BIODIESEL PRODUCTION AND ECONOMICS

MAY 2006

DISCLAIMER
While all reasonable care has been taken in the preparation of the material in this document, the Western Australian Government and its officers accept no responsibility for any errors or omissions it may contain, whether caused by negligence, or otherwise or for any loss, however caused, sustained by any person who relies on it. State of Western Australia, 2006

BIODIESEL PRODUCTION FROM GRAIN

TABLE OF CONTENTS
Page
1. BIODIESEL PRODUCTION PROCESSES ........................................................... 1 Summary of key issues in the manufacture of biodiesel ....................................... 5 2. TOTAL COST OF PRODUCTION ......................................................................... 6 2.1 2.2 3. Capital and financial costs* .......................................................................... 6 Production cash cost .................................................................................... 6

ANALYSIS OF PROFITABILITY ........................................................................... 9

REFERENCES ................................................................................................................ 21 LIST of TABLES TABLE 1. FUEL-RELATED PROPERTIES AND IODINE VALUES OF VARIOUS FEEDSTOCKS ..... TABLE 2. BIODIESEL (METHYL ESTER) QUALITY VERSUS FEEDSTOCK ............................. TABLE 3. BREAKDOWN OF PRODUCTION COSTS ............................................................. TABLE 4. FEEDSTOCKS AND ESTIMATED COSTS OF PRODUCING BIODIESEL (2004) .......... TABLE 5. COST OF MATERIALS ........................................................................................... TABLE 6. EFFECTIVE FUEL TAX RATES FOR BIODIESEL AT 1 JULY, 2003 TO 2015 (CENTS/L) ............................................................................................. TABLE 7. SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN
CRUDE OIL PRICE UNDER THE PRESENT TAX RATE AND LOW FEEDSTOCK (TALLOW, PALM OIL) COST ............................................................

4 4 7 7 8 10 13 14 15

TABLE 8. TABLE 9.

SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN CRUDE OIL PRICE AFTER 2015 AND LOW FEEDSTOCK (TALLOW, PALM OIL) COST ............................................................................... SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN CRUDE OIL PRICE UNDER THE PRESENT TAX RATE AND HIGH FEEDSTOCK (TALLOW, PALM OIL) COST ............................................................

TABLE 10. SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN CRUDE OIL PRICE AFTER 2015 AND HIGH FEEDSTOCK (TALLOW, PALM OIL) COST ............................................................................... 16 TABLE 11. SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN
CRUDE OIL PRICE UNDER THE PRESENT TAX RATE AND VERY HIGH FEEDSTOCK (CANOLA) COST ...................................................................

17

TABLE 12. SENSITIVITY OF THE GROSS PROFIT MARGIN TO CHANGES IN CRUDE OIL PRICE AFTER 2015 AND VERY HIGH FEEDSTOCK (CANOLA) COST .............................................................................................. 18 LIST OF FIGURES FIGURE 1. TRANSESTERIFICATION CONVERTS TRIGLYCERIDES TO BIODIESEL .................... FIGURE 2. FLOWCHART OF THE BASE CATALYSED TRANSESTERIFICATION PROCESS ......... FIGURE 3. TALLOW PRICES ............................................................................................. FIGURE 4. SINGAPORE PETROL AND DIESEL PRICE (TO END JUNE 2005) (US$ PER BARREL) ......................................................... FIGURE 5. MARKET PRICE FOR FUEL (A$ PER BARREL AND EXCHANGE RATE (4 WEEKS TO 7 MARCH 2006) .........................................................................

1 2 8 11 11

BIODIESEL PRODUCTION FROM GRAIN

1. BIODIESEL PRODUCTION PROCESSES

Biodiesel is an alternative fuel for diesel engines that can be made from straight vegetable oil, animal fat such as tallow (a by-product of the meat processing industry) and waste oils. There are three basic routes to biodiesel production from oils and fats: Base catalysed transesterification of the oil. Direct acid catalysed transesterification of the oil. Conversion of the oil to its fatty acids and then to biodiesel.

The transesterification process is the reaction of a triglyceride (fat/oil) with an alcohol, such as methanol, to form esters and glycerol (Figure 1). The most common method of producing biodiesel is to react animal fat or vegetable oil with methanol in the presence of sodium hydroxide (a base, known as lye or caustic soda). This reaction is a base-catalysed transesterification that produces methyl esters and glycerine. If ethanol is substituted for methanol, ethyl esters and glycerine are produced. Methanol is preferred, because it is less expensive than ethanol. Almost all biodiesel is produced using base catalysed transesterification as it is the most economical process requiring only low temperatures and pressures and producing a 98 per cent conversion yield.
A triglyceride (Fat Molecule) has a glycerine molecule as its base with three long chain fatty acids attached.

