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HYSTORY once upon a time (1990-1998)

HYSTORY once upon a time (1990-1998). All started in late 80’ , the vision was “green chemistry, energy and chemicals from agricultural raw material” In Brussels, DG Agriculture confronted with growing surpluses of agricultural products, launched non food application R&D program

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HYSTORY once upon a time (1990-1998)

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  1. HYSTORY once upon a time (1990-1998) • All started in late 80’ , the vision was “green chemistry, energy and chemicals from agricultural raw material” • In Brussels, DG Agriculture confronted with growing surpluses of agricultural products, launched non food application R&D program • After very small Austrian initiatives in ‘92-’93, Novaol in Livorno (Italy), Diester in Compiegne (France), Conneman in Leer (Germany), launched the first industrial investments • Biodiesel became the name • Buses in Zurich, in Graz and Vicenza, taxis in Freiburg ……….. were the first attempts raising media and policy makers attention

  2. HYSTORY (2)STAKEHOLDERS INVOLVEMENT • Mercedes, Volkwagen, Peugeot • Total, Shell France • B5 /B100 concepts • ’93: Legislation Italy and France • Schrivener Directive Attempt

  3. HYSTORY (3)MARKET DEMAND • Promotion difficult • Oil companies “phylosophycally” against • Margins: poor (barrel oil at 10-12 $) • But • Pioneers’ committment • Setaside regulation – PAC reform • Initial environmental concern – Ghreenhouse gases / particulate matters • Industry got together: EBB founded in ’96 – 5 members

  4. EU Bio Fuels Promotion DirectiveEC Directive 2003/30/EC of May 8, 2003 • Bio Fuels as a percentage of of total consumption of fuels in the transportation sector: • 2005: 2% • 2010: 5.75% • Targets are indicative but there is a provision in the Directive under which member States have to provide a sound justification when the targets are not achieved. • The Commission and specifically DG TREN is committed to encourage Member State to meet the targets.

  5. Northern and Southern Europe, the indicative targets and bio diesel production • In Northern Europe there are a few countries with large production of rapeseed and, therefore, with abundant supplies of rapeseed oil. In these countries bio diesel is and will be based on rapeseed oil. • In Southern Europe the key concern should be to meet EN14214 with whichever oils are available. In most Southern European countries there are larger quantities of soybean oil which results from the crushing of soybeans to produce protein for local animal production. • The use of soybean oil in bio diesel blends supports the local crushing industry, provides greater flexibility to the bio diesel industry and benefits local employment and local value added. It also diminishes the need for direct imports of expensive protein.

  6. Bio Fuels: Moved from an Agricultural to a political issue. • Bio Fuels became a political versus an agricultural issue. It relates to security of energy supply, reduced emissions of CO2, reduced dependency on oil imports, ensure economic sustainability and foster employment. The Commission is engaged in moving ahead. While there are no binding duties, there is a reasonable degree of certainty that the Commission will push hard to make bio fuels a reality in the coming years.

  7. Distribution of Bio Diesel • Service stations especially in Northern Europe, B100. • B5 produced in refineries by mixing fossil diesel (95%) and bio diesel (5%) • B20 used mostly in fleets of trucks, buses and boats • B5 is, by far, the largest market segment for bio diesel

  8. The political element of Bio Diesel • The production and use of quality bio diesel is only possible with tax exemptions provided by the respective Member States. The granting of tax exemptions is refrained by budget deficits which some countries face (e.g.. France, Germany, Italy and Portugal). • These financial difficulties should be overcome by the political concerns of security of energy supply, reduced emissions of CO2, decreased dependency on oil imports, sustainable economic growth and employment. • Naturally each country should use first the oils locally available and use blends that meet the specifications of EN14214. • Regrettably oil taxes are way different in the MS. Each country has therefore adopted different regulatory schemes to entail the production of bio diesel exemptions. Total or partial exemptions and establishment of production quotas to set a limit on budget losses.

