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					The Case for Biodiesel
   John Mixon, University of Washington Business School
  Ian Kraucunas, UW Department of Atmospheric Sciences
       James Dack, UW Evans School of Public Policy
       Jia Feng, Humphrey Fellow, UW Evans School

                       BBUS 550
    Environmental Problems



                                            =



                               CO2 curve?


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    National Security Benefit




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    Value Proposition
        Biodiesel provides the following benefits:
                    Regional economic stimulus
                    Local and global environmental benefits
                    Reduced dependence on foreign oil

        Why is biodiesel relevant now?
                    Huge potential market
                     (1% of U.S. diesel market = $460 million/year!)
                    Mature production process (many possible feedstocks?)
                    Can be used in existing diesel engines
                    Public policies are rapidly evolving



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    What is Biodiesel?

       Renewable alternative to
        petroleum-based diesel fuel
       Chemical name: methyl esters
       Made from plant oils or waste
        fats and oils
        (e.g. soybeans, rapeseed, yellow
        grease)
       Can be blended with
        conventional diesel at any ratio
        (e.g. B20)
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    How is Biodiesel Produced?




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    Biodiesel Performance

       Safe, non-toxic, biodegradable, easy to
        transport and store
       Excellent lubricity: reduces engine wear
       High cetane number: ideal for blending
       Slight reduction in power / fuel economy
        (1-2% reduction for B20)
       Some problems in cold weather


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    Environmental Benefits




Introduction   Technology   Public Policy Marketplace   Seattle   China Recommendations
    What’s Driving the Biodiesel Market?

                 Decisions made by policy makers

         Mandates                      Require behavior change




        Incentives                     Encourage Behavior Change



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     Current Public Policy Influencing
     the Biodiesel Market
    Mandates                                              Incentives
          Federal                                             Federal
                  EPAct                                            Commodity Credit Corp.
                  ULSD (ultra-low sulfur diesel)                   EPAct Tax Deductions
          State                                               State
                  School Bus Pilot Project                         HB 1240-Production
          Local                                                    HB 1241-Distribution
                  Clean Green Fleet Action Plan                    Sales tax exemptions
                                                                    Grants




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    Why is this important to investors
    investigating biodiesel?
       In certain markets, the mandates and
        incentives may begin to overlap
       Individually, mandates and incentives lower
        the risk to biodiesel investors
       Overlapping mandates and incentives
        provide extra insulation
       The best biodiesel markets will be ones that
        have strong state and local policy drivers

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    Biodiesel Production
                                                      Biodiesel Production Growth, 1999-2002
                Millions of Gallons Produced   14

                                               12

                                               10

                                               8

                                               6

                                               4

                                               2

                                               0
                                               1999              2000                2001             2002

                                                                          Year




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    Market Potential

       Annual U.S. diesel usage = 36 billion gallons

       If diesel price = $1.30, total market size is…
                  $47 billion!!!!!

       1% market share = $470 million!!



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    Market Overview – Supply Chain




Introduction   Technology   Public Policy Marketplace   Seattle   China Recommendations
    Market Overview – Supply Chain

       Petrodiesel Supply Issues
              Intermediaries
                   Transport / Commodity Brokers
                   Ship / Pipeline Operators
              Political Instability
              Spills


       Biodiesel
              Regional nature of supply promotes stability
              Safe, non-toxic, biodegradable, easy to transport and store
              Flexible feedstock reduces price volatility
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    Price Comparison
                               Petrodiesel        Yellow Grease          Virgin Soy
                                                    Biodiesel            Biodiesel
   Taxes                           $0.48                 $0.48              $0.48
   Sales / Dist / Mktg             $0.27           $0.25 - $0.60         $0.25 - $0.60

   Processing                      $0.19                 $0.55              $0.35
   Feedstock                       $0.77           $0.50 - $0.70         $1.00 - $1.50
   Glycerin                          -                $-0.10                $-0.10



   Wholesale                                       $1.80 - $2.35         $2.00 - $2.85
   Retail                          $1.71                 N/A                $2.77*

   *Based on Dr. Dan’s Fuelwerks in Seattle, WA



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    Input Cost Variation




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    Market Segmentation
                                   Marine            Semi-Public Public              Private         Retail
                                   Private /         Fleets      Fleets              Fleets          Pumps
                                   Public
               Examples            Ferries, Ships,   Garbage,       School Busses,   Private Busses, Cars, trucks
                                   tugs, naval       construction   metro busses     construction
                                   vessels

               Power Needs         Medium            Medium         High             Med             Low

               Environmental       Public – High     High           High             Low -           Low (except
               Concern                                                               Moderate        for small
                                   Private - Low                                                     segment)

               Price Volatility    High              High           High             High            Low
               Concern

               Lubricity /         High              High           High             Med             Med
               Performance

               Fill Location       Few               Few            Few              Few - Many      Many
               Needs

               Price Sensitivity   High              Moderate       Moderate -       High            Moderate
                                                                    High


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    Seattle Opportunity




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    Why Seattle?

       Large Initial Dedicated Customers
              King County Metro (~9 Million gallons)
              Washington State Ferries (~11 Million gallons)
              Allows production efficiencies
              Long-term contract stability
       Minimal Transportation Costs
              Fuel depot on Harbor Island
              Could mix with petrodiesel on-site and use
               existing local trucking / distribution

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    Why Seattle?

       Feedstock Supply
              Well established yellow grease market
                   9 – 11 Million gallons (cost is ~ $0.95 / gallon)
                   Long term: mustard seed grow in Eastern Washington?
       Production Cost Mitigation
              USDA $0.95 subsidy for yellow grease
              Economies of scale




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    Why NOT Seattle?

       Distribution difficulties
       Mandate for ULSD by 2006
              Need to change mandate to include biodiesel
                   Gold standard: ULSD + B20
       King County Metro is still concerned with B20
        emissions profile and power issues




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    International Markets Overview-China
                                 Diesel Demand

        Diesel use in China: 18-21 billion gallons in 2002
        33% more imported
        4% growth rate (30 billion gallons in 2010)
        GDP growth rate = 9.4%




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    International Markets Overview-China
                Potential Biodiesel Feedstocks

       Oilseed crops (soybean, rapeseed)
       Native high oil-content tree (Huang Lian Mu)
       Acid oil food
       Waste cooking oil
       Animal fat / tallow



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    International Markets Overview-China
                                     Producers
       Hainan Zhenghe Bio Energy Company
        (Hebei Wuan Factory and Beijing Changping Factory)
       Sichuan Gushan Grease Chemical Company, Ltd
       Fujian Zhuoyue New Energy Development Company


                                    Customers
       Construction sites
       Heavy truck transportation companies
       Farmers
       Gas stations




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    International Markets Overview-China
                            The Price of Biodiesel
          Petrodiesel          Biodiesel (rapeseed)               Biodiesel (YG)
           $1.208/gal             $1.414/gal                      $1.049/gal


               Current Biodiesel Output in China
       15 million gallons (vs. 300 million gallons in EU)


                 Reasonable Feedstock Output
                                 ~900 million gallons

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    International Markets Overview-China)
                            What’s Obstructions?
       Breaking the oil industry monopoly
       Setting up national standards on quality and manufacturing
        equipment for biodiesel
        Are there Opportunities in Chinese Biodiesel
                          Market?

       Risk investment and potential fraction of biodiesel market in China
       Two birds with one stone: Cooking oil safety and biodiesel
        production in Beijing
       Exporting Biodiesel from China to Other Countries ?



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    Recommendations




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Questions?

				
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