Biodiesel Supply: How Much Can We Produce?

James A. DuffieldOffice of Energy Policy and New Uses, USDAJduffield@oce.usda.gov

Presented at the Clean Cities Congress and Expo May 7-10, 2006, Phoenix, Arizona.

U.S. Production of Feedstocks from Crops

Oil Type Million Pounds Cents Per Pound

Soybean 18,136 23Corn 2,437 25Cottonseed 825 29Sunflower 538 30Canola 549 29Peanut 230 41Linseed 204 40Safflower 84 79

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

U.S. Biodiesel Feedstock Supply

0

5000

10000

15000

20000

25000

30000

35000

Crop oil Animal fat andgrease

Total

Millions

Pounds

Gallons

4.02.741.30

U.S. Distillate Fuel Oil Use

69%

11% TransportationResidential

9%

Commercial andIndustry

5%

Farm

1%Electric Power

4%

Other1%

62 Billion Gallons

Source: Energy Information Administration, Fuel Oil and Kerosene Sales 2004

Off-Highway

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

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

Most Fats and Oils Used in High-Valued Food Markets

Food Products

InedibleProducts

Animal Feeds

80%

11%

9%

Source: USDA, Economic Research Service, 2005

Economic Dilemma

1. A biodiesel producer’s 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.

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

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.

Historically, Biodiesel Feedstocks Cost More Than

the Selling Price of Petroleum Diesel

0

50

100

150

200

250

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

Source: USDA and Energy Information Administration

Cents per gallon

Soybean oil

No. 2 Diesel

If Biodiesel Growth Continues, Where is the Feedstock Going to Come From?

• Redirect Exports

• Increase Imports

• Grow More Crops

U.S. Exports of Soybeans, Fats, and Oils

0 500 1000 1500 2000

Total

Corn oil

Soybean oil

Other fats and oils

Soybeans

Million gallons

Source: Oil Crops Situation and Outlook Yearbook, ERS, USDA, 2005

1382

256

161

1031900

Soybean Exports are Leveling Off and the US is Losing Market Share to Brazil and Argentina

0

5

10

15

20

25

30

35

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014M

illio

n M

etri

c To

ns

Source: ERS and USDA Baseline, 2005

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.

Currently Imported Oils are Limited

0100200300400

500600700800900

Palm oil Olive oil Coconut oil

Mill

ion

Pou

nds

Source: ERS, USDA, 2005

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

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.

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

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.

Conclusions

• In the President’s 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.