Market Penetration of Biodiesel

Market Penetration of Biodiesel

Kenneth R. Szulczyk, Ph.D.

Why Biodiesel?

• U.S. petroleum reserves are declining• U.S. petroleum imports are increasing

• Biodiesel substitutes for diesel fuel– Biodiesel could slow down petroleum

consumption

Why Biodiesel?

• U.S. Petroleum Production– 1,000s of barrels– Peaked in 1970s

1940 1960 1980 2000Year

2,000,000

2,500,000

3,000,000

3,500,000

Thou

sand

s of

Bar

rels

Why Biodiesel?

• U.S. Petroleum Imports– 1,000s of barrels– 1960 to 2005– OPEC– Non-OPEC sources

1960 1970 1980 1990 2000Year

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000OPEC Oil ImportsNon-OPEC Oil ImportsTotal Crude Oil Imports

thou

sand

s of

bar

rels

Why Biodiesel?

• Combustion of fossil fuels is a large source of carbon dioxide emissions

• Global Warming– Greenhouse Effect – Belief that greenhouse gases like carbon

dioxide are accumulating in atmosphere, causing the earth to become warmer

Biodiesel Recycles Carbon Dioxide

Why Biodiesel?

• Biodiesel recycles carbon dioxide from atmosphere

• Biodiesel has cleaner emissions than diesel fuel– Lowers tail-pipe emissions

• Hydrocarbon (HC)• Carbon monoxide (CO)• Particulate matter (PM)

Biodiesel Problems

• Biodiesel increases NOX emissions– Nitrous oxide

• Biodiesel contains 93.4% energy by volume

• Biodiesel made from – Saturated oil freezes around 100 C– Unsaturated oil freezes around -40 C– Presents a problem for winter use

Paper’s Purpose

• Could biodiesel feasibly replace fossil fuel?– Predict market penetration of biodiesel into

the U.S. diesel fuel market

Paper’s Purpose

• Needed to do the following:– Calculate chemical conversion of vegetable

oils into biodiesel– Determine impact of technological

improvement– Calculate economic costs from literature– Account for market interactions

• Biodiesel competes with other markets for feedstocks

Agricultural Markets

• Biodiesel sources for United States• 1995 – 2000 Average

– Soybean oil• 3.336 billion kilograms• Largest oil source

– Corn oil• 1.2 billion kilograms• Second largest oil source


• Biodiesel sources for United States• 1995 – 2000 Average

– Animal fats• Edible tallow

– 739 million kilograms• Inedible tallow

– 1.754 billion kilograms

– Yellow grease• Used cooking oil from restaurants• 1.197 billion kilograms• Cheap source of oil


• Biodiesel diverts feedstocks away from – U.S. animal feed markets

• Cattle, hogs, horses, mules, poultry, and sheep– U.S. export markets– U.S. human food

• Production budgets are described in detail– Agricultural model

Soybean Markets

• Soybeans– Animal feed markets– Export markets– Crushing facilities

• Crushing facility• Soybean oil

– Food and biodiesel industries– Export markets

• Soybean meal– Animal feed industries– Export markets

Soybean Markets

Corn Markets

• Corn– Export markets– Animal feed markets– Ethanol industry

• Substitute for gasoline– Corn wet mill

• Produces a variety of products

Corn Markets

• Corn wet mill– Corn oil

• Food and biodiesel industries– Gluten feed and gluten meal

• Animal feed markets– Corn Starch

• Corn starch can be produced into many products

Corn Markets

• Corn Wet Mill– Corn Starch can be made into:

• Ethanol• High fructose corn syrup

– Artificial sugar used in food– Baked goods, Beverages, Canned goods, and

Confections

• Dextrose• Corn syrup

Corn Markets

Tallow Markets

• Tallow– Byproduct of cattle industry – Domestic and biodiesel markets– No international markets– 100 kilograms of meat (beef) yields 16.35

kilograms of tallow

Yellow Grease Markets

• Yellow grease– Waste cooking oil from restaurants– Domestic and biodiesel markets

• No international markets– Assumed each pound of soybean or corn oil

returns 0.1268 pounds of yellow grease

FASOM-GHG

• Forest and Agricultural Sector Optimization Model-Greenhouse Gas (FASOM-GHG) – Large quadratic programming model– Written in General Algebraic Modeling System

