Biodiesel Supply: How Much Can We Produce? James A. Duffield Office of Energy Policy and New Uses, USDA Presented at the Clean Cities Congress and Expo May 7-10, 2006, Phoenix, Arizona.

U.S. Production of Feedstocks from Crops Oil TypeMillion PoundsCents Per Pound Soybean 18,13623 Corn 2,43725 Cottonseed Sunflower Canola Peanut Linseed Safflower 8479

U.S. Production of Feedstocks from Animal Fats and Grease Oil TypeMillion Pounds Cents Per Pound Lard 1,07714 Edible Tallow 1,93616 Inedible Tallow 3,61416 Grease 2,59810 Poultry Fat 889NA

U.S. Biodiesel Feedstock Supply

U.S. Distillate Fuel Oil Use 69% 11% TransportationResidential 9% Commercial and Industry 5% Farm 1%Electric Power 4% Other 1% 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 Inedible Products 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) $ Average credit for Glycerin (0.10) Net feedstock cost Average cash operating expenses 0.46 Capital Cost 0.13 Total costusing soybean oil: $ Total cost using yellow grease: $

Spot price of No 2 diesel U.S. Gulf Coast weekly prices April 2006 prices ranged between $ 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 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 Source: Oil Crops Situation and Outlook Yearbook, ERS, USDA,

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