  9. The Spanish Case • Spain adopted EN 14214 with the exception of the iodine value which was increased to 140 to accommodate larger quantities of other vegetable oils such as soybean oil, sunflower oil and animal fats. • Large local refineries, however, are currently asking that EN14214 specifications be met which means that the fact that Spain has an iodine value of 140 does not prevent clients from demanding observation of EN14214 • Concluding, Spain’s iodine exception provided greater flexibility to bio diesel producers and yet it maintain protected the legitimate interests of refineries and oil distributors. • Local trucking companies, bus companies, boat companies and users of bio diesel for heating purposes might not mind an iodine value of 140 which would allow larger uses of local oils.

  10. Do car and engine producers in EU support bio-diesel? • The engine and injection equipment manufacturers have adopted a very cautious position vis a vis bio diesel. The product requires a tax incentive and requires thorough testing before massive use. • B5 is definitely not a problem; Refineries like it because bio diesel it’s cheaper than expensive additives required by environment legislation and car manufacturers like it because, up to 5%, bio diesel acts as a lubrificity agent. In some European countries, truck fleets buy bio diesel directly from the plants to take advantage of price.B20 is commonly used in fleets of trucks and buses as well as in boats. In Europe B5 is, by far, the largest market segment. Petroleum refineries/distributors, car manufacturers and injection equipment producers are key stake holders without which there will be no stable market for bio fuels. • B100 is only used only in large scale in Germany and Austria.

  11. What are the incentives in bio-diesel production and usage? • The EU Commission has authorized MS to provide tax exemptions to bio fuels. Some countries did it (Germany, Austria, Spain, France, UK) but in different models and with a total or partial exemption. The German Government will likely reduce slightly the tax exemption in 2006 but no final decision has been taken yet. This move reflects a tight budget deficit situation in Germany. • Soon, Italy and France might drop the production quotas. These quotas are allocated to specific plants that the State finds reliable. • Tax exemptions are the only incentive per se. In some countries, companies have used EU grants and subsidized loans to build bio fuels plants using environmental arguments.

  12. Does EU have enough sources/raw materials if bio-diesel use becomes obligatory? Is Turkey a potential exporter of raw materials? • If the EU uses all oils and fats available (even those like soybean oil obtained from imported soybeans) it will be enough for the moment. But, the issue over bio fuels is now political. Even at the cost of imported products it’s important to reduce oil imports and securitize energy supplies. Supply and demand will shape the market. If Turkish bio diesel producers are willing to meet European standards they could become an exporter of bio diesel to neighbouring countries.

  13. Bio Diesel versus other renewable sources • The greatest advantage of bio diesel is that it can be used today through the available distribution chain without any major structural investments. • There are many other sources of energy that will be available in the future such as liquid gas, bio mass and hydrogen. • The massive production of these products and the development of an adequate consumer distribution chain will take many years of research and major investments. In the short, medium term bio diesel has a promising future. • In the future, it will be one among other competitive sources of energy to live in a cleaner environment and a sustainable economy. • Increased bio diesel production will definitely contribute to increasing Farmers’ income.

  14. BIODIESEL PRODUCTION1998-2004 And we anticipate 2005 to be above 2.5 m tons, with above 3 m tons reachable in 2006

  15. MARKET UTILIZATION • 2.5 M tons is estimated 2005 consumption of which - 0.7 m tons as B100 - 1.8 m tons as B5 • Average blending percentage 3%  about 50 M tons gasoil addittivated over total 160 M tons  30% penetration • Realistic target: 4% on 180 M tons  about 7 M tons

  16. EU - CAPACITIES 2005 2006 2007 GERMANY 1590 2180 3080 FRANCE 515 750 1000 ITALY 620 640 790 NW (UK – B - NL) 30 345 920 IB (SP - P) 95 220 590 CE (PL – CZ – A ) 305 405 700 OTHERS 165 305 630 TOTAL 3320 4845 7710 * * 105 PLANTS

