Press Coverage - Biodiesel 2020: A Global Market Survey

Print and Press Articles

• Swiss Derivates Review, Biodiesel 2020: The Emerging Markets, article by Will Thurmond, Autumn 2006 • Biodiesel Producer Magazine, Global biodiesel report identifies

industry trends, September 2006

• Biodiesel Producer Magazine, Borderless Biodiesel, interview and original charts, November 2006

• Wall Street Journal, ADM Seeks Global Options With Biodiesel

Markets, February 2007

• Financial Times, US Sees Mileage In Biodiesel, February 2007

• Biofuels International, Biofuels Feedstock Price Trends, by Will Thurmond, May 2007

• The Futurist, Global Biodiesel Markets, by William Thurmond, June/July 2007

Television Interviews and Features • Reuters TV, March 2007

• Finland National Television Station “N” News

• BBC TV, March 2007

• CNN, March 2007

Contact Information

William Thurmond President, Emerging Markets Online Author, Biodiesel 2020: A Global Market Survey http://www.emerging-markets.com Tel +1 713 429 4905 (Houston, TX) Email: willthurmond@gmail.com

From the September 2006 Issue

Global biodiesel report identifies industry trends by Dave Nilles Within 15 years U.S. biodiesel industry consolidation will begin, Brazil will become a production leader and algae will become a viable biodiesel feedstock, according to a research report now available from Emerging Markets Online. The Houston-based energy intelligence and management consulting firm has published its 380-page "Biodiesel 2020: A Global Market Survey." The report identifies trends in worldwide biodiesel production, according to Will Thurmond, the report’s author and director of management consulting for Emerging Markets Online. The survey is designed to provide financiers, producers, developers, distributors, consultants and analysts with a market guide detailing medium and long-term trends and developments in the global biodiesel sector. The report identifies several interesting trends in the biodiesel industry. Thurmond said he expects U.S. biodiesel distribution to expand as companies like Marathon Oil Co. and Chevron become invested in the industry. Marathon is ramping up its biodiesel blending capabilities at its fuel terminals. Chevron recently announced investment in a biodiesel plant under construction in Galveston, Texas. The infrastructure expansion means biodiesel will become distributed in costal areas, making it more available nationally, Thurmond said. Currently the fuel is distributed on a local or regional basis. The U.S. retail market is already growing from 300 refueling sites in 2005 to more than 950 sites this year. However, public consumption still lags behind Europe, where biodiesel represents 2 percent of total on-road fuel consumption and is expected to reach 6 percent by 2010, according to the report. “Our consumer market needs to grow significantly,” Thurmond said. While the entrance of companies like Marathon and Chevron may boost national distribution, it may also signal the maturation of an industry in its infancy. Thurmond said he expects industry consolidation to begin within three years. “Eventually the market will settle down,” Thurmond said. “Only so many biodiesel producers will compete versus Marathon or Chevron and the other facilities doing over 120 million gallons of production per year. The participation by the larger corporations in larger, lower-cost biodiesel enterprises will lead to a consolidation among smaller players, which could include a series of mergers and acquisitions with small to mid-size players.” Thurmond said he expects more biodiesel production to come online as long as gasoline prices remain near $2.50 per gallon and if the federal biodiesel tax credit is extended past 2008. “I don’t see any reason why we shouldn’t have continued growth as we’ve seen over the past two to three years,” Thurmond said. Biodiesel production is expected to expand overseas. Thurmond said Brazil will play an important role

as an international biodiesel supplier. Due to its agricultural capacity, Brazil is expected to be one of the world’s biggest biodiesel suppliers by 2020. The report also details the biodiesel industry in China. Thurmond said trends show China and India will become large-scale producers and users of biodiesel over the next decade, possibly even overtaking Europe. Thurmond said while Europe is currently a leading biodiesel producer, it will be difficult to expand production due to agriculture capacity limitations. Finally, biodiesel feedstock sources may be changing. Thurmond said within five years soy oil may be start being replaced by biodiesel created from algae or imported palm oil. Some palm oil is already being imported to Europe, he said. Thurmond said he expects market introduction of algae-based biodiesel three years. “It’s hard to say what the volumes will be,” Thurmond said. Dave Nilles is Online Editor for Biodiesel Magazine. Reach him at dnilles@bbibiofuels.com or (701) 373-0636. Posted: 11:24 a.m. CDT Friday, September 29, 2006