A free fatty acid (FFA) chain that has broken off the fat molecule.

One free fatty acid (FFA) + One methanol = One biodiesel. Figure 1. Transesterification converts triglycerides to biodiesel.

The most important variables that influence the transesterification reaction time and conversion efficiency are temperature, catalyst type and its concentration, alcohol to ester ratio, and stirring rate. Purity of reactants, for example, presence of water, free fatty acids, and other contaminants found in unrefined oils (or other feedstocks) is also very important. An example of process configuration designed to optimise the production of biodiesel is illustrated in Figure 2.

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Figure 2.

Flowchart of the base catalysed transesterification process.

A stoichiometric material balance yields the following simplified equation: Oil or Fat (1000 kg) + Methanol (107.5 kg) = Methyl ester (1004.5 kg) + Glycerol (103 kg)

BIODIESEL PRODUCTION FROM GRAIN

Two methods are currently used to produce biodiesel from grain: (a) Batch processing Batch processing is a processing method where by a given amount of oil/methanol is put into the reactor. Once the reaction is complete the batch is moved on to the next stage and another batch is fed into the reactor. (b) Continuous processing

Continuous processing is a method where by a continuous flow of oil/methanol is fed into the reaction system and the reaction mixture is continually moving through the process reaction vessels The transesterification of various natural oils to form biodiesel is a long reaction, usually performed in batch. Conventional biodiesel production units are fixed plants operating in a batch mode that require high capital and operation costs. Currently, all biodiesel plants in the UK use batch methods, but as production increases, producers will move towards continuous processing, as it is inherently more efficient: Batch is better suited to smaller plants (< 1 million gallons/yr). Batch does not require 24/7 operation. Batch provides greater flexibility to tune the process to feedstock variations. Continuous allows use of high-volume separation systems (centrifuges) which greatly increase throughput. Hybrid systems are possible.

The exact technology chosen to produce biodidesel must be based on the raw materials chosen for their quality (Table 1) - as well as their costs.

The quality and price of the oil or fat.

The most important variables that influence the transesterification reaction time and conversion efficiency are temperature, catalyst type and its concentration, alcohol to ester ratio, and stirring rate. Purity of reactants, for example, presence of water, free fatty acids, and other contaminants found in unrefined oils (or other feedstocks) is also very important.

+ Methanol
Transesterification determine the quality and price of the resulting biodiesel.

+ Glycerin

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The characteristics of the fat /oil, and therefore its quality, are determined by the nature of the fatty acids attached to the Glycerine. The nature of the fatty acids can in turn affect the characteristics of the biodiesel (Table 1 and 2). The fuel properties of biodiesel will greatly depend on the fatty acid chains of the feedstock used for esterification. For example, biodiesel produced from tallow, a highly saturated fat will solidify at a higher temperature than biodiesel produced from corn oil because the fat it was formed from also solidified at a higher temperature. However an advantage of using tallow is that the biodiesel will have a higher cetane number, a desirable property in diesel fuel (Table 2). Among the vegetable oil crops, palm oil is a reasonably close substitute for tallow since both products have a similar fatty acid profile.
Table 1. Fuel-related properties and Iodine values of various feedstocks Fuel specific properties Viscosity mm /s @ 40 C Cloud point C Pour point C Cetane number Iodine number Heating value MJ/kg Source: Journey to Forever Organisation. Table 2. Biodiesel (Methyl ester) Quality versus Feedstock Canola 5.6 0 -15 62 110 40.5 Tallow 4.8 16 16 73 40 (mutton) - 50 (beef) 39.9 Palm 5.7 13 8 62 37 37.8
2

Canola 37.60 -3.9 31.7 37.6 94-120 39.70

Tallow 51.15 35-48 40.00

Palm 32.4 28 22 42 35-61

Cotton seed 33.50 1.7 15.0 41.8 90-110 39,46

Fuel specific properties Viscosity mm2/s @ 40C Cloud point C Pour point C Cetane number Iodine number Heating value MJ/kg

Source: mg engineering Lurgi Life Science and Murdoch University.