  17. FROM AGRI TO ENVIRO AGRICULTURAL IMPACT • 2.5 M tons biodiesel usage  6.5 M tons oilseed crush  2.5 M hectares land • EU has good arable land to at least double this surface MACROENVIRONMENTAL IMPACT (Greenhousegase) • 6.5 M tons CO2 saved • Biofuels are only real possibility in the transport sector

  18. EU LEGISLATION (1) DIRECTIVE 2003/30 • Indicative targets: 2% (2005) up to 5.75% (2010) • Member States must set national targets (and must pay for the bill) • Very different level of gasoil taxation: Greece 245 €/m3  Spain 295 €/m3  France 350 €/m3  Italy 413 €/m3  Germany 470 €/m3  UK 600 €/m3 • Biodiesel is fully (Italy, Germany) or partially (UK, France) exempt • Quotas in Italy / France and probably Greece/ Portugal/ Belgium

  19. EU LEGISLATION (2) • Innovative approach : - Austria  tax = 28 €/m3 if biodiesel at least 4.4.%  theoretical parity detax = 600 €/m3 but final consumer pays the bill (France very similar as well) • Mandatory: none in EU - sofar, but …… • Building appropriate favorable legislation is central pillar of biodiesel business. Without it no business conditions (Political support/consensus/lobbying/PR is therefore needed) • Several other legislations impacting (e.g. Directive on Energy Taxation, Fuel Quality, Emission Standards, etc.)

  20. BUSINESS DRIVERS a) Political/Macroeconomics • Agriculture (Setaside regime – energy crop) • Environment (macro and micro) • Energy Security (increasing dependence on oil) • Kyoto Protocol • Different “weight” Brussels vs. National • Must play all of them b) Market • Compensate gasoil shortage • Price • Lubricity Improver (ULSD)

  21. FEEDSTOCK • All started with Refined Rapeoil (which still is the best quality wise) • Growing demand for rapeoil creating more than 100 euro/t spread vs soya • Biodiesel takes already about 40% of total EU rapeoil supply • Alternative oils are key strategic issue • Soya already used up to 30/40% blends (limitation iodine value) • Palm usage has CFPP limitations (in EU max 15% summer – 5% winter) • UFO (used fried oils) largely used (exp. small plants) but limited supply etc. • Animal Fat: big challenge, but byfar lowest quality

  22. QUALITY SPECIFICATIONS • EN 14214 - accepted/approved by all engine/car/petroleum ind. • Reachable only with 50% plus rapeoil • Oxidation stability and CFPP (cold T behaviour) most critical • technical scope to widen specs is there, but CEN process very long/ need push • Fuel quality more and more critical: common rail engine technology • Second level market in B100 segment Germany - huge discount - trucking co. takes risk- sometimes outlet for questionable qualities (and recently even refined rapeoil has been used)

  23. INVESTMENT CRITERIA • BIODIESEL COST STRUCTURE Feedstock 84 Chemicals 7 Utilities 4 Glycerine (1) Cash Fixed Costs 4 Depreciation 2 ------------------------------ Total 100% • CONCLUSION: IMPORTANCE OF FACTORS 1) FEEDSTOCK  supply chain  capability of using different qualities  plant flexibility 2) LOCATION/LOGISTICS

  24. OUTLOOK FOR INTERNATIONAL BIODIESEL MARKET • Today Germany and France represent 2/3 of world demand: in next 3-5 years wide geographical expansion • Each investment must be based on good proportion of local demand: “Germany overdose syndrom” • Biodiesel key features: - hi margin volatility  risk management - operational management vs investment/plant building - feedstock management (supply chain/qualities/flexibility) - petroleum customers: no compromise on quality / car manufactures – gas distributors brand value

  25. CONCLUSION • Biodiesel is a great product • Still potential two digits growth rate • Expanding worldwide • International trade • Various origination • Requires very professional skills

  26. rapeoil (€/mt), gasoil (€/mt), month+3

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