(GAMS)– Account for market interactions – Predict biodiesel market penetration

FASOM-GHG

• United States decomposed into – 63 agricultural production regions– 11 regions for primary and secondary

products– Contains import and export markets for many

products

FASOM-GHG

• 56 primary products markets– Agricultural and animal industries

• 39 secondary products markets– Producers process primary products into

finished products

FASOM-GHG

• Biodiesel has two cost types1. Endogenous Costs - determined in

FASOM-GHG• Feedstock costs – producers purchase feedstocks

to convert to biodiesel• Hauling costs – harvesting and hauling feedstocks

to processing facilities– Update for crop yield improvements– Different regions have different crop yields

FASOM-GHG2. Exogenous Costs - fixed and do not change

• Production costs – cost to chemically convert oil into biodiesel

– Yellow grease is $1.159 per gallon– Other sources are $0.76 per gallon

• Capital costs – cost of buildings, equipment, chemical tanks, et cetera.

– 10 year life for capital; 8% interest rate– All sources are $0.0628 per gallon

• Transportation costs – cost of transporting biodiesel to retail markets (includes storage)

– All sources are $0.05 per gallon

FASOM-GHG

• Chemical yields– One gallon of oil (or tallow) yields 1 gallon of

biodiesel– Conversion efficiency is 98% of theoretical

• Derived from chemical reaction

• No technological improvement for biodiesel– Chemical conversion is quite efficient

FASOM-GHG

• Biodiesel produces glycerol as a byproduct– Chemical companies use glycerol to make

soap, dynamite, foods, cosmetics, and pharmaceutical products

– Glycerol is not included in FASOM-GHG– A large biodiesel industry would saturate the

glycerol market• Glycerol price would drop significantly

Predicted Market Penetration

• Diesel fuel price is proportional to gasoline fuel price Pdiesel = 0.8643 Pgasoline

• Gasoline price ranges $1 to $3 per gallon• No international markets for biodiesel


• U.S. federal subsidies– Yellow grease is $0.50 per gallon – Other sources are $1.00 per gallon

• Time period – Ranges from 2000 to 2020

– 2020 is not shown, because it contains terminal conditions

Predicted Market Penetration(millions biodiesel gallons)

GasolinePrice

2000 2005 2010 2015

$1.00 /gallon

0 9.62 68.21 116.16

$1.50 11.92 264.39 87.10 595.77

$2.00 529.47 755.01 471.43 1,077.85

$3.00 1,262.66 1,456.48 1,421.77 1,803.37

2000 2004 2008 2012 2016

Time

0

500

1,000

1,500

Gasoline $1.00Gasoline $1.50Gasoline $2.00Gasoline $3.00

milli

on g

allo

ns



• Time paths have a “dip”• Source is from soybean and cattle markets. • Between 2005 and 2015

– Producers crush and export fewer soybeans– Soybean and cattle production are increasing over

time. – An expanding cattle industry requires more feeds, e.g.

soybeans– Soybeans are diverted from biodiesel industry


• Setting Gasoline price to $3 per gallon– View sources of biodiesel

Predicted Market Penetration(millions of gallons)

Biodiesel 2000 2005 2010 2015

Soy Oil 1,130 1,237 1,148 1,394

Corn Oil 0 0 0 30.47

Tallow 17.54 63.51 114.93 158.95

Yellow Grease

115 156.25 158.51 219.65


2000 2003 2005 2008 2010 2013 2015Time

0

400

800

1200

Soy Oil BiodieselCorn Oil BiodieselTallow BiodieselYellow Grease Biodiesel

Note

• FASOM-GHG– Contains ethanol production

• Substitutes for gasoline• Contains 3 technologies

– Dry grind– Corn wet mill– Lignocellulostic – crop residues

– Contains biomass production• Burns crop and wood residues for electricity• Co-fire with coal in different percentages

Conclusion

• In 2004• U.S. produced 58.6 billion gallons of diesel

fuel– U.S. refineries operate at 93% of capacity

• Biodiesel obtains a 3.1% market share in 2015 with gasoline price of $3 per gallon

Conclusion

• Biodiesel is not likely to reduce reliance on petroleum

• For more information, refer to:

• Szulczyk, Kenneth Ray. May 2007. Market Penetration of Biodiesel and Ethanol. College Station, TX: Dissertation submitted to Texas A&M University.

Documents

Market Penetration of Biodiesel