Biodiesel thesis

COMMERCIAL BIODIESEL
PRODUCTION IN SOUTH AFRICA:
A PRELIMINARY ECONOMIC
FEASIBILITY STUDY

by

Mirco Nolte

Thesis submitted in partial fulfilment
of the requirements for the Degree

of

MASTER OF SCIENCE IN ENGINEERING
(CHEMICAL ENGINEERING)

in the Department of Process Engineering
at the University of Stellenbosch

Supervised by
Professor Leon Lorenzen

STELLENBOSCH

MARCH 2007

Declaration of Originality i

Declaration of Originality
I, the undersigned, hereby declare that the work contained in this thesis is my own original
work and that I have not previously in its entirety or in part submitted it at any university for a
degree.

Signature: Date:

Copyright © 2007 Stellenbosch University

All rights reserved

Abstract ii

Abstract
Biodiesel, a fatty acid alkyl ester, derived from the transesterfication of vegetable oil, is
considered a renewable fuel that can be used as a replacement for fossil diesel. The urgency
for biofuel production in South Africa is motivated by the vulnerability of crude oil prices,
high unemployment, climate change concerns and the need for the growing economy to use
its resources in a sustainable manner.

The technical feasibility of biodiesel production has been proven and this study investigates
its preliminary economic feasibility in South Africa by looking at the market, financial and
agricultural feasibility of commercial biodiesel production.

The market feasibility

The potential market size for biodiesel in South Africa is about 1 billion litres if it is to
replace 10% of its diesel consumption by 2010. However, governmental legislation and
policies are needed to create a predictable and growing market for biodiesel in South Africa.
These policies or regulations could be in the form of subsidising feedstock for biodiesel
production, subsidising the biodiesel itself, using government purchasing power, mandatory
blending legislation, tax incentives or price compensation agreements.

The financial feasibility

Calculations to asses the financial feasibility of commercial biodiesel production are based on
a 2500 kg/h (22.5 million litres/annum) containerized plant. This size is based on findings of
Amigun & von Blottnitz (2005) that the optimum biodiesel plant size in South Africa ranges
between 1500 and 3000 kg/h. Two types of plants were considered, namely a seed extraction
biodiesel production (SEBP) plant using locally produced oilseeds as feedstock and a crude
oil biodiesel production (COBP) plant using imported crude vegetable oil as feedstock.

The capital investment for a SEBP plant ranges between R110 and R145 million while a
COBP plant would require a capital investment of about R45 to R50 million. These amounts
include a working capital of about R35 million due to money that is fixed in a 3 month stock
supply.

Abstract iii

The calculated biodiesel manufacturing costs of the two types of plants for various feed stocks
at current prices (30 August 2006) are shown in Table 1:

Table 1: Manufacturing costs of biodiesel for various feed stocks

SEBP Plant COBP Plant
Local Feedstock Manufacturing Imported Feedstock Manufacturing
Cost Cost
Canola R4.81/litre Palm Oil R6.62/litre
Sunflower seeds R6.67/litre Soybean Oil R6.89/litre
Soybeans R6.70/litre Sunflower Oil R7.48/litre
Rapeseed Oil R9.28/litre

Feedstock and raw material contribute to about 80% of the manufacturing cost while transport
costs are the second biggest contributor. These results point to the fact that the plant location
is very important in order to minimize production costs. Thus, commercial biodiesel
production should not be centralized, but should rather happen through greater number of
relatively small plants located in oilseed producing regions. (South Africa would require
about 46 plants each producing 2500 kg/h to produce 10% of its diesel by 2010).

The sensitivity analyses showed that the manufacturing costs of a SEBP plant are very
sensitive to changes in oilseed and oilcake prices while the manufacturing costs of a COBP
plant are very sensitive to a change in crude vegetable oil price. The fluctuating nature of the
agricultural commodity prices makes biodiesel manufacturing costs unpredictable. Soybean
biodiesel costs are the most sensitive to price changes while sunflower biodiesel costs are the
least affected.

An increase in glycerol price would decrease the manufacturing costs of biodiesel by about 12
cents/litre for every R1000/ton increase in price. Glycerol prices are currently too low to
consider in the calculations due to a global oversupply as a result of biodiesel production.

The break even price of biodiesel is calculated by adding R1.01/litre fuel tax to the
manufacturing cost, which means that biodiesel produced from oilseeds (except canola) will
not be able to compete with the current price of fossil diesel (30 August 2006) without
subsidies or legislation.

