London (Platts)--30Nov2007
The global biofuels industry has seen a slowdown in growth over the third
quarter of 2007, caused by rising feedstock prices and a rapid expansion in
capacity that may outstrip demand, according to an Ernst & Young report
released Friday.
Toughening global conditions have resulted in a fall in investment across
the industry recently, despite record-high oil prices which should have
boosted demand for the green fuels, the report concludes.
Although regulations designed to boost the market penetration of biofuels
have increased globally, the price of the fuels has remained relatively low,
experiencing a "de-linking" from soaring oil prices.
The industry is also being hampered by the high-profile debate over the
potential conflict of first-generation biofuels on food prices and
sustainability concerns, the report said.
"As a result of these difficulties we expect that the established markets
of the US and Europe will see a period of consolidation," Jonathan Johns, head
of renewable energy at Ernst & Young, said in the report. "It is low cost and
integrated producers, which have control over significant parts of the supply
chain, as well as those with significant financial backing who will most
likely weather the current downturn."
According to the report's quarterly Biofuels Country Attractiveness
Indices, which ranks the attractiveness of the top 15 global markets for
investment in biofuels, sliding investment is most noticeable in the
mainstream markets of the US, Brazil and Europe.
Despite the industry slowdown, the US remains top of the indices for
biofuels attractiveness although high feedstock prices, overcapacity and
distribution chain bottlenecks have slowed investments, according to the
report.
Brazil follows the US, with France and Germany in third and fourth place
while the Netherlands and Indonesia are ranked 14th and 15th respectively.
For ethanol, the US's corn-based industry ranks above Brazil's sugar-cane
production base although US investment is expected to slow over the next
quarter with the market facing reduced margins due to high feedstock prices
and overcapacity as a result of meeting regulatory targets, the report states.
The US and Brazil also hold the top two spots for biodiesel investment
during the third quarter, according to the report, with Brazil's soy-based
industry pushing out France as the world's second most attractive biodiesel
market.
Looking ahead, Ernst & Young said it expects the European biodiesel
market to continue to be "severely affected" by B99 biodiesel exports from the
US which qualify for the $1/gallon tax credit as well as taking advantage of
EU support regimes.
The subsidized US biodiesel, which effectively makes it equal in price to
vegetable oil in the EU, has reduced the attractiveness of a number of
European producers during the quarter and a solution to the subsidized is not
expected before early 2008 with the passing of either the US Energy or Farm
Bill, the report said.
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