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The Case for Biodiesel

The Case for Biodiesel. John Mixon, University of Washington Business School Ian Kraucunas, UW Department of Atmospheric Sciences James Dack, UW Evans School of Public Policy Jia Feng, Humphrey Fellow, UW Evans School BBUS 550. Environmental Problems. =. CO2 curve?.

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The Case for Biodiesel

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  1. The Case for Biodiesel John Mixon, University of Washington Business School Ian Kraucunas, UW Department of Atmospheric Sciences James Dack, UW Evans School of Public Policy Jia Feng, Humphrey Fellow, UW Evans School BBUS 550

  2. Environmental Problems = CO2 curve?

  3. National Security Benefit

  4. Value Proposition • Biodiesel provides the following benefits: • Regional economic stimulus • Local and global environmental benefits • Reduced dependence on foreign oil • Why is biodiesel relevant now? • Huge potential market(1% of U.S. diesel market = $460 million/year!) • Mature production process (many possible feedstocks?) • Can be used in existing diesel engines • Public policies are rapidly evolving

  5. What is Biodiesel? • Renewable alternative to petroleum-based diesel fuel • Chemical name: methyl esters • Made from plant oils or waste fats and oils(e.g. soybeans, rapeseed, yellow grease) • Can be blended with conventional diesel at any ratio (e.g. B20)

  6. How is Biodiesel Produced?

  7. Biodiesel Performance • Safe, non-toxic, biodegradable, easy to transport and store • Excellent lubricity: reduces engine wear • High cetane number: ideal for blending • Slight reduction in power / fuel economy (1-2% reduction for B20) • Some problems in cold weather

  8. Environmental Benefits

  9. What’s Driving the Biodiesel Market? Decisions made by policy makers Mandates Require behavior change Encourage Behavior Change Incentives

  10. Mandates Federal EPAct ULSD (ultra-low sulfur diesel) State School Bus Pilot Project Local Clean Green Fleet Action Plan Current Public Policy Influencing the Biodiesel Market • Incentives • Federal • Commodity Credit Corp. • EPAct Tax Deductions • State • HB 1240-Production • HB 1241-Distribution • Sales tax exemptions • Grants

  11. Why is this important to investors investigating biodiesel? • In certain markets, the mandates and incentives may begin to overlap • Individually, mandates and incentives lower the risk to biodiesel investors • Overlapping mandates and incentives provide extra insulation • The best biodiesel markets will be ones that have strong state and local policy drivers

  12. Biodiesel Production

  13. Market Potential • Annual U.S. diesel usage = 36 billion gallons • If diesel price = $1.30, total market size is… $47 billion!!!!! • 1% market share = $470 million!!

  14. Market Overview – Supply Chain

  15. Market Overview – Supply Chain • Petrodiesel Supply Issues • Intermediaries • Transport / Commodity Brokers • Ship / Pipeline Operators • Political Instability • Spills • Biodiesel • Regional nature of supply promotes stability • Safe, non-toxic, biodegradable, easy to transport and store • Flexible feedstock reduces price volatility

  16. Price Comparison *Based on Dr. Dan’s Fuelwerks in Seattle, WA

  17. Input Cost Variation

  18. Market Segmentation

  19. Seattle Opportunity

  20. Why Seattle? • Large Initial Dedicated Customers • King County Metro (~9 Million gallons) • Washington State Ferries (~11 Million gallons) • Allows production efficiencies • Long-term contract stability • Minimal Transportation Costs • Fuel depot on Harbor Island • Could mix with petrodiesel on-site and use existing local trucking / distribution

  21. Why Seattle? • Feedstock Supply • Well established yellow grease market • 9 – 11 Million gallons (cost is ~ $0.95 / gallon) • Long term: mustard seed grow in Eastern Washington? • Production Cost Mitigation • USDA $0.95 subsidy for yellow grease • Economies of scale

  22. Why NOT Seattle? • Distribution difficulties • Mandate for ULSD by 2006 • Need to change mandate to include biodiesel • Gold standard: ULSD + B20 • King County Metro is still concerned with B20 emissions profile and power issues

  23. International Markets Overview-China Diesel Demand • Diesel use in China: 18-21 billion gallonsin 2002 • 33% more imported • 4% growth rate (30 billion gallonsin 2010) • GDP growth rate = 9.4%

  24. International Markets Overview-China Potential Biodiesel Feedstocks • Oilseed crops (soybean, rapeseed) • Native high oil-content tree (Huang Lian Mu) • Acid oil food • Waste cooking oil • Animal fat / tallow

  25. International Markets Overview-China Producers • Hainan Zhenghe Bio Energy Company (Hebei Wuan Factory and Beijing Changping Factory) • Sichuan Gushan Grease Chemical Company, Ltd • Fujian Zhuoyue New Energy Development Company Customers • Construction sites • Heavy truck transportation companies • Farmers • Gas stations

  26. International Markets Overview-China The Price of Biodiesel Petrodiesel Biodiesel (rapeseed) Biodiesel (YG)  $1.208/gal $1.414/gal $1.049/gal Current Biodiesel Output in China 15 million gallons (vs. 300 million gallons in EU) Reasonable Feedstock Output ~900 million gallons

  27. International Markets Overview-China) What’s Obstructions? • Breaking the oil industry monopoly • Setting up national standards on quality and manufacturing equipment for biodiesel Are there Opportunities in Chinese Biodiesel Market? • Risk investment and potential fraction of biodiesel market in China • Two birds with one stone: Cooking oil safety and biodiesel production in Beijing • Exporting Biodiesel from China to Other Countries ?

  28. Recommendations

  29. Questions?

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