May, 2007 Issue

Biodiesel Feedstock Price Trends

The rising cost of feedstocks worldwide in the last year has prompted increasing concerns for ethanol and biodiesel producers, government planners, environmentalists, policy analysts, academia, agribusiness, and commodity analysts. In the case of biofuels producers, the rising costs of corn, wheat, sugar beets, soybeans, canola oil and palm oil could have a significant impact on the continued rate of investment in biofuels production facilities.

by William Thurmond President, Emerging Markets Online

Author, Biodiesel 2020: A Global Market Survey http://www.emerging-markets.com

From the November 2006 Issue

Borderless Biodiesel By Lindsey Irwin

Biodiesel generally takes a backseat to ethanol in China, but it apparently had show-stealing allure at

the 2006 World Biofuels Symposium in Beijing. With a keen eye on the renewable fuel’s proliferation in

Europe and the United States, the world’s fastest-growing economic power wants to go big with

biodiesel—if it can overcome some serious feedstock constraints.

The 2006 World Biofuels Symposium (WBS) in Beijing featured a tour of an ethanol plant and attracted a number of large, multi-national companies seemingly linked more to enzymes and fuel alcohol than vegetable oils and methyl esters. But there was a palpable biodiesel buzz at this international meeting—and it really got people talking. Organized by BBI International, Tsinghua University in Beijing; China National Cereals, Oils and Foodstuffs Corp.; and the Minnesota Department of Agriculture, the second annual WBS was well-attended—more than 225 people participated—and offered a mix of technology- and policy-oriented biofuels presentations on ethanol and biodiesel. The event was, of course, international in scope, and many attendees were reportedly eager for information about the growth of the U.S. biodiesel industry. Sharing the U.S. Experience On behalf of U.S. biodiesel producers, United Soybean Board Director Jim Call told the international audience that increased domestic soybean production, a trend toward lower oil- and animal-fat laden human diets, and growing world competition in the vegetable oil markets have been a boon to biodiesel in the United States. Primarily, though, high crude oil prices—and resultant high diesel prices—as well as effective federal policy, are driving the U.S. industry’s remarkable expansion, he said. Specifically, the extension of the federal biodiesel excise tax credit in 2005, as well as complementary state incentives, have propelled the industry forward. Likewise, the support of the worlds’ major automakers—DaimlerChrysler, in particular—has been a step in the right direction for the once fledgling industry. Call pointed out the significance of DaimlerChrysler’s decision to factory fill certain vehicle models with B5 and approving its Dodge Ram pickup trucks for B20 use in fleet applications. He also informed the crowd that iconic American tractor maker John Deere is factory filling diesel-powered machinery—including tractors, combines and self-propelled sprayers—with B2. In addition, Call talked about the marked increase in the number of U.S. filling stations offering biodiesel blends. With several new U.S. biodiesel plants scheduled to come on line in 2007—there were 33 U.S. facilities under construction at press time—the United States will have a capacity to produce 1.6 billion gallons of biodiesel per year by 2008, Call told the international audience. Meanwhile, experts continue to uncover enhanced possibilities for the fuel. Research and development trends include genetic manipulation of plant oils to achieve higher oil content and improved cold-flow properties. At the same time, Call said, biodiesel process technology advancements are continually being achieved by U.S. producers. Small, Challenged Market in Australia

Like the United States, Australia is a gasoline-powered nation—and not a very populous one at that. Therefore, while ethanol has a great deal of promise in the Land Down Under, the potential market for biodiesel is both small and constrained, according to Bill Elliot, director of BBI Biofuels Australia and a speaker at this year’s WBS. Elliot said Australia is unlikely to keep pace with the global rise of biodiesel production and use. The nation consumes 15 billion liters (4 billion gallons) of diesel annually—a rather small market in itself—and the Australian federal government has been reluctant to take the necessary steps to implement effective biofuels legislation, Elliot said. Additionally, the Australian biodiesel market is handicapped by the fact that only 10 percent of current diesel suppliers in the nation are required to pay the full fuels tax of AUS$0.38 per liter (US$0.20 per gallon). Europe Stills Leads Compared to nations like Australia, where biodiesel is as exotic as the nation’s wildlife, Europe is light years ahead in production, use and consumer acceptance of the renewable fuel. And even though the U.S. biodiesel industry is experiencing exponential growth, it still lags behind Europe, where diesel vehicles rule the roads. Will Thurmond, author of “Biodiesel 2020: A Global Market Survey,” wasn’t able to attend the 2006 WBS, but his report helps put the global biodiesel picture in context. His Houston-based company, Emerging Markets Online, began researching alternative energy markets for its clients a few years ago. Today, Thurmond keeps a close eye on the rising global biodiesel market, and he’s impressed with what he sees. In particular, he’s interested in “where it started and where it’s going” worldwide. France has a nationwide B5 mandate and B100 use is widely accepted in Germany, Thurmond tells Biodiesel Magazine. He says Germany currently has more than 1,800 biodiesel fueling stations and last year produced 80 percent of all the biodiesel in Europe. In 2005, Germany produced 1.7 million tons (460 million gallons) of biodiesel, France produced 492,000 tons (135 million gallons), Italy produced 396,000 tons (108 million gallons) and the Czech Republic and Poland were close behind with 133,000 (36 million gallons) and 100,000 metric tons (27 million gallons), respectively, Thurmond’s report reveals. Germany has an advanced biodiesel infrastructure rooted in a framework of cooperation among government, farmers’ unions, and refinery and distribution companies. Thurmond says other nations would do well to learn from its example. “Germany is the model China, Brazil and India are going to follow, which is a massively centralized government enterprise [that involves] farmers, the oil and gas refineries, and distribution outlets in one program,” he says.