Abstract iv

The agricultural feasibility

Producing 10% of South Africa’s diesel using oilseeds would require a major production
increase. Keeping the area ratio of the oilseeds constant during such an increase and using all
3 types of oilseeds for biodiesel production would have the following agricultural
implications:

Table 2: Agricultural implication of producing about 1 billion litres of biodiesel

Thousand tons/ thousand ha Current Additional Increase ( -
resources needed fold)
Sunflower Production 620 1900 4.0
Soybean Production 270 1500 6.4
Canola Production 44 100 3.3
Total Production 934 3500 4.7
Sunflower Area 460 1600 4.5
Soybean Area 150 900 7.7
Canola Area 40 100 3.6
Total Area 650 2600 5.2

Biodiesel production will also increase the local oilcake supply which means South Africa
will change from being a net-importer of oilcake (730 thousand tons/year) to a net-exporter of
oilcake (1.7 million tons/year).

Land availability for such a production increase is not a problem which means that the
agricultural resources and potential market are available to produce and absorb 10% of the
countries diesel in the form of biodiesel. However, at the moment the commercial production
of biodiesel does not seem financially feasible without any government imposed legislation or
subsidies.

Opsomming v

Opsomming
Biodiesel, ‘n hernubare brandstof wat uit groente olie vervaardig word, is ‘n moontlike
plaasvervanger vir petroleum diesel. Biodiesel vervaardiging in Suid Afrika word aangespoor
deur hoë kru olie pryse, hoë werkloosheid syfers, toenemende bewustheid van klimaat
veranderings en druk op ‘n groeiende ekonomie om sy bronne volhoubaar te gebruik.

Die vervaardiging van biodiesel is relatief maklik en hierdie studie is ‘n voorlopige ondersoek
in die ekonomiese lewensvatbaarheid van komersiële biodiesel produksie in Suid Afrika deur
te kyk na die mark, finansiële en landbou lewensvatbaarheid daarvan.

Die mark lewensvatbaarheid

Die potensiële grote vir ‘n biodiesel mark in Suid Afrika is omtrent 1 miljard liter indien dit
10% van sy petroleum diesel teen 2010 wil vervang, maar wetgewing sal nodig wees om ‘n
voorspelbare en groeiende mark te skep. Hierdie wetgewing kan in die vorm van subsidies
vir boere of biodiesel produsente wees, gebruik maak van regerings koopkrag, verpligtende
inmeng maatreëls, belasting voordele of prys vergoeding ooreenkomste.

Die finansiële lewensvatbaarheid

Berekeninge om die finansiële lewensvatbaarheid te bepaal is op ‘n 2500 kg/uur (22.5 miljard
liter/jaar) gedoen. Hierdie aanleg grote is gebaseer op inligting verkry deur Amigun & von
Blottnitz (2005) wat sê dat die optimale grote biodiesel aanleg in Suid Afrika tussen 1500 en
3000 kg/uur is. Daar is na twee tiepe aanlegte gekyk, naamlik na ‘n saad ekstraksie biodiesel
vervaardigings (SEBP) aanleg wat plaaslike oliesade as voer materiaal gebruik en ‘n kru olie
biodiesel vervaardigings (COBP) aanleg wat ingevoerde groente olie as voer materiaal
gebruik.

‘n SEBP aanleg het ‘n kapitale belegging van tussen R100 en R145 miljoen nodig terwyl ‘n
COBP aanleg slegs tussen R45 en R50 miljoen nodig het. Hierdie bydrae sluit werkende
kapitaal van omtrent R35 miljoen in wat vas is in 3 maande se voer materiaal kostes.

Die onderstaande tabel wys die vervaardigings kostes vir albei tiepe aanlegte en verskillende
voer materiale.

