Demand for cheaper and cleaner energy to spur growth of the European Biofuels market

5 October 2005 - Interest in alternative fuels has been rekindled by the ongoing volatility in oil supplies, according to analysts Frost & Sullivan. As oil prices continue to soar and supplies become depleted, biofuels are looking more appealing as an alternative transport fuel.

Biofuels offer Europe the prospect of becoming energy self sufficient, while also offering a source of cleaner and more sustainable fuel. Legislative initiatives seeking to promote environment friendly fuel alternatives with lower emission levels are further supporting the uptake of biofuels, with the European biofuels market projected to generate EUR 1.88 billion in 2005.

"Biofuels are likely to play an increasingly important role in the transport fuels mix as governments try to limit carbon dioxide (CO2) emissions," says Frost & Sullivan Research Analyst Robert Outram. "EU Directives have been introduced that require countries to include a specified per cent of biofuels in fossil fuels by 2010."

As part of the Kyoto Protocol, the European Union acquiesced to reduce CO2 emissions by eight per cent by the end of 2012. The life cycle analysis (LCA) approach to the overall atmospheric CO2 contribution of a fuel suggests that biofuels, both biodiesel and bioethanol, produce about 50 per cent less CO2 than mineral diesel.

Based on their low emission rates, the European Commission is supporting the development of the biofuels market as an important contribution to meeting their overall emission targets. Directives 2003/30/EC and 2003/96/EC aim
specifically to encourage the increased use of biofuels and set indicative
targets for their use in the transport industry.

In addition to such strong legislative backing, the multiple benefits offered by biofuels bode well for market expansion. For instance, biodiesel, bioethanol and Bio-ETBE (ethyl tertiary butyl ether) can all be handled and
distributed from the refinery using existing network systems and standard fuel pump equipment. The lack of technology barriers or the need for specialist equipment for handling gives biodiesel a distinct advantage over
other alternative fuels.

Another advantage is that existing fuel specifications allow the blending of bioethanol and ETBE in gasoline. This is set to promote the emerging bioethanol market as customers can use this blend without fear of invalidating engine warranties. Another factor driving the bioethanol market is fuel versatility. Flexi-fuel vehicles provide end users with more choice in the fuel purchased- an important consideration should adverse economics on the price of a particular fuel start to occur.

Mineral diesel manufacturers are interested in blending biodiesel in their products to lower the sulphur emissions after combustion, as emissions from biodiesel are negligible. Biodiesel also improves the lubrication properties of the fuel and reduces wear on the engine.

As demand for biofuels surges, securing adequate feedstock supply to meet such demand is likely to present a key challenge. Already, pressure on rapeseed, the feedstock for the biodiesel industry, is being witnessed and competition between the food industry and biodiesel producers is likely to push prices up in the future. To relax pressure on rapeseed oil, biodiesel producers have begun sourcing alternative feedstocks, such as Malaysian palm
oil and tallow.

High prices present another area of concern. Due to the cost of raw materials, biodiesel and bioethanol would need tax subsidies in order to be competitively priced compared to mineral diesel and gasoline.

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