Will Biodiesel Be Big for China?

source: Biodiesel 2020: A Global Market Survey, Emerging Markets Online

Although ethanol is the most high-profile renewable transportation fuel in China, the nation is one of the biggest diesel users in the world, consuming approximately 60 million to how it should look: 70 million tons (16.5 billion to 19 billion gallons) per year, according to Thurmond’s report. Production of biodiesel, however, has not yet caught up with the country’s appetite for diesel.

In 2004, China produced only 60,000 tons (16 million gallons) of biodiesel, which is less than 1 percent of the country’s total diesel production in the previous year, according to Thurmond. The gap between fuel production and consumption is growing, and any country in this situation has a serious energy security dilemma and must diversify its energy supplies, Thurmond says.

source: Biodiesel 2020: A Global Market Survey, Emerging Markets Online

The Chinese government is encouraging—if not pushing—the production and use of biofuels in order to meet its mounting transportation fuel needs. It’s ethanol ambitions are taking flight, but a lack of available plant oils is hindering the proliferation of biodiesel. China doesn’t have enough arable land resources available to produce the crops commonly used to produce biodiesel: soybeans, rapeseed, palm and castor beans, for example.

In fact, China is already the world’s No. 1 importer of vegetable oil, according to Zongbao Zhao, a professor at China’s Dalian Institute of Chemical Physics. Despite this fact, China is making advances. Last year, the country increased biodiesel production to somewhere between 100,000 and 200,000 metric tons (30 million and 60 million gallons); under current biofuels development policies, the country is expected to increase its biodiesel production to 2 million tons per year (540 MMgy) by 2010, according to Thurmond’s report. The federal government of China is expected to release a new implementation plan for the biofuels component of its 2006-’10 planning period by the end the year, Thurmond says. With vegetable oils in tight supply, 80 percent of China’s biodiesel is currently made from recycled waste oil from restaurants. Mark Soutter, an analyst for BBI International and an attendee of the 2006 WBS, recalls speaking with a Chinese citizen at the conference who owns and operates a small biodiesel production facility in southern China that uses duck fat as its principal feedstock. Duck fat is easy to obtain and has a low value as a recycled fat because it tends to have an undesireable flavor, Soutter explains. The country also has successfully used human sewage as a biodiesel feedstock. “China has made some

pretty major advances in terms of recycling human sewage into biodiesel,” Thurmond says, explaining that metro buses have been powered with a fuel derived from the unsavory raw material. According to Zhao, the key to China’s biodiesel industry lies with the use of innovative triacylglycerol resources. Zhao and his biomass conversion team have begun looking at the use of microbial oil in place of vegetable oils or animal fats for biodiesel production. In addition, the Huazhong University of Science and Technology is researching the use of lipases—enzymes that catalyze, or initiate, the hydrolysis of monoglycerides, diglycerides and triglycerides to glycerol and fatty acids—to make biodiesel. Like the work Zhao is undertaking, other novel biodiesel production technologies emerging in China are still in the research and development stages. Thurmond says few, if any, novel processes have been ramped up to commercial scale. “Since it’s such a new market for biodiesel, finding the kind of data that can be useful for forecasts was very difficult, but putting together the argument for the use of biofuels was not,” he says.

ADM Seeks Global Options With Biodiesel Markets By LAUREN ETTER

February 15, 2007; Page A14

With much attention focused on the race to ramp up production of ethanol in the U.S., Archer-Daniels-Midland Co. is pushing into a different and growing alternative-fuel market abroad: soy-and-palm-based biodiesel in Brazil and Indonesia.

