Biodiesel Supply: How Much Can We Produce?

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Biodiesel Supply How Much Can We Produce?

• James A. Duffield
• Office of Energy Policy and New Uses, USDA
• Jduffield_at_oce.usda.gov
• Presented at the Clean Cities Congress and Expo
  May 7-10, 2006, Phoenix, Arizona.

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U.S. Production of Feedstocks from Crops
Oil Type Million Pounds Cents Per Pound
Soybean 18,136 23
Corn 2,437 25
Cottonseed 825 29
Sunflower 538 30
Canola 549 29
Peanut 230 41
Linseed 204 40
Safflower 84 79
3
U.S. Production of Feedstocks from Animal Fats
and Grease
Oil Type Million Pounds Cents Per Pound
Lard 1,077 14
Edible Tallow 1,936 16
Inedible Tallow 3,614 16
Grease 2,598 10
Poultry Fat 889 NA
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U.S. Biodiesel Feedstock Supply
4.0
2.74
1.30
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U.S. Distillate Fuel Oil Use
62 Billion Gallons
Off-Highway
Other
1
Electric Power
1
Farm
4
5
Commercial and Industry
9
Transportation
Residential
11
69
Source Energy Information Administration, Fuel
Oil and Kerosene Sales 2004
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Current Issues

• Do we have enough feedstock to replace petroleum
  diesel in the U.S.? No
• How Much Domestic Crop Oil and Animal Fat Could
  be Used for Biodiesel?
• Can we expand our feedstock base? Yes

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How Much Crop Oil and Animal Fat Could be Used
for Biodiesel?

• Current Uses
• Most Used for Edible Purposes -- salad and
  cooking oil, baking and frying fats, margarine,
  lard, tallow, and animal feed
• A small amount is used for inedible purposes
  soap, cosmetics, surfactants, lubricants, paints,
  solvents, resins, emulsifiers, pesticides, fatty
  acids, printing inks, and biodiesel

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Most Fats and Oils Used in High-Valued Food
Markets
Animal Feeds
Inedible Products
9
11
Food Products
80
Source USDA, Economic Research Service, 2005
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Economic Dilemma

• A biodiesel producers input costs are relatively
  high because they must compete for their primary
  input in high-valued food markets.
• 2. The selling price of biodiesel is relatively
  low because it must compete in the fuel market
  with petroleum diesel, which historically has a
  lower value than animal fats and oil.

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Production cost of biodiesel

• Cost per gallon
• Feedstock cost (0.16 0.30/pd) 1.20 -
  2.25
• Average credit for Glycerin (0.10)
• Net feedstock cost 1.10 - 2.15
• Average cash operating expenses 0.46
• Capital Cost 0.13
• Total cost using soybean oil
  1.69 - 2.74
• Total cost using yellow grease 1.33 - 1.86

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Spot price of No 2 diesel U.S. Gulf Coast
weekly prices

• April 2006 prices ranged between 2.04 - 2.21
• High price of 2005 was about 2.90
• Low price of 2005 was about 1.11
• Recently biodiesel has been price competitive
  with No 2 diesel and there was a period last
  summer when biodiesel was selling at a lower
  price than petroleum diesel.

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Historically, Biodiesel Feedstocks Cost More Than
the Selling Price of Petroleum Diesel
Cents per gallon
Soybean oil
No. 2 Diesel
Source USDA and Energy Information Administration
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If Biodiesel Growth Continues, Where is the
Feedstock Going to Come From?

• Redirect Exports
• Increase Imports
• Grow More Crops

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U.S. Exports of Soybeans, Fats, and Oils
1382
256
161
103
1900
Source Oil Crops Situation and Outlook
Yearbook, ERS, USDA, 2005
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Soybean Exports are Leveling Off and the US is
Losing Market Share to Brazil and Argentina
Source ERS and USDA Baseline, 2005
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Exports Could Be Redirected To Biodiesel Market

• If biodiesel demand continues to rise, and
  producers increase their usage of fats and oils,
  exports could be redirected towards the biodiesel
  market without having a huge effect on domestic
  food and feed prices.

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Currently Imported Oils are Limited
Source ERS, USDA, 2005
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Grow More Crops

• Substitution, e.g., grow more soybeans and less
  wheat
• Bring more land into production
• Increase bushels per acre
• Increase oil content per bushel
• Introduce new plant varieties

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Conclusions

• There is enough domestic feedstocks to satisfy
  biodiesel demand in the short run. Exports could
  be redirected to the biodiesel industry to
  sustain growth.
• It seems unlikely that the U.S. would ever import
  a significant amount of oilseed crops or
  biodiesel.

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Conclusions

• We Can Expand Supply of Domestic Feedstocks
• Some limited opportunities for crop substitution
  and increasing land use for biodiesel
• Feedstock supply will increase as crop yields
  continue to rise
• We will see small increases in oil yields for
  traditional crops
• Perhaps are biggest gains will come from the
  introduction of new plant varieties

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Conclusions

• Biodiesel cannot completely replace petroleum
  diesel fuel, but it can help solve our energy
  problems.
• Biodiesel is just one of many alternative energy
  sources that can help diversify and expand
  domestic energy supply.
• The relative supply of biodiesel will increase
  significantly with increases in energy efficiency
  (e.g., diesel hybrids) and other technological
  advances.

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Conclusions

• In the Presidents State of the Union Address, he
  outlined a plan to replace 75 of our imports
  from the Middle East. Biodiesel and other
  alternative fuels can help meet this target.
• In the short run reducing imports from our most
  unreliable trading partners would help avoid
  energy shortages in extreme price spikes.
• In the long run, new technologies will
  significantly expand our domestic energy supply,
  e.g., cellulosic ethanol, Fischer-Tropsch diesel,
  and hydrogen.