The viscosity of a fuel is important because it affects the atomisation of the fuel being injected into the engine combustion chamber. A small fuel drop is desired so complete combustion occurs. A high viscosity fuel, such as raw vegetable oil, will produce a larger drop of fuel in an engine combustion chamber which may not burn as clean as a fuel that produces a smaller drop. Unburned oxidised fuel will build up in the engine around valves, injector tips and on piston sidewalls and rings. Biodiesel has a viscosity much closer to diesel fuel than vegetable oil. This helps produce a much smaller drop, which burns cleaner. The cloud point of fatty acids is the temperature at which the clear fatty acid becomes hazy (or cloudy), due to the crystallisation of higher melting components, when the product is cooled under specified conditions.

BIODIESEL PRODUCTION FROM GRAIN

The pour point is the lowest temperature at which a marine fuel can be handled without excessive amounts of wax crystals forming so preventing flow. If a fuel is below the pour point, wax will begin to separate out which will block the filters. The wax will also build up on tank bottoms and on heating coils. Cetane numbers rate the ignition properties of diesel fuels, just as octane numbers determine the quality and value of petrol. It's a measure of a fuel's ability to ignite when it's compressed. The higher the cetane number, the more efficient the fuel. Biodiesel has a higher cetane number than petrodiesel because of its oxygen content. The ignition quality affects engine performance, cold starting, warm up and engine combustion roughness. A high cetane fuel also may lead to incomplete combustion and smoke if the fuel ignites too soon by not allowing enough time for the fuel to mix with air for complete combustion. Iodine Value is a measure of the unsaturation of fats and oils and is expressed in terms of the number of centrigrams of iodine absorbed per gram of sample (% iodine absorbed). While some oils have a low Iodine Value and are suitable for use as fuel without any further processing other than extraction and filtering, the majority of vegetable and animal oils have an Iodine Value which may cause problems if used as a neat fuel. Generally speaking, an Iodine Value of less than about 25 is required if the neat oil is to be used for long term applications in unmodified diesel engines and this limits the types of oil that can be used as fuel. With Iodine Values of 25-50, the effects on engine life are generally unaffected if a slightly more active maintenance schedule is maintained such as more frequent lubricating oil changes and exhaust system decoking.

Summary of key issues in the manufacture of biodiesel

Quality of Feedstock: The performance of the process and the quality of the biodiesel produced during transesterification are dictated by the quality of feedstock. Therefore it is important to feed an oil/fat to the process that has been pre-treated: to remove water as this causes dissociation of the catalyst; to remove free fatty acids as they will produce soaps which interfere with phase separation and distillation; to remove insoluble material, sediments and carbon residues as they can fail the corresponding biodiesel specification tests; to remove phosphatides as they interfere with phase separation and they generate slime and gumming characteristics.

Nature of Feedstock: Not all vegetable oils can be converted to specification biodiesel. Certain methyl esters, particularly those from saturated fatty acids, display high melting temperatures and even when blended with many other methyl esters, this characteristic may lead to failing certain biodiesel specification tests. All diesel fuel is filtered before being injected into a diesel engine. If the biodiesel or the biodiesel blend is sufficiently cold then some of these particular methyl esters will crystallise out of solution and cause the filter to plug up, thus starving the diesel engine. Cloud Point and Pour Point provide a means of differentiating between different biodiesels. For example the Pour Point of Rape Methyl Ester (RME) is 15C, Soy Methyl Ester (SME) is 3C and Tallow Methyl Ester (TME) +16C (Table). Obviously TME will fail the test first, but there are several ways of overcoming this problem, such as limiting the amount of biodiesel added to say 2 per cent (B2), adding a Pour Point Suppressant or fractionating the biodiesel product to reduce the level of the responsible methyl esters. As yet the Australian Biodiesel Standard has not settled on any particular value or values but most probably there will be several classes relating to the different climates.

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Influence of Feedstock on Glycerine Quality: The sale of glycerine is an important revenue stream for the economics of biodiesel production from non animal feedstocks. Glycerine is used extensively throughout the pharmaceutical and cosmetic industries. Particular emphasis is placed on sourcing the glycerine from non-animal feedstocks, such that it can be termed Kosher or Halal quality. Such glycerine commands significantly higher prices than that sourced from tallow or other animal sources. It is even becoming more important to avoid potentially contaminating vegetable based glycerine with any other material.

2. TOTAL COST OF PRODUCTION

The total cost of biodiesel production is the sum of the capital cost, the capital related charges or financial costs (e.g. interest, depreciation etc), and the production cash cost.