The nation's largest ethanol producer is planning to open a biodiesel plant in Indonesia with Asian agribusiness giant Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July. The Brazil biodiesel plant, based in the emerging soybean hub of Rondonopolis, is expected to be the nation's largest. World-wide, the company projects a fourfold rise in biodiesel production over the next five years.

STOCK WATCH

Will the emphasis on alternative fuels such as ethanol spur Archer Daniels Midland's stock? Bulls and bears debate.

Biodiesel -- a renewable fuel made from plants like soybeans, canola and palm -- works with diesel engines. Ethanol, by contrast, works with motors that burn gasoline. ADM declined to disclose spending figures but expects its biodiesel generating capacity to rise from the current 470 million gallons, compared with 1.1 billion gallons of capacity to produce ethanol.

Internationally, biodiesel has big potential. Diesel fuel makes up about 40% of all fuel consumed by the world's cars and trucks. In Europe, where ADM has been a leader in biodiesel production for a decade, it is much higher -- 60%. About 2% of all diesel cars in Europe now run on biodiesel.

By contrast, biodiesel in the U.S. plays second fiddle to ethanol. In the U.S., 24% of all fuel used in road vehicles is diesel, according to the International Energy Agency. Less than one-half of 1% of all diesel vehicles run on biodiesel, according to William Thurmond, founder of Emerging Markets Online, which researches energy use. Biodiesel consumption is expected to grow in emerging markets since many places grow crops suitable to biodiesel production, like jatropha in India, palm trees in Indonesia and soybeans in Brazil. Also, these countries already have, or are working toward, targets for biodiesel consumption.

In 2005, Brazil established a requirement that 2% of diesel's make-up must be biodiesel. That figure is supposed to rise to 5% in 2013 and 20% by 2020.

For ADM, the Rondonopolis plant was timed to open "ahead of the anticipated rise in demand due to the [biodiesel] mandate," said Jessie McKinney, a spokewoman for ADM.

Also sweetening ADM's business operations in Brazil is the country's unique tax-incentive structure. Producers get 27 U.S. cents for every gallon of biodiesel produced using certain raw materials produced on small family farms. ADM is seeking to contract with these small family farmers to be able to cash in on that incentive. It is also pouring money into Brazilian infrastructure, such as roads, river barges and storage elevators.

Brazil is the world's second-largest soybean producer, behind the U.S. Rondonopolis, in the state of Mato Grosso do Sul, is emerging as the new frontier for soybean growth and as the hub of Brazil's biodiesel industry.

For the past three years, Brazilian soybean growers have struggled against bad weather, debt and a weak Brazilian currency. This year, though, farmers' fortunes are expected to rebound as soybean prices reach new highs.

US Sees Mileage In Biodiesel

By Anuj Gangahar

Published: February 7 2007 02:00 | Last updated: February 7 2007 02:00

Biodiesel could be "this year's ethanol" in the view of Leigh Goering, portfolio manager for the natural resources fund at Chilton Investment Company.

The appeal to investors stems from several developments. Alternative fuels such as biodiesel represent one plank of President George W. Bush's plan to make the US less dependent on imported oil.

The growing popularity of and investment in ethanol was one of the biggest global commodities stories of last year and the Bush administration recently committed $179m in its fiscal year 2008 budget for research into producing ethanol from a variety of sources.

A recent survey by an energy and utilities research firm suggests that biodiesel could soon join

ethanol as one of the most important alternative fuels, saying the global market for biodiesel is poised for explosive growth in the next 10 years.

The Emerging Markets Online survey predicts that the fuel could represent as much as 20 per cent of all on-road diesel used in Brazil, Europe, China and India by the year 2020. Although Europe currently represents about 90 per cent of global biodiesel consumption and production, the US is ramping up capacity at a faster rate than Europe, while Brazilian production is expected to surpass both by 2015.

Biodiesel is a clean-burning direct substitute for traditional oil-derived diesel and is produced from renewable resources such as soybeans, which can be grown domestically.

In the US, demand is growing quickly. Just 70 major plants are already struggling to fulfil requirements. The number of retail outlets for biodiesel in the US has rocketed from 300 in 2005 to more than 950 in 2006 and upwards of 50 new, larger-scale production plants are under construction.

All the activity has made biodiesel a key area of investment for fund managers and other investors. They have been funding the growing number of plants and refineries as well as driving robust merger and acquisition activity within the sector.

