Biofuel promoters say soaring grain and oilseed prices that are expected to generate record-high crop receipts for Canadian growers in 2007 are causing plenty of pencil-sharpening in their industry.
Groups planning on building plants and officials charged with encouraging development of the industry are having a tough time figuring out how anybody’s going to make a buck.
“I’ve sat down and crunched the numbers and it’s just a real challenge right now given the current price of canola,” said Judie Dyck, president of the Saskatchewan Biofuels Development Council.
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She said biodiesel developers are facing more of a price squeeze than their ethanol counterparts, who are starting to cancel expansion plans in the United States.
Crude canola oil has been as expensive as $900 per tonne f.o.b. Saskatchewan this summer. At that price a biodiesel plant would pay 83 cents per litre for a feedstock that would produce a fuel that competes with regular diesel, which sells for 94 to 103 cents per litre at the pumps.
When projects add in costs and a profit margin, the resulting product would be unable to compete, especially considering biodiesel has lower fuel efficiency and leads to more maintenance costs than regular diesel.
“You can’t compete with the diesel prices within reason,” said Dyck.
Martin Reaney, one of Canada’s leading biodiesel researchers, said the situation isn’t as black as Dyck portrays it.
He said the runup in feedstock costs has been largely offset by a corresponding increase in oil prices, which establish the price for biodiesel.
When canola was $5.50 per bushel, oil was selling for $40 US a barrel. Today’s prices are approximately $9 per bu. and $88 US per barrel.
“Biodiesel prices have been going up quite significantly during this period,” said Reaney, Saskatchewan Agriculture’s research chair of lipid quality and utilization.
His colleagues at the University of Saskatchewan have analyzed the biodiesel industry and found there would still be money to be made at today’s commodity prices if it wasn’t for one nagging factor.
“If the Canadian dollar had not changed it would be very profitable to make biodiesel at this juncture,” he said.
Doug Hooper, chief executive officer of Canadian Bioenergy Corp., a company that recently broke ground on a 225 million litre biodiesel plant in Fort Saskatchewan, Alta., said the surge in commodity prices is worrisome.
“The price of feedstock has risen dramatically in the last 12 months and that makes it challenging for all of us that are just launching projects.”
There is no futures market for crude canola oil, but he follows what is happening to soybean oil prices, the primary raw ingredient of the U.S. biodiesel industry.
That commodity has risen 33 percent over the past year on the Chicago Board of Trade.
Hooper maintains the Canadian Bioenergy plant will still be profitable, largely due to federal and provincial production incentives amounting to 34 cents per litre. But some of the details of the production credits are fuzzy.
“We’re showing positive margins but it’s all based on a very uncertain future for all of us,” he said.
A lot will depend on canola oil and diesel prices come June 2009, when Canada’s first large-scale biodiesel plant is scheduled to start production.
Reaney said the $900 per tonne price Dyck referred to is for partially refined oil made out of No. 1 canola.
But biodiesel plants can reduce costs by using lower grade canola seed.
Another thing that has been overlooked is the money-making potential from the byproducts of biodiesel production.
Material that isn’t burned can be turned into nutraceuticals, lubricants and biopesticides, said Reaney.
Dyck agrees. She hopes that one day biodiesel will be thought of as the byproduct of the whole process.