2.1 Capital and financial costs*

Fifteen currently proposed Australian biodiesel projects, with production capacity totalling 757 Million Litre (ML), have been costed at approximately $597 million (m) in 2003. The typical proposal is structured around a 40 ML plant costing approximately $25M, although the proposals range in size from 5 to 100 ML in capacity. Australian Renewable Fuels (ARF) has commenced the commissioning of a 45 ML per annum bio-diesel plant, close to Adelaides port district. The South Australian project is estimated to have a construction cost of $13.5 m, including the purchase of all imported equipment from Austria plus engineering and site specific costs. Additionally, the plant will require working capital of $5M; bringing the total start-up costs close to $18.5 million. With a rate of return of 6 per cent per annum and a plant life of 30 years, a 40 ML plant costing $25M equates to a fixed annual capital cost, including financial costs, of around $1.8M per annum or 4 c/L. In the case where rates of return were 8 per cent a year, this equates to a fixed annual capital cost, including financial costs, of $2.2M or 5 c/L. Across the range of current biodiesel proposals, from the smallest to the largest, the total capital costs (assuming a real interest rate of 6.0%) are estimated to vary between 4.3 and 8.6 c/L. If the plant life is considerably shorter than 30 years (as is often assumed to be the case in many project proposals), estimated total capital costs per litre would rise substantially. For example, with only a 10-year life, at a 6 per cent rate of return, the total capital costs for biodiesel production would increase from 4 c/L to 8 c/L. *Source: CSIRO (Commonwealth Scientific and Industrial Research Organisation), BTRE (Bureau of Transport and Regional Economics) and ABARE (Australian Bureau of Agricultural and Resource Economics) 2003, Appropriateness of a 350 ML Biofuels Target, Report to the Australian Government, Department of Industry, Tourism and Resources, Canberra, December 2003.

2.2 Production cash cost

Tables 3 and 4 demonstrate that the major expense for biodiesel production is the feedstock: The type, availability, and price of feedstock all factor into the profitability of producing biodiesel. The most commonly used starting materials for biodiesel include canola (rape), soy or palm oils as well as used cooking oils or tallow. Animal fats and used cooking oils generally have higher levels of free fatty acids (FFA) than vegetable oils. This makes them more difficult to process into biodiesel, and makes biodiesel that gels quicker in cold temperatures. But, due to their lower value, animal fats or used cooking oils, depending on the process used, can make lower cost biodiesel than that from higher priced vegetable oils. However, depending

BIODIESEL PRODUCTION FROM GRAIN

on the local availability of the oils, it may be cheaper to use more expensive oil that is close and readily available in large quantities on long term contracts than to buy and transport in cheaper oils/fat purchased on a spot contract basis.
Table 3. Breakdown of production costs Input detail Feedstock Methanol Catalyst (acid or base) Sales and Admin Maintenance Insurance 0.992 kg/ Litre biodiesel 0.107 kg/ Litre biodiesel 0.001 kg/ Litre biodiesel 0.009 AU$/Litre biodiesel 1.56% 0.63% % of capital cost per litre biodiesel % of capital cost per litre biodiesel Percentage of production cost 83.67% 6.62% 0.34% 5.77% 2.57% 1.03%

Source: Independent Biodiesel Feasibility Group, LLC. Table 4. Feedstocks and estimated costs of producing biodiesel (2004) Feedstock Waste cooking oil Tallow ($430/t to $512/t) Canola ($700/t to $1200/t) Source: Agriculture and Energy, Rene Van Berkel, Curtin University. Estimated cost of production AU$0.35 per Litre AU$0.66 per Litre AU$1.19 per Litre

In 2005, crude palm oil, with less that 5 per cent FFA, price (FOB) was AU$490 per metric tonne. Canola oil is most commonly used in Europe due to local government subsidies on its production. As this subsidy does not exist in Australia, canola oil is more expensive and consequently used cooking oil and tallow are used in combination with canola or as a direct substitute. Australian Biodiesel Group (ABG) is purchasing tallow with a FFA of less than 2 per cent (typically 0.7%). However cheaper gut tallow with a FFA of less than 5 per cent is available. ABG analyses each batch of feedstock when it comes into the factory. ABG chief executive officer, Len Humphreys said animal tallow represented a cost effective alternative to vegetable oils, with processed tallow selling from $430 to $512 a tonne compared with the $820 per tonne for canola oil (Dec 2005). ABGs forecast production cash cost of biodiesel is AU$0.6102 per litre based on 100 per cent tallow (Table 4). Another biodiesel company, Australian Renewable Fuels (ARF), reviewed the historic fat market in Australia and concluded that the only fat supply source that may reasonably be utilised for start-up is tallow due to the availability of long term pricing histories (Figure 3) and established available volumes. A recent analysis of the Australian feedstock market undertaken for ARF concluded that a long-term tallow feedstock price of $481 per tonne is a reasonable basis on which to conduct long-term financial projections. The Adelaide plant, envisaged by ARF, is designed to produce up to 45 mL per annum of bio-diesel plus byproduct glycerine and potassium sulphate fertiliser, with a value of around $1.5 to $ 2M per annum, which will be sold into the local market. All up cash operating costs for bio-diesel are expected to average AU$0.65 per litre.