Goldman Sachs, for example, last year invested more than $1.5bn in alternative energies and clean technologies worldwide. As part of this effort, the bank arranged $217m in debt financing for Northeast Biofuels. And Gartmore's UK small-cap Alphagen Volantis hedge fund recently increased its stake in biodiesel producer D1 Oils

Troy Rillo of Cornell Capital says that from a fund manager's viewpoint, biodiesel could be more attractive than ethanol as the investment opportunity is less crowded. He adds that his firm had invested in companies that extract fats from ethanol, as this fat can be used in the production of biodiesel.

Biodiesel can be blended with petroleum diesel. It can be used in diesel engines with little or no modifications, meaning demand is driven by commercial vehicles such as lorries, tractors and even tug-boats. Biodiesel is biodegradable, non-toxic, and essentially free of sulphur and Aromatic pollutants.

According to a study by the US Environmental Protection Agency, burning biodiesel instead of petroleum diesel decreases hydrocarbon emissions by nearly 70 per cent and carbon monoxide and particle emissions by nearly 50 per cent.

Overall, according to the Union of Concerned Scientists, the production of biodiesel creates approximately 95 per cent less hazardous waste than petroleum diesel production, but more than double the amount of non-hazardous waste.

Although production avoids the big refineries needed for petroleum products, biodiesel depends on the ability of the agricultural sector to grow enough of the crops used as feedstock. This dependence is already changing the traditional dynamics of crop pricing. For example, the US Department of Agriculture estimates that every 50m gallons produced raises soybean prices by 1 per cent.

And the sheer potential volume of raw materials needed is cited by many as a possible barrier to the future expansion of the market. A recent estimate illustrated the scale of the task by suggesting it would require planting twice the land area of the US in soybeans for biodiesel to meet all the country's heating and transportation needs.

Beyond these challenges, some say the lack of a national standard for biodiesel could hamper automobile manufacturers' efforts to produce diesel vehicles capable of running on the fuel.

These hurdles are, however, unlikely to stop biodiesel becoming big business. But even then there are other risks, including a fall in the price of oil - something that could make biofuels less financially competitive. Asia's big producers are already starting to hedge against falling oil prices and rising biofuel feedstock costs using the derivatives markets.

Such tactics may, however, carry substantial risks, according to analysts. Producers can hedge using derivatives based on commodities such as palm oil or sugar, as well as end products like ethanol and, of course, oil. But the market currently lacks liquid instruments tracking biodiesel prices, for example, making crop growers with little experience of financial derivatives wary.

Biofuel Surge Could Upset Traditional Market Values

13 December 2006 Lloyd's List By John Zarocostas in Geneva THE present global biofuels bandwagon, spurred largely by high oil prices and energy insecurity concerns, is expected to spark a sustained upward pressure on prices for primary commodities from grains to soybeans and sugar, experts predict. All the world’s main rich and emerging economies including the US, the European Union, China, India and Brazil, have ambitious plans to boost the supply of biofuels in their national fuel mix to reduce dependence of oil. “Since everything that we eat can be converted into fuel for cars, including wheat corn, rice, soybeans and sugar cane, the line between the food and energy economies is disappearing,” says Lester R Brown, president of the Earth Policy Institute. Mr Brown, who helped to pioneer the concept of sustainable development, argues in a report in the latest issue of Swiss Derivatives Review that as the price of oil climbs it becomes increasingly profitable to convert farm commodities into automotive fuel, either ethanol or biodiesel. In effect the price of oil becomes the support price for food commodities. Whenever the food value of a commodity drops below its fuel value the market will convert it into fuel. William Thurmond, director of management consulting services for Emerging Markets Online, forecasts in a separate report that by 2020 the use of biodiesel and ethanol technologies combined could potentially replace 20% or more of transport fuel needs in Europe, China, India, Brazil and the US. Mr Thurmond says that the markets in both Europe and the US aim to replace some imports of imported petroleum fuels with biofuels. Europe, which met its 2% target by the end of last year, has set 5.75% as a target by 2010 and 20% by 2020, which is approximately equal to 20bn gallons. Last year Europe consumed 900m gallons of biodiesel. The consultant is also bullish about the “enormous potential,” for biofuels in the still nascent emerging US market.

