MONTREAL – An independent energy consultant says the global market outlook for ethanol is much stronger than for biodiesel.
“We think it’s more of an ethanol driven world than a biodiesel driven world,” said Alan Gelder, head of downstream oil – Americas with Wood Mackenzie.
He told delegates attending the Biofuels International Canada Expo & Conference that ethanol has considerable growth potential.
Wood Mackenzie forecasts a doubling in global ethanol demand over the next 10 years, far exceeding today’s production capacity.
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As a result, there will be a big investment opportunity in the sector. Much of that will occur outside the United States, where capacity is already approaching the level required by 2020 as set out in its renewable fuel standard.
Food crops are expected to remain the dominant raw material for the ethanol industry through 2020.
Gelder expects much of the new capacity will be created in Latin America, where production costs are lowest.
Corn ethanol is expensive compared to gasoline and the sugar cane ethanol produced in Brazil.
“Brazil could well become the Saudi Arabia of the ethanol world,” he said.
Gelder was particularly bullish about advanced biofuel like cellulose ethanol. Governments around the world are setting challenging renewable fuel standards that should create strong demand for second generation ethanol.
By contrast, he was bearish about what the future holds for biodiesel.
“There is structural overcapacity everywhere. Lots of plants laying idle,” said Gelder. “Overcapacity will continue to plague the industry for the next decade.”
His firm forecasts escalating vegetable oil prices that will remain high for a long time, creating the risk of price shocks in years of poor crop production. Vegetable oil is the main input in the production of biodiesel so profit margins are likely to continue to be squeezed.
Gelder said many renewable standards don’t specify what the renewable content has to be and because biodiesel is expensive compared to ethanol, demand for the fuel will be limited.
“If you are a fuels retailer or distributor, you buy the cheapest thing to achieve that target, which would seem to be ethanol,” he said in an interview during a break in the conference.
Rick White, general manager of the Canadian Canola Growers Association, said biodiesel remains a key focus for his organization.
“We’re still very positive on it,” he said.
Canada’s mandate calls for two percent renewable content in diesel and heating fuel by 2012. If that mandate were filled exclusively by canola biodiesel, it would amount to a one million tonne domestic market for the crop.
Learn from abroad
White is confident the emerging Canadian biodiesel market will be different from those built in Europe and the U.S., where asset utilization rates are below 30 percent.
“We have the opportunity to learn from that,” he said.
He believes Canada has come up with a balance of supply-side and demand-side subsidies that will result in the right amount of capacity to meet the looming federal and provincial mandates.
“Hopefully we’ll end up with an industry that will float,” said White.
Gelder said he’s heard that story before. Plants in Europe and the United States believed they would be busy and profitable as well. But there is no mechanism to prevent overcapacity.
“If you get herd mentality then (Canada is) in the same situation,” he said.