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Table 5. Cost of materials Input Average Feedstock Price (excl transport costs) Methanol Acid Source: Prospectus of Australia Biodiesel Group Limited, November 2005. Cost Per Tonne $512 $375 $1550

Source: Australian Renewable Fuels Ltd, 2004. Figure 3. Tallow prices.

BIODIESEL PRODUCTION FROM GRAIN

3. ANALYSIS OF PROFITABILITY
Bio-diesel production is much more economical if you have a good market for the glycerin. However, with the coming growth in biodiesel production, pressure will be put on glycerine prices and finding markets for non-kosher or non-halal glycerine may become increasingly difficult. The glycerin market is not that big by chemical industry standards, and the additional glycerin being produced by the biodiesel industry ruined that market. In 2005*, glycerine has been as much as 500 per tonne cheaper than competing petrochemicalderived glycols, even though demand in 2006 was up five per cent since the beginning of the year. It is not clear how much of the increased demand is a result of glycerine replacing petrochemical-based raw materials, In September 2005, the price of glycerine had fallen to 450 per tonne, compared with a peak of over 1000 two years ago forcing the closure of many fatty acids producting plants and glycerine refineries. Therefore, although Bio-diesel production is much more economical if you have a good market for the glycerin, the income from glycerine hasnt been taken into account in this report. *Published on 25 November 2005 by Chemistry World (Royal Society of Chemistry). Archived on 26 November 2005. Biodiesel is commonly blended with diesel at concentrations of up to 20 per cent. There is currently very little biodiesel for commercial sale in Australia. Current production totals around 6 ML with new capacity expected to come online as a result of the Biofuels Capital Grants Program. Successful applicants under the two rounds of the Biofuels Capital Grants Program were: Biodiesel Industries Australia, a biodiesel plant at Rutherford, NSW ($1.28M); Biodiesel Producers Ltd, a biodiesel plant at Barnawartha, Vic ($9.6M); Australian Renewable Fuels, a biodiesel plant at Port Adelaide, SA ($7.15M) Riverina Biofuels Pty Ltd, a biodiesel plant at Deniliquin, NSW ($7.15M); and

Given this grant distribution, the program is potentially supporting an additional 235 ML of biofuels production capacity (157.4 ML biodiesel and 77.6 ML ethanol). Biodiesel, ethanol, petrol and diesel producers all currently pay fuel excise at 38.1 cents per litre, but biodiesel and ethanol producers receive a production grant of 38.1 cents per litre which, in effect, fully offsets the excise paid by producers (Table 6). The Governments policy for biofuels has altered considerably over the past two years. Biodiesel will increasingly be subject to fuel excise, from an effective rate of zero until 2011 to a maximum of 19.1 /L by 2015; reflecting its energy content while retaining a net tax and outlays advantage over traditional diesel (Table 6).

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Table 6.

Effective fuel tax rates for biodiesel at 1 July, 2003 to 2015 (cents/L) Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Fuel tax 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 Biodiesel production grant 38.143 38.143 38.143 38.143 38.143 38.143 38.143 38.143 34.343 30.543 26.743 22.843 19.043 Effective tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.8 7.6 11.4 15.3 19.1

2015 onwards Source: Treasury, 2006.