“In 2004, 70m gallons of biodiesel were produced in the US,” Mr Thurmond continues. “In 2005 this grew… to 240m gallons… and by the end of 2006 this figure is expected to reach more than 1bn gallons,” he says. But he also emphasises that the projected growth of diesel cars from 3% market share in 2005 to 11% by 2010 also presents growth opportunities for biodiesel. Similarly, the UN Conference on Trade and Development estimates that global production of ethanol from sugar cane, maize and sugar beet increased from less than 20bn litres in 2000 to more than 40bn litres last year, equal to about 3% of global gasoline consumption. Unctad anticipates ethanol production to almost double again by 2010 and adds that, according to some analysts, biofuels could account for 20% of the fuels consumed by 2020. Mr Brown points out that the world’s largest sugar producer, Brazil, is now converting half its sugar harvest into fuel and attributes to this factor the doubling in the price of sugar. “Cheap sugar may now be history,” he observes. Moreover, in the US, he continues, 55m tons of corn will this year be going into ethanol. But ge also adds that that distorting ethanol subsidies are also playing a central role. The eminent expert argues that, with a “US ethanol subsidy of 51 cents per gallon in effect until 2010,” coupled with high oil prices, distilling fuel alcohol from corn “promises huge profits for years to come”. The profitability of biofuels has also triggered “an investment juggernaut”, Mr Brown says.He points out that the 100th ethanol distillery came on line in the US in May last year and says that another 34 are under construction and scores more are being planned. He notes that other countries are also investing heavily in new facilities and adds that both Malaysia and Indonesia are investing heavily in palm oil plantations and new biodiesel refineries. “Within the past year or so, Malaysia has approved 32 biodiesel refineries,” he says. But Mr Brown warns that the expansion in biofuel production worldwide is also setting the stage for “a head-on collision between the world’s 800m affluent automobile owners and food consumers”. He says the broader risk is that rising food prices could spread hunger and generate political instability in poor countries that import food such as Indonesia, Egypt, Nigeria, and Mexico. He suggests that an alternative to using biofuels could be to raise fuel efficiency standards by 20% and investing in public transport to lower the dependence on cars. .

The global population is expected togrow from 6 billion in 2006 to over 8 bil-lion by the year 2020. In the same peri-od, the global energy market is expectedto grow, on average, at about 1.5%,ranging from 1.3% to 1.7% dependingon which energy expert, governmentforecast, or think tank report you read.The U.S. energy market is expected togrow at 1.7% per year to 2020, itsEuropean counterpart at 1.3% per year,China at approximately 4%a year (ranging from esti-mates of 3.8% to 8% peryear to 2020), India at 3%and Brazil at approximately3% to 4% per year.

Currently Europe is thebiggest biodiesel market inthe world, accounting forover 90% of all biodieselconsumed and produced,according to the EuropeanBiodiesel Board. The U.S. biodiesel mar-ket is already working hard and fast atchanging this number. In 2005, Europeconsumed over 900 million gallons (3.4billion liters) of biodiesel. In the sameyear, the U.S. consumed 75 million gal-lons (284 million liters) of biodiesel. ForEurope, 900 million gallons represent2% of all on-road transportation. In theU.S., 75 million gallons represents about0.5% of all diesel consumed on-road.

While the U.S. market for biodieselhas enormous potential, it is still a na-scent market. It represents less than 1 percent of the total U.S. supply ofdiesel fuel. Although biodiesel has notyet made a major impact on the U.S.’diesel fuel sector, changes are afoot in theindustry. In the last three years, the U.S.market has become an “EmergingMarket” for biodiesel. The story of thismeteoric rise in market growth speaksvolumes to the major strides in theproduction and distribution of biodieselin recent years. How has this happened?In 2004, 70 million gallons of biodiesel

were produced in the U.S. In 2005, thisamount grew over threefold to 240 mil-lion gallons of biodiesel produced in theU.S. By the end of 2006, this figure isexpected to grow fourfold to reach overone billion gallons of biodiesel producedper year.

In Europe and in the U.S., the marketshave a ways to grow to reach their tar-gets aimed at replacing some percentageof imported petroleum fuels with bio-

fuels. Europe’s first target, 2% by 2005,was reached by the end of 2005.Europe’s next targets, 5.75% by 2010and 20% by 2020 may or may not beachievable depending on feedstock avail-ability, government commitment, and

market economics. Using current con-sumption figures, Europe’s 5.75% targetby 2010 equals approximately three bil-lion gallons, and 20% is approximately20 billion gallons.