Opsomming vi

SEBP Aanleg COBP Aanleg
Lokaale Voer Vervaardigings Ingevoerde Voer Vervaardigings
Materiaal Koste Materiaal Koste
Kanola R4.81/litre Palm Olie R6.62/litre
Sonneblom saad R6.67/litre Sojaboon Olie R6.89/litre
Sojabone R6.70/litre Sonneblom Olie R7.48/litre
Raapsaad Olie R9.28/litre

Omtrent 80% van die kostes is voer materiaal terwyl vervoer kostes die tweede hoogste
bydraer is. Hierdie resultaat wys na die feit dat die aanleg ligging ‘n baie belangrike rol speel
om vervaardigins kostes te minimeer. Dus word die stelling gemaak dat komersiële biodiesel
vervaardiging nie in ‘n paar sentrale aanlegte moet plaasvind nie, maar eerder in ‘n klomp
verspreide relatief kleiner aanlegte moet plaasvind. Hierdie kleiner aanlegte sal in die
oliesaad produserende streke versprei moet wees. (Suid Afrika sal omtrent 46 aanlegte nodig
hê wat elk 2500 kg/uur produseer om 10% van sy diesel teen 2010 te kan vervaardig).

Die sensitiwiteits analiese het gewys dat die kostes van ‘n SEBP aanleg baie sensitief vir
veranderings in oliesaad en oliekoek pryse is. Die kostes van ‘n COBP aanleg is baie
sensitief vir veranderinge in groente olie pryse. Wisselvallige landbou pryse maak die kostes
van biodiesel baie wisselvallig en onvoorspelbaar. Sojaboon biodiesel kostes is die
sensitiefste vir prys veranderings terwyl sonneblom saad die minste geaffekteer word deur
sulke prys veranderings.

Vir elke R1000/ton wat die glyserol prys styg sal die vervaardigings kostes van biodiesel met
12 sent/liter daal. Die glyserol prys is op die oomblik te laag om in ag te neem weens ‘n
oormaat glyserol in die wêreld mark as gevolg van biodiesel produksie.

Die gelykbreek prys van biodiesel word uitgewerk deur R1.01/liter brandstof belasting by die
vervaardigings kostes by te tel. Op die oomblik (30 Augustus 2006) kan biodiesel van
oliesade (behalwe kanola) nie met die petroleum diesel prys meeding nie sonder enige
subsidies of wetgewing.

Die landbou lewensvatbaarheid

Die landbou implikasies om 10% van die land se diesel uit oliesade te vervaardig word in die
onderstaande tabel uiteengesit. Hierdie resultate is gebaseer op die feit dat al drie oliesade

Opsomming vii

gebruik word vir biodiesel vervaardiging en dat die oppervlak verhouding van die drie
oliesade konstant bly soos die produksie vermeerder.

Duisend ton/ duisend ha Huidiglik Additionele Vermeerder (
bronne benodig -maal)
Sonneblom saad Produksie 620 1900 4.0
Sojaboon Produksie 270 1500 6.4
Kanola Produksie 44 100 3.3
Totale Produksie 934 3500 4.7
Sonneblom Oppervlak 460 1600 4.5
Sojaboon Oppervlak 150 900 7.7
Kanola Oppervlak 40 100 3.6
Totale Oppervlak 650 2600 5.2

Biodiesel vervaardiging sal ook die plaaslike oliekoek produksie vermeerder sodat Suid
Afrika sal verander van ‘n netto-invoerder (730 duisend ton/jaar) tot ‘n netto-uitvoerder (1.7
miljoen ton/jaar) van olikoek.

Land beskikbaarheid vir so ‘n vermeerderde produksie is nie ‘n probleem nie wat beteken dat
Suid Afrika wel die landbou bronne en potensiële mark het om 10% van sy diesel te
vervaardig en te absorbeer in die vorm van biodiesel. Uit `n finansiële oogpunt lyk dit egter
asof die komersiële vervaardiging van biodiesel in Suid Afrika nie lewensvatbaar sal wees,
sonder enige wetgewings of subsidies, nie.

Acknowledgements viii

Acknowledgements
I would like to thank my supervisor, Professor Leon Lorenzen, for a really interesting
research topic and also for all his assistance and support throughout the year.

I would also like to thank everybody who helped me with obtaining the information I needed
for my study, people that I would like to give special mention to are, Amigun Bamikole from
UCT, Terry Booysen from Biodiesel One, Estelle le Roux from Bester Grain & Feed
Exchange and Melumzi Nontangana from the Cape Town City Council.

Also a special thanks to all my friends, especially Anja and Carel, for the good times during
the year.

I would also like to acknowledge the funding that I received for my research from the NRF.

Lastly I would like to thank my parents for all the support during all my years at Stellenbosch
and the Lord God for all the abilities and opportunities He provided me with.

