Feature: Auto motor tests to delay Brazil's biodiesel boost until 2017

04.04.2016

Brazil recently raised the volume of biodiesel mixed with diesel sold at the pump to 8%, but motor testing will likely push implementation of the increase into 2017, industry officials say.

President Dilma Rousseff signed the three-step plan to ultimately raise Brazil's biodiesel blend to 10% by 2019 into law on March 23. The measure authorized an increase to the volume of biodiesel mixed with diesel to 8% within 12 months of the signing, 9% within 24 months and 10% within 36 months, according to a timeline published in Brazil's Federal Register in the week ending March 25.

The law is part of the Brazilian government's push over the past two years to increase consumption of biofuels, such as biodiesel and ethanol, that is aimed at easing the country's dependence on imported fuels to meet domestic demand. In 2014, the government increased the biodiesel blend to 7% from 5% in two steps. That was followed by an increase in the volume of anhydrous ethanol mixed with gasoline sold at the pump to 27% from 25% in March 2015.

The two moves significantly reduced expensive imports of diesel and gasoline, nearly returning Brazil to a net exporter of crude oil and oil products in 2015, according to state-led oil company Petrobras. In 2015, Petrobras reduced its oil product imports to an average 256,000 b/d from 413,000 b/d in 2014. Petrobras expects to import 50,000-60,000 b/d of diesel in 2016.

The latest move, however, is unlikely to result in a significant increase in biodiesel production or consumption in 2016, industry officials say. That's because the first increase to 8% will not be made until a government working group under the auspices of the National Energy Policy Council, or CNPE, completes tests to ensure diesel motors can operate safely with a 10% diesel blend, industry officials said. The group includes the Brazilian Association of Vegetable Oil Industries, or Abiove; the Brazilian Biodiesel and Biokerosene Union, or Ubrabio; Brazil's Mines and Energy Ministry; Brazil's Science and Technology Ministry; Brazil's National Petroleum Agency, or ANP; the National Motor Vehicle Manufacturers Association, or Anfavea; and trade groups representing auto parts makers.

"The increase in the mixture will only take place after the conclusion of tests for 10% biodiesel," said Daniel Furlan Amaral, sustainability manager at Abiove. "A timeline for the tests exists and is being fleshed out with a forecast for when the tests will be completed, but it's not yet definitive, including which tests will be done."

Despite the uncertainties, the tests are still expected to be completed by February 2017, Amaral said.

TIMELINE CONFUSION

But there still appears to be some confusion about the timeline for the increases. The Mines and Energy Ministry and the ANP, however, said that the increases did not depend on the tests or any act by the CNPE, a government energy panel, in order to be implemented.

The new law "also established a term of up to 12 months for carrying out tests for B10," the Mines and Energy Ministry said in an emailed response to questions, citing the 10% biodiesel mixture. "No explicit link, however, was drawn between the increase in the blend to 8% and the results of the tests. We understand, therefore, that the CNPE has the competency to implement the increase at any time between the sanctioning date and March 23, 2017."

If the CNPE has not implemented the increase by March 23, 2017, the higher biodiesel mixture will automatically go into effect, the Mines and Energy Ministry said.

The ANP, which will hold the bimonthly auctions for distributors to buy the necessary volumes of biodiesel, also said that the CNPE could accelerate the biodiesel-blend increases. The CNPE was authorized to increase the biodiesel blend directly to 10% once the motor tests have been completed. 'In this case, it's understood that the CNPE would likely issue a new resolution authorizing the increase to a biodiesel blend of 10% at an earlier date,' the ANP said in an emailed statement.

According to the Mines and Energy Ministry, the CNPE will also need to make sure biodiesel producers are up to the task before moving directly to a 10% mixture. "We understand that the early increase of the blend by the CNPE, if it happens, should take place after the conclusion of the tests and also after certifying that there is enough capacity in the market to meet the increase in demand for biodiesel the mixture should create," the ministry said.

EXCESS CAPACITY

The biodiesel industry, however, is more than capable of meeting any increases in demand because it's only using about 60% of installed capacity, industry officials said. "There is still a significant amount of excess capacity in the biodiesel industry," said Abiove's Amaral. "We still don't yet have a market that is favorable for stronger investments."

Brazilian biodiesel is produced primarily from soybeans, which accounted for about 77% of production in 2015. Beef tallow represented about 19%, while cottonseed, cooking oil and other oil seeds and fats made up the remaining raw materials.

The outlook for diesel and biodiesel demand is linked to Brazil's economy, where political and economic crises have made forecasting difficult at best. Brazil tumbled into recession for the second time in two years in 2015, contracting by 3.8% versus 2014. That was the deepest year-on-year tumble since 1990. Economists polled by the Brazilian Central Bank don't expect the situation to improve much in 2016, estimating an additional 3.6% contraction this year.

Abiove expects Brazilian biodiesel production and consumption to reach about 4.2 billion liters in 2016, up from 3.9 billion liters in 2015. The trade group had expected output and demand to reach 4.2 billion liters in 2015 after the government implemented a two-step increase in the biodiesel blend to 7% from 5% in 2014, but the economic downturn sapped demand for diesel and, consequently, biodiesel.

"Brazil will likely repeat the same number as last year because the economy is stagnating," said Donizete Tokarski, director at Ubrabio. Ubrabio, however, is pushing for the CNPE to implement the increase to 8% by July, which could lead to growing biodiesel production in the second half of 2016, Tokarski said.

Both Abiove and Ubrabio estimate that each 1% increase to the biodiesel-diesel blend represents about 600 million liters of additional biodiesel production and consumption.

"The second half of 2016 could be very good if the mixture increased to 8%," Tokarski said. "That would mean an additional 300 million liters, which would push Brazil a little past 4 billion liters."

Tokarski is more optimistic because of the amount of motor testing done when Brazil made previous increases to the biodiesel blend. The executive also noted that testing in Argentina, Colombia, France and the US had showed that motors could work safely with higher blends of biodiesel.

"These tests are nothing more than a formality," Tokarski said, citing companies such as Mercedes-Benz, Scania and Volvo that have already guaranteed their motors for biodiesel blends at 20%. But Anfavea, which represents automakers across Brazil, has so far declined to guarantee the safety of all motors because a small percentage of vehicles sold in Brazil have not yet been properly tested, Tokarski said.

Carrying out additional motor tests on the 10% biodiesel mixture also could help Brazil move quickly toward an even higher mixture, with parallel tests on a 15% biodiesel-diesel blend also on the table, said Abiove's Amaral.

"The idea of the tests is to eliminate any doubts about adopting even greater levels of biodiesel," Amaral said. "From there onward, we could get a green light to increase the mixture even more."



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