In the U.S market, biodiesel andethanol are mandated under the U.S.Renewable Energy Standard. In the U.S.market, only 3% of all cars on the roadrun on diesel, compared to over 80% ofall commercial trucks and major bus

networks in municipal areas.Ethanol in the U.S. is

expected to address the other97% of the U.S. consumerautomotive market. Cur-rently, biodiesel’s first task inthe U.S. is to replace fuelsused in school buses, metrobuses, 18 wheelers, and largecommercial vehicles. There isa relatively small U.S. marketfor diesel in passenger cars

compared to Europe, where over 50% ofall cars run on diesel, as well as China,India and Brazil where diesel is the dom-inant on-road fuel for passenger cars.The U.S. market share of diesel cars isexpected to grow from 3% in 2005 to

6

Focus

Biodiesel 2020: The emerging marketsContrary to some European countries, the U.S. is still a nascent market when it comes to biodiesel. In line with

China, India and Brazil, all economic heavyweights have ambitious plans to increase national supply of biodiesel

and the fraction of biodiesel in the total fuel market, in an attempt to mitigate the dependency on oil supplies.

“The aim of biodiesel and ethanol is to reduceimport dependency onpetroleum products.”

Source: “Biodiesel 2020: A Global Market Survey”

SWISS DERIVATIVES REVIEW 32 – AUTUMN 2006

11% by the year 2010. Until then, thereis a very large market for commercialvehicles, trucks and buses in the U.S. tobe addressed by biodiesel.

In some of the “emerging markets” inthe developing world, the potential forbiodiesel growth in China, India andBrazil is enormous. In the investmentcommunity, these have long been knownas the “Big Emerging Markets” repre-senting over 50% of the world’s popula-tion. These three countries also repre-sent some of the fast-growing middle-class populations and regionaleconomies in the world. In addition,over the last five years, these three coun-tries represent three fourths of thelargest growing “foreign” market seg-ment outside the U.S. known as “BRIC”– Brazil, Russia, India and China. TheBIC portion of BRIC is the ripest climatefor Biodiesel growth outside the U.S. Ineach of the BIC countries, massive gov-ernment measures are being enacted toinstitute biodiesel as a part of the coun-try’s long-term energy infrastructure andas a supplement to the increasingly riskysupply of oil from antagonistic regimesand OPEC cartel members from theMiddle East, Africa, Venezuela, andRussia.

Brazil, China and India are just get-ting started with their biodiesel develop-ment plans. Their markets are in theirinfancy and are just starting to grow. Ineach of these countries, there is not yetany large-scale biodiesel production, butthere are large-scale plans underway bythe governments to use biodiesel in a bigway. Each of these countries has estab-lished a “National Biodiesel Plan” withmandates and targets aimed at reducingimport dependency on petroleum prod-ucts with biodiesel and ethanol. Theseplans are designed to replace fuels thatrelease carbon-emissions such as dieselfuel and gasoline used by consumers andcommercial vehicles. In every case, forIndia, Brazil and China, the targets andprograms are ambitious but achievable,given the right variables and levels ofcommitment.

What will the Biodiesel Market

look like in the year 2020?

Based on the findings of our report,Biodiesel 2020, it is clear that the periodof 2010 to 2015 will experience signifi-cant growth in the U.S., Europe, Chinaand Brazil. Another key observation:most of the biofuels targeted by the U.S.,Brazil and India are for blending purpos-

Focus

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“By the year 2020, use of biodieseland ethanol technologies combinedcould replace 20% or more oftransportation fuel needs in keyeconomies.”

Source: “Biodiesel 2020: A Global Market Survey”

SWISS DERIVATIVES REVIEW 32 – AUTUMN 2006

es and not strictly for B100 use. It seemsunlikely that most of the world will useB100 as a first choice for biodiesel fuelfor autos. Instead, most nations are nowfollowing the “blending”model used by the U.S. andFrance for B2, B5 and B20.Brazil, China and India arealso following this route for-ward and are starting theirNational Biodiesel Planswith blending targets first.

By the year 2015, as ener-gy demands for soybean,canola and Jatropha oil sur-pass the available land toplant these energy-rich crops, alternativefeedstocks such as palm oil and algae-based biodiesel will help to meet thesegrowing demands. The U.S. NationalRenewable Energy Lab forecasts thatsoybean and canola based biodiesel willonly be able to supply 10% of the totalmarket for energy needs in the U.S.However, new feedstocks such as algae-based biodiesel will go into mass produc-tion in the U.S. and are estimated to havethe potential to provide 30% or more ofall transportation-based energy needsfrom biodiesel by the year 2020.

One of the most promising alternativebiodiesel feedstocks is algae. Algae-basedbiodiesel has the opportunity to producemore than 10 times the amount of oil peracre than soybeans or canola can pro-duce. By the year 2020, if Europe, the

U.S., Brazil, China and India reach theirfirst or second targets, and replacebetween 5% and 10% of automotivefuels on the road with biofuels, the need

for alternative biodiesel feedstocks willemerge. It is likely that algae-basedbiodiesel and other new feedstocks willhelp to meet future biodiesel growth needsat significantly lower production costs.