Index ix

Index

1 Introduction..................................................................................................................... 1

1.1 Project Motivation 1

1.2 Project Objective 2

1.3 Project Definition and Scope 2

1.4 Thesis Structure 4

2 Background on Biodiesel................................................................................................ 6

2.1 Definition 6

2.2 Production Process 6

2.2.1 Vegetable Oil Extraction 7

2.2.2 Oil Pre-treatment 7

2.2.3 Transesterfication 8

2.2.4 Separation and Purification 9

2.3 Raw Materials 11

2.3.1 Oil Crops and Vegetable Oils 11

2.3.2 Alcohol 12

2.3.3 Catalyst 13

2.4 Fuel Properties and Quality Standards 13

2.4.1 Fuel Properties 13

2.4.2 Quality Standards 15

2.5 Biodiesel Use 16

2.5.1 Advantages of biodiesel use 17

2.5.2 Disadvantages of biodiesel use 17

2.6 World Biodiesel Production 18

Index x

3 Biodiesel in South Africa.............................................................................................. 20

3.1 The Current South African Energy Situation 20

3.2 Driving Forces of Biodiesel and Biofuels in South Africa 20

3.3 The Current Biofuel Situation in South African 21

4 The Preliminary Feasibility of Commercial Biodiesel Production in South Africa 23

4.1 Market Feasibility 24

4.1.1 Potential biodiesel market size 24

4.1.2 Policies for developing the biodiesel market 25

4.1.3 The role of the government 28

4.2 Financial Feasibility 29

4.2.1 Basis and scope of calculation 29

4.2.2 Assumptions 31

4.2.3 Plant size and location 33

4.2.4 Biodiesel plant description 34

4.2.5 Capital investment of a SEBP and COBP plant 38

4.2.6 Manufacturing costs of a SEBP plant 42

4.2.7 Price sensitivity analyses of a SEBP plant 47

4.2.8 Profitability of a SEBP plant 53

4.2.9 Manufacturing costs of a COBP plant 61

4.2.10 Price sensitivity analyses of a COBP plant 65

4.2.11 Profitability of a COBP plant 66

4.2.12 SEBP plant vs. COBP plant 69

4.3 Agricultural Feasibility 73

4.3.1 Oil crop production in South Africa 73

4.3.2 Agricultural resources required for commercial biodiesel production 76

4.3.3 Farming for biodiesel 83

Index xi

4.3.4 Benefits of farming for biodiesel 85

5 Conclusion ..................................................................................................................... 88

6 Recommendations......................................................................................................... 92

7 References...................................................................................................................... 93

8 Appendices..................................................................................................................... 96