Although diesel requires less crude oil per litre than petrol production?, it is not a 'waste' product and new Commonwealth Fuel Quality Standards for lower sulphur diesel require a more complex refining process. In the Australian market, diesel is often more expensive than petrol as diesel prices are not discounted to the same extent as petrol prices. Much less diesel is sold and thus dealers concentrate on petrol discounting to drive overall fuel sales volumes and associated shop sales. The diesel pricing situation is much the same as that of petrol. In a similar fashion to petrol, wholesale prices for diesel fuel in Australia are based on refined petroleum prices quoted out of Singapore. The Singapore prices of diesel - as for petrol - are set by the forces of supply and demand for the product in the Asian region. As in most markets, this means prices of petrol and diesel may not be directly related to costs of production, particularly over periods of weeks or even months. The Singapore price of diesel may be substantially higher or lower than for petrol from time to time as supply and demand may vary greatly between the two products. The benchmark price for diesel is different than for petrol as the two products have different supply and demand factors. Diesel prices have risen over the last 12 months due to increased demand for jet fuel and kerosene, resulting in refiners producing lower levels of diesel fuel (Figure 4 and 5).

10

BIODIESEL PRODUCTION FROM GRAIN

Source: Caltex. Figure 4. Singapore petrol and diesel price (to end June 2005) (US$ per barrel).

In March 2006, the wholesale price of diesel reached AU$116 per barrel or 73 c/L (Figure 5). On top of this base price, there are a number of additional components that are added to make a final wholesale price, or Terminal Gate Price, for fuel - these include Federal Government excise, freight, wharfage, profit margins, insurance, etc. Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST.

Source: McGraw-Hill. Figure 5. Market price for fuel (A$ per barrel and exchange rate (4 weeks to 7 March 2006).

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The gross profit margin of the biodiesel producers will vary with the crude oil price, the exchange rate, and the total production costs (Table 7 to 12). Assuming that biodiesel producers are able to sell all they can produce at prevailing market prices-that is, there are no problems with market barriers or consumer confidence, and assuming a total production cost (using tallow or palm oil as feedstock) ranging between 6782 cents per litre including capital cost and associated financial costs, and an exchange rate varying between US$0.65 and US$0.75, the production of biodiesel is commercially viable (Flowchart 1 and 2): Under the current tax rate: When the crude oil price is US$40 per barrel or higher for biodiesel produced from tallow or palm oil. If the biodiesel is made from canola oil, the crude oil price must be around US$90 per barrel to ensure economically viable production. After 2015: When the crude oil is above US$70 per barrel for biodiesel produced from tallow or palm oil. If the biodiesel is made from canola oil, the crude oil price must be around US$100 per barrel to ensure economically viable production.

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Table 7.

Sensitivity of the Gross Profit Margin to changes in crude oil price under the present tax rate and low feedstock (tallow, palm oil) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

30

40

60

70

75

80

85

AU$/L Maximum biodiesel pump price (A)

0.80 0.72

0.92 0.82

1.16 1.04

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

Biodiesel total cost of production AU$0.67/L Biodiesel Excise (current tax rate) AU$0.00/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 0.78 -0.07 0.78 0.04 0.78 0.26 0.78 0.37 0.78 0.42 0.78 0.47 0.78 0.53

Estimated Gross Profit Margin (AU$/L)

*Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST

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Table 8. Sensitivity of the Gross Profit Margin to changes in crude oil price after 2015 and low feedstock (tallow, palm oil) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

30

40

60

70

75

80

85

AU$/L Maximum biodiesel pump price (A)

0.80 0.72

0.92 0.82

1.16 1.04

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

Biodiesel total cost of production AU$0.67/L Biodiesel Excise (after 2015) AU$0.19/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 1.00 1.00 1.00 0.04 1.00 0.14 1.00 0.20 1.00 0.25 1.00 0.31

Estimated Gross Profit Margin (AU$/L)

-0.29 -0.18

*Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST

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Table 9. Sensitivity of the Gross Profit Margin to changes in crude oil price under the present tax rate and high feedstock (tallow, palm oil) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

30

40

60

70

75

80

85

AU$/L Maximum biodiesel pump price (A)

0.80 0.72

0.92 0.82

1.16 1.04

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

Biodiesel total cost of production AU$0.82/L Biodiesel Excise (current tax rate) AU$0.00/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 0.95 0.95 0.95 0.08 0.95 0.19 0.95 0.25 0.95 0.30 0.95 0.35

Estimated Gross Profit Margin (AU$/L)

-0.24 -0.13

*Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST

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Table 10. Sensitivity of the Gross Profit Margin to changes in crude oil price after 2015 and high feedstock (tallow, palm oil) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

30

40

60

70

75

80

85

AU$/L Maximum biodiesel pump price (A)

0.80 0.72

0.92 0.82

1.16 1.04

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

Biodiesel total cost of production AU$0.82/L Biodiesel Excise (after 2015) AU$0.19/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 1.18 1.18 1.18 1.18 -0.03 1.18 0.02 1.18 0.08 18.00 0.13

Estimated Gross Profit Margin (AU$/L)

-0.46 -0.35 -0.14

*Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST

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Table 11.

