the cooking process that has been part of ethanol production for hundreds of years.

The results included higher ethanol yields, increased nutrient quality and flowability in distillers dry grain soluble, reduction in plant emissions and reduced energy costs by up to 15%. During the development phase, Broin obtained from Novozymes a sample of acid fungal amylase enzyme that ultimately became specific to the process.

source: www.ICIS.com

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