Appendix A: South African Diesel Consumption 96

Appendix B: Calculations 97

Appendix C: Plant Description 101

Appendix D: Densities 104

Appendix E: Prices used in Calculations 105

Appendix F: Manufacturing Cost Calculations & Results 107

Appendix G: Sensitivity Analyses Calculations & Results 112

Appendix H: Profitability Calculations & Results 114

Appendix I: South African Agricultural Statistics 121

Appendix J: Local crop prices vs. import and export parity 124

List of Figures xii

List of Figures
FIGURE 1: MIND MAP SHOWING A BROAD OVERVIEW OF THE STUDY ....................................................................... 4
FIGURE 2: REACTION MECHANISM FOR TRANSESTERFICATION OF TRIGLYCERIDES WITH METHANOL ...................... 6
FIGURE 3: SCHEMATIC PRESENTATION OF THE ‘EARTH TO ENGINE’ PROCESS........................................................... 7
FIGURE 4: TYPICAL BIODIESEL PRODUCTION PROCESS ACCORDING TO MITTELBACH (2005)................................. 11
FIGURE 5: WORLD BIODIESEL PRODUCTION, 1991 – 2005 (WORLD WATCH INSTITUTE, 2006).............................. 19
FIGURE 6: BIODIESEL PRODUCTION PROCESSES FOR TWO TYPES OF PLANTS .......................................................... 31
FIGURE 7: A SIMPLIFIED PROCESS FLOW DIAGRAM OF A COBP PLANT .................................................................. 35
FIGURE 8: A SIMPLIFIED PROCESS FLOW DIAGRAM OF A SEBP PLANT ................................................................... 37
FIGURE 9: GRAPH SHOWING THE CAPITAL INVESTMENT NEEDED FOR A BIODIESEL PLANT ..................................... 41
FIGURE 10: MANUFACTURING COSTS OF A SEBP PLANT USING DIFFERENT FEED STOCKS ..................................... 45
FIGURE 11: ‘NET FEEDSTOCK COSTS’ PER TON BIODIESEL OF THE DIFFERENT FEED STOCKS .................................. 46
FIGURE 12: PIE CHART SHOWING COST CONTRIBUTION TO TOTAL MANUFACTURING COST OF A SEBP PLANT ....... 47
FIGURE 13: MANUFACTURING COST SENSITIVITY TO THE FEEDSTOCK PRICES ....................................................... 48
FIGURE 14: MANUFACTURING COST SENSITIVITY TO THE METHANOL PRICE .......................................................... 49
FIGURE 15: MANUFACTURING COST SENSITIVITY TO THE EXTRACTION COST ........................................................ 51
FIGURE 16: MANUFACTURING COST SENSITIVITY TO THE OILCAKE PRICES ............................................................ 52
FIGURE 17: BREAK-EVEN PRICE OF BIODIESEL COMPARED TO FOSSIL DIESEL ........................................................ 54
FIGURE 18: RORI VS. BIODIESEL SELLING PRICE FOR VARIOUS FEED STOCKS ....................................................... 57
FIGURE 19: PROFITABILITY OF BIODIESEL AT VARIOUS OILSEED AND OILCAKE PRICES ......................................... 60
FIGURE 20: MANUFACTURING COST FOR DIFFERENT FEED STOCKS USED IN A COBP PLANT ................................. 63
FIGURE 21: PIE CHART SHOWING COST CONTRIBUTION TO THE TOTAL MANUFACTURING COST OF A COBP PLANT 65
FIGURE 22: MANUFACTURING COST SENSITIVITY OF COBP PLANT TO VEGETABLE OIL AND METHANOL PRICES ... 66
FIGURE 23: BREAK-EVEN COSTS OF VARIOUS IMPORTED CRUDE VEGETABLE OILS BIODIESEL ............................... 67
FIGURE 24: RORI OF DIFFERENT FEEDSTOCK COBP PLANTS AT VARIOUS BIODIESEL SELLING PRICES .................. 68
FIGURE 25: PROFITABILITY OF BIODIESEL FOR DIFFERENT VEGETABLE OIL PRICES ................................................ 69
FIGURE 26: HISTORIC PRODUCTION AND PLANTED AREA FOR SUNFLOWER, SOYBEANS AND CANOLA IN SA.......... 75
FIGURE 27: TOTAL AREA PLANTED TO THE MAIN SOUTH AFRICAN CROPS ............................................................. 82
FIGURE 28: SOUTH AFRICAN OILCAKE CONSUMPTION IN 2004/05 ......................................................................... 86