Sensitivity of the Gross Profit Margin to changes in crude oil price under the present tax rate and very high feedstock (canola) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

70

75

80

85

90

95

100

AU$/L Maximum biodiesel pump price (A)

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

1.51 1.36

1.57 1.42

1.63 1.47

Biodiesel total cost of production AU$1.19/L Biodiesel Excise (current tax rate) AU$0.00/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 1.39 1.39 1.39 1.39 1.39 1.39 1.39 0.08

Estimated Gross Profit Margin (AU$/L)

-0.24 -0.18 -0.13 -0.08 -0.02 0.03

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FEBRUARY 2006

Table 12.

Sensitivity of the Gross Profit Margin to changes in crude oil price after 2015 and very high feedstock (canola) cost

Crude oil in US$ per barrel Exchange rate US$/AU$ 0.75 Singapore refiners margin and freight 25% Diesel Excise AU$0.38/L Diesel GST 10% Retail/Wholesale margins & transport 4% Terminal Gate Price (TGP)* This is the Equivalent Biodiesel Price. Biodiesel is assumed to contain 90 per cent of the energy content of diesel.

US$/bb

70

75

80

85

90

95

100

AU$/L Maximum biodiesel pump price (A)

1.28 1.15

1.34 1.20

1.39 1.26

1.46 1.31

1.51 1.36

1.58 1.41

1.63 1.47

Biodiesel total cost of production AU$1.19/L Biodiesel Excise (after 2015) AU$0.19/L GST 10% Distributor/Retailer margins and freight 6% This is the estimated biodiesel breakeven price at the pump Biodiesel breakeven price (B) (A) - (B) 1.61 1.61 1.61 1.61 1.61 1.61 1.61

Estimated Gross Profit Margin (AU$/L)

-0.46 -0.41 -0.35 -0.30 -0.25 -0.19 -0.14

*Terminal Gate Price is the international parity price for fuel sold in Australia and is calculated on a daily basis. It relates to the Singapore refined fuel price plus freight, handling, margin, excise and GST

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BIODIESEL PRODUCTION FROM GRAIN

Flowchart 1.

Sensitivity of Biodiesel equivalent price and producer's gross profit margin to changes in crude oil price, exchange rate and cost of production.
Crude Oil US$40/bbl Exch rate US$0.65 Biodiesel Equivalent Price $0.89/L Exch rate US$0.75 Biodiesel Equivalent Price $0.82/L

Biodiesel Total Production Cost $0.67/L

Under current tax rate

Biodiesel Total Production Cost $0.82/L

Under current tax rate

Biodiesel Total Production Cost $0.67/L

Under current tax rate

Biodiesel Total Production Cost $0.82/L

Under current tax rate

After 2015

After 2015

After 2015

After 2015

$0.11/L

-$0.11/L

-$0.07

-$0.29

$0.04

-$0.18

-$0.13

-$0.35

Estimated Crude Oil Gross Profit US$70/bbl Margin of the biodiesel Exch rate Exch rate producers assuming the US$ 0.65 US$ 0.75 Biodiesel Biodiesel Equivalent Price Biodiesel Equivalent Price Equivalent 1.26 $/L 1.14 $/L Price ( biodiesel has 10% less Biodiesel Total Production Cost Biodiesel Total Production Cost Biodiesel Total Production Cost Biodiesel Total Production Cost energy than $0.67/L $0.82/L $0.67/L $0.82/L diesel) is the maximum Under Under Under biodiesel pump Under current After 2015 current tax After 2015 current tax After 2015 current tax After 2015 tax rate price rate rate rate $0.48/L $0.26/L $0.31/L $0.08/L $0.37/L $0.14/L $0.19 -$0.03

Source: J Bonnardeaux, Department of Agriculture WA, 2006

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FEBRUARY 2006

Flowchart 2. Sensitivity of Biodiesel Equivalent Price and canola biodiesel producer's profit margin to changes in crude oil price, exchange rate Crude Oil US$85bbl Exch rate US$0.65 Biodiesel Equivalent Price $1.45/L Exch rate US$0.75 Biodiesel Equivalent Price $1.31/L