By the year 2020, use of biodiesel andethanol technologies combined couldpotentially replace 20% or more oftransportation fuel needs in Europe,

China, India, Brazil and theU.S. Most experts and fore-casters agree biodiesel andbiofuels will play one part ina bigger picture of multiplealternative fuels, includingfuture fuels from coal-to-gastechnology, hydrogen fueltechnology, and hybrid-elec-tric technologies. For thenext ten years, the use of soyoil in the U.S., canola oil in

Europe and palm oil in China as primaryfeedstocks are likely to remain thefastest-growing automotive fuel seg-ments in each country’s emergingbiodiesel markets.

8

Focus

“Most experts and fore-casters agree biofuels willplay one part in a biggerpicture of multiple alter-native fuels.”

William Thurmond is Director Management ConsultingServices for Emerging Markets Online and author of‘Biodiesel 2020: A Global Market Survey’. Mr.Thurmond is a candidate PhD in Alternative Futures atthe University of Hawaii and holds a M.S. in Studies ofThe Future from the University of Houston and a B.S. inInternational Economics. Mr. Thurmond is a member ofthe United States Association for Energy Economics, a

member of the Association of Professional Futurists, and has received ForbesMagazine’s “Best of The Web” award seven years in a row.

Contact: willthurmond@gmail.com. / www.emerging-markets.com

SWISS DERIVATIVES REVIEW 32 – AUTUMN 2006

Table of Contents

Conte

nts

3EditorialPaul Meier, Chairman, SFOA 5

FocusBiodiesel 2020: The emerging markets 6

William Thurmond, Emerging Markets OnlineSupermarkets and service stations now competing for grain 10

Lester R. Brown, Earth Policy InstituteHow to invest in alternative energy through structured products 12

Georg von Wattenwyl, Bank VontobelDAXglobal alternative energy: first investable global index

for alternative energy 14Heiko Geiger, Deutsche Börse

Alternative energy as an investment opportunity 16Sebastian Bleser, Société Générale

EventReview of the 27th Bürgenstock Meeting 18

Michael Brewer, Word+Image8th Infotec Golf Cup 30

Paul Meier, SFOAProceedings of the Emerging Markets Forum

at the 27th Bürgenstock Meeting 32Simona Simon, Eurex Frankfurt, and Dr Jonathan Butler, Deutsche Börse Systems

Legal & ComplianceMiFID – A Swiss perspective 34

Marc E. Raggenbass and Glenn Hempel, KPMG

New ProductsA new marketplace: Futures and options on real estate 38

Arman Falsafi, Chicago Mercantile Exchange

EducationThe European repo market 42

Richard Comotto, ICMA Centre at the University of ReadingU.S. options industry to create forum for growing

European customer base 44Jim Binder, The Options Industry Council

SpecialA new, standardized classification for structured products 46

Eric Wasescha, Swiss Structured Products Association

ProfileNCDEX: Creating a revolution in the commodities and derivatives market 50

P.H. Ravikumar, National Commodity and Derivatives Exchange

Imprint 7

SFOA – Swiss Futures and Options

Association

Ms. Carol Gregoir, Secretary General18b, rue du Gothard, P.O. Box 325CH-1225 Chêne-Bourg, SwitzerlandPhone +41 22 860 21 03Fax +41 22 860 21 15

AFM – Association of Futures Markets

Ms. Krisztina Kasza, Head of SecretariatRobert Karoly krt. 61-65Budapest 1134, HungaryPhone +36 30 34 35 370 Fax +36 1 477 0455kkasza@axelero.hu, www.afm-org.hu

ACI SUISSE – The Financial Markets

Association

Mr. Otto Amberg, Secretary Generalc/o Schroders & Co. Bank AGP.O. BoxCH-8021 Zürich, Switzerlandsecretariat@acisuisse.chwww.acisuisse.ch

IFRI Foundation – International Financial

Risk Institute

Mr. Peter Guidolin,Executive Manager2, cours de RiveCH-1204 Geneva, SwitzerlandPhone +41 22 312 56 78Fax +41 22 312 56 77info@riskinstitute.chwww.riskinstitute.ch

SAMT – Swiss Association of Market

Technicians

c/o Bruno Estier22, chemin RieuCH-1208 Geneva, SwitzerlandFax +41 22 346 90 73samt@samt-org.ch, www.samt-ch.org

S W I S SF U T U R E SA N DO P T I O N SASSOCIATION

SWISS DERIVATIVES REVIEW 32 – AUTUMN 2006