List of Tables xiii

List of Tables
TABLE 1: MANUFACTURING COSTS OF BIODIESEL FOR VARIOUS FEED STOCKS ........................................................ 1
TABLE 2: AGRICULTURAL IMPLICATION OF PRODUCING ABOUT 1 BILLION LITRES OF BIODIESEL............................ IV
TABLE 3: COMPARISON BETWEEN ALKALI AND ACID CATALYSED TRANSESTERFICATION ....................................... 9
TABLE 4: SOUTH AFRICA’S MAJOR CROPS ............................................................................................................. 12
TABLE 5: PROPERTIES OF PETROLEUM AND BIODIESEL .......................................................................................... 15
TABLE 6: TOP FIVE BIODIESEL PRODUCERS IN 2005 ............................................................................................... 19
TABLE 7: FUTURE BIODIESEL NEEDED TO REPLACE FRACTION OF FOSSIL DIESEL IN SOUTH AFRICA ..................... 24
TABLE 8: POTENTIAL OILSEEDS USED FOR COMMERCIAL BIODIESEL PRODUCTION ................................................ 29
TABLE 9: POTENTIAL CRUDE OILS USED FOR COMMERCIAL BIODIESEL PRODUCTION ............................................. 30
TABLE 10: OIL AND CAKE YIELDS FOR HEXANE OILSEED EXTRACTION .................................................................. 32
TABLE 11: MASS BALANCE OF THE 2,500 KG/H BIODIESEL PRODUCTION PLANT USING CRUDE OIL ........................ 36
TABLE 12: MASS BALANCE OF THE 2,500 KG/H BIODIESEL PRODUCTION PLANT USING OILSEEDS .......................... 38
TABLE 13: FIXED CAPITAL COST FOR A BIODIESEL PRODUCTION PLANT................................................................. 39
TABLE 14: WORKING CAPITAL FOR DIFFERENT FEED STOCKS FOR A SEBP AND COBP PLANT .............................. 40
TABLE 15: TOTAL CAPITAL INVESTMENT FOR BIODIESEL PLANTS IN SOUTH AFRICA ............................................. 41
TABLE 16: CURRENT COMMODITY PRICES USED FOR COST CALCULATIONS OF SEBP PLANT ................................. 43
TABLE 17: MANUFACTURING COSTS OF A SEBP PLANT USING CANOLA AS FEEDSTOCK ........................................ 43
TABLE 18: MANUFACTURING COSTS OF A SEBP PLANT USING SOYBEANS AS FEEDSTOCK .................................... 44
TABLE 19: MANUFACTURING COSTS OF A SEBP PLANT USING SUNFLOWER SEEDS AS FEEDSTOCK ....................... 44
TABLE 20: INFLUENCE OF GLYCEROL SELLING PRICE ON THE MANUFACTURING COST ........................................... 50
TABLE 21: THE PROFITABILITY OF A CANOLA SEBP PLANT FOR VARIOUS BIODIESEL SELLING PRICES .................. 56
TABLE 22: THE PROFITABILITY OF A SOYBEAN SEBP PLANT FOR VARIOUS BIODIESEL SELLING PRICES ................ 56
TABLE 23: THE PROFITABILITY OF A SUNFLOWER SEED SEBP PLANT FOR VARIOUS BIODIESEL SELLING PRICES ... 56
TABLE 24: CURRENT COMMODITY PRICES USED FOR COST CALCULATIONS OF COBP PLANT ................................ 62
TABLE 25: VEGETABLE OIL FEEDSTOCK COSTS FOR A COBP PLANT...................................................................... 62
TABLE 26: REMAINING MANUFACTURING COSTS OF A COBP PLANT ..................................................................... 63
TABLE 27: COMPARISON OF A SEBP PLANT TO A COBP PLANT ............................................................................ 70
TABLE 28: SUNFLOWER PRODUCTION INCREASE NEEDED TO SUPPLY 10% OF SOUTH AFRICA’S DIESEL ................ 77
TABLE 29: SOYBEAN PRODUCTION INCREASE NEEDED TO SUPPLY 10% OF SOUTH AFRICA’S DIESEL .................... 78
TABLE 30: TOTAL OILSEEDS PRODUCTION INCREASE NEEDED TO SUPPLY 10% OF SOUTH AFRICA’S DIESEL ......... 79
TABLE 31: IMPACT OF SCENARIO 3 ON OILCAKE SUPPLY IN SOUTH AFRICA .......................................................... 80
TABLE 32: OILSEED PRODUCTION COMPARISON BETWEEN THE 3 SCENARIOS ........................................................ 80
TABLE 33: OILSEED AREA COMPARISON BETWEEN THE 3 SCENARIOS .................................................................... 81

Index of Abbreviations xiv

Index of Abbreviations
ASGISA Accelerated and Shared Growth Initiative for South Africa

B05 Fuel blend containing 5% biodiesel and 95% fossil diesel

B10 Fuel blend containing 10% biodiesel and 90% fossil diesel

B100 Pure biodiesel

CEF Central Energy Fund

CFPP Cold filter plugging point

COBP Crude oil biodiesel production

DME Department of Minerals and Energy

FAME Fatty acid methyl ester (Biodiesel)

FAPRI Food and Agricultural Policy Research Institute

FFA Free fatty acid

FOB Free on board

FOR Free on rail

GAIN Global Agricultural Information Network

GHG Greenhouse-gas

RORI Rate of return on investment

SABA Southern African Biofuel Association

SAGIS South African Grain Information System

SARS South African Revenue Service

SEBP Seed extraction biodiesel production

VAT Value added tax

Introduction 1

1 Introduction

Chapter 1

Introduction
Vegetable oils and their derivatives (such as methyl esters), commonly referred to as
biodiesel, are prominent candidates as alternative diesel fuels. They have advanced from
being purely experimental fuels to initial stages of commercialization in a number of
countries. The use of vegetable oil in diesel engines is not a new concept; Rudolf Diesel,
reportedly used groundnut (peanut) oil as a fuel for demonstration purposes in 1900 (Nitske &
Wilson, 1965). There are however, a number of problems associated with using straight
vegetable oil as a fuel for diesel engines such as high viscosity, injector coking and engine
deposits. These problems can be solved to a certain degree by converting the vegetable oils
into their methyl esters. This is done by means of the transesterfication reaction and the
resulting product, fatty acid methyl ester (FAME), is also commonly known as biodiesel.