Canola Biodiesel Total Production Cost $1.19/L

Government Assistance No Government Assistance

Canola Biodiesel Total Production Cost $1.19/L

Government Assistance No Government Assistance

$0.06

-$0.16 Crude Oil US$100/bbl

-$0.08

-$0.30

Estimated Gross Profit Margin of the canola biodiesel producers assuming the Biodiesel Equivalent Price ( biodiesel has 10% less energy than diesel) is the maximum biodiesel pump price

Exch rate US$ 0.65 Biodiesel Equivalent Price 1.64 $/L

Exch rate US$ 0.75 Biodiesel Equivalent Price 1.47 $/L

Canola Biodiesel Total Production Cost $1.19/L

Canola Biodiesel Total Production Cost $1.19/L

Government Assistance

No Government Assistance

Government Assistance

No Government Assistance

$0.25/L

$0.03/L

$0.08/L

-$0.14/L

Source: J Bonnardeaux, Department of Agriculture and Food WA, 2006

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BIODIESEL PRODUCTION FROM GRAIN

REFERENCES
Australian Biofuels Association, Towards a Viable Biofuels Industry, 2003. Australian Biodiesel Group Limited, Prospectus Dec 2005. Australian Renewable Fuels Ltd, Prospectus, 2006. Frank Beurskens. MARKET FACILITATION OF GRAIN MARKETING: THE ENDUSERS PERSPECTIVE, AgriBiz and Associates, Inc., paper presented at the Symposium Product Differentiation and Market Segmentation in Grains and Oilseeds: Implications for Industry in Transition, Washington, DC, 27-28 January 2003. Jackie Blondeau, Godwin Pon, Sandy Brescian, Martin Reaney i Analysis of Selected Diesel Fuel Markets in Canada: Markets for Canola Biodiesel-Executive Summary, 12-04-2003. Dr Chandra B. Prakash, A CRITICAL REVIEW OF BIODIESEL AS A TRANSPORTATION FUEL IN CANADA, GCSI - Global Change Strategies International Inc. for theTransportation Systems Branch, Air Pollution Prevention Directorate Environment Canada, 25 March 1998. CSIRO, ABARE, BTRE, Appropriateness of a 350 Million Litre Biofuels Targets, Report to the Australian Government, Department of Industry Tourism and Resources, December 2005. Bob Dobs, Biodiesel: Basics, Benefits, and Brewing; Indiana Energy Conference, 21 January 2006. DaNian Zheng and Milford A. Hannab, Preparation and properties of Methyl Esters of Beef Tallow, Department of Biological Systems Engineering, University of Nebraska-Lincoln, Lincoln NE, USA. David Bennett, SUBMISSION ON BIOFUELS Supplementary Document, ASPO-Australia Biofuels Working Group, 19 February 2006. Philippe Girard, Abigal Fallot, Fabien Dauriac, Technology state-of-the-art. Review of existing and emerging technologies for the large scale production of biofuels and identification of promising innovations for developing countries,Forest Department of CIRAD. Dr Chris Hamilton. Biofuels Made Easy, Lurgi Pacific Pty Ltd, 18 March 2004. International Energy Agency (IEA), Biofuels for Transport, An International Perspective, study undertaken by the Office of Energy Efficiency, Technology and R&D, USA, April 2004. Adan Karl Khan, Research into Biodiesel: Kinetics and Catalyst Development, The University of Queensland, Department of Chemical Engineering, 17 May 2002. Sean Milmo, A changing landscape, Chemistry World (Royal Society of Chemistry). 25 November 2005

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FEBRUARY 2006

Anthony Radich, Biodiesel Performance, Costs, and Use, Energy Information Administration, US Government, 2006. Christopher Short and Andrew Dickson, Revised assessment of biofuels industry viability, ABARE report for the Department of Industry, Tourism and Resources, April 2000. Jon Slee, Feedstock Options for Biodiesel Production, Riverland Oilseed Processors, Riverland Oilseeds Processors. Fredrick Suhren, Presentation to the Australian Oil Seed Federation, Griffin Energy Australia Oil Seed Federation, 12 August 2002. Submission to the Prime Minister's Taskforce on Biofuels, NSW Farmers Association, June 2005. K. Shaine Tyson, Biodiesel Technology and Feedstocks,Eastern Connecticut State Univ. 26 March 2003. Rene Van Berkel, Agriculture and Energy: a life cycle perspective, Curtin University of Technology, 22 October 2004. Jon Van Gerpen, Biodiesel Production Technologies, University of Idaho Department of Biological and Agricultural Engineering, 16 November 2004

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