Biodiesel is technically competitive to conventional fossil diesel but relatively cheap fossil
diesel prices have made the technology economically unfeasible for almost a century.
However, recent high and rising world crude oil prices and claims that the world oil reserves
are diminishing and environmental and political pressure have caused an urge in the
development of the technology of biodiesel production.

1.1 Project Motivation
In view of the rising crude oil prices, forecasted shortages of fossil fuels, climate change, and
the need for new income and employment opportunities in rural areas, biofuels have taken
centre stage in policy debates in South Africa. The technical feasibility of biodiesel
production has proven to be viable as biodiesel markets are currently growing exponentially
in a number of countries. However, the question remains whether commercial biodiesel
production will be economically feasible in South Africa?

Introduction 2

1.2 Project Objective
A great deal about biodiesel has been said in the South African media. Many reports
welcoming biodiesel as the fuel of the future while others have warned that the future of
biodiesel does not look as promising as made out to be.

The objective of this study is to give an unbiased view of the following topics concerning
biodiesel production in South Africa:

1. Is there a market for biodiesel in South Africa or can a market be created?

2. The costs involved with biodiesel production using various feed stocks at their current
prices. These costs are based on an optimal sized commercial production plant.

3. Can biodiesel compete with the price of fossil diesel or should its market be driven by
legislation?

4. Does South Africa have the agricultural resources to produce 10% of its diesel in the
near future from oilseeds or would it be cheaper to import feedstock for biodiesel
production?

1.3 Project Definition and Scope
This project is a preliminary economic feasibility study looking into the commercial
production of biodiesel in South Africa. It is defined as a preliminary study due to the fact
that biodiesel production is still in its initial stages in South Africa and that commercial
production has yet to start.

The economic feasibility is narrowed down by examining the market, financial and
agricultural feasibility of commercial biodiesel production in South Africa.

The market feasibility looks at the potential size of the biodiesel market in South Africa and
possible legislation to create such a market in South Africa. It also looks at the role of the
government in the development of the biodiesel industry.

The financial feasibility looks at the capital and manufacturing costs associated with
biodiesel production. Cost calculations are based on two types of plants with a production

Introduction 3

capacity of 2500kg/h. The choice of this size of plant is explained in section 4.2.3. A SEBP
plant produces biodiesel from oilseeds and a COBP plant uses crude vegetable oil, obtained
from oilseeds crushers, as feedstock. The section also compares the cost of biodiesel
production from the three main oilseeds in South Africa, namely sunflower seeds, soybeans
and canola. Cost calculations are based on the current commodity prices (30 August 2006)
and the results of price fluctuations are incorporated into the sensitivity analyses (-25% to
+25%). The financial feasibility also includes profitability calculations and results based on
various biodiesel selling prices.

Finally the agricultural feasibility investigates whether South Africa has the agricultural
resources to support commercial biodiesel production. It also looks at the effects and benefits
of biodiesel production on the local agricultural sector.

This study defines commercial production of biodiesel as 10% of the fossil diesel
consumption in South Africa. This definition is based on discussions that the government
might enforce a mandatory blend of 10% biodiesel into its fossil diesel (B10). Even if this
figure is lower, at about 5% (B05), it is assumed that biodiesel from so called ‘backyard-
producers’ will inevitably enter the market. This assumption is based on the fact that the tax
regime excludes small scale producers from all fuel tax and levies if they produce less than
300000 litres per annum. This tax regime would make it more profitable for farmers to
produce their own biodiesel on their farm.

For the purpose of this study, biodiesel is considered a methyl ester produced from vegetable
oil by means of transesterfication. This is the same definition that the South African Standard
SANS 1935 Automotive diesel fuel standard gives for biodiesel.

It is also assumed that all the stakeholders involved in the biodiesel production chain operate
on an independent basis: The commercial biodiesel producer buys its feedstock from farmers
or crushers at the market price and sells its product to the distributors in order to make a
profit. This means that farmers producing biodiesel from their own crops are not considered
in this study because it looks at the biodiesel industry as a whole.

Introduction 4

1.4 Thesis Structure
A mind map used to approach this study is seen in Figure 1.

Preliminary Economic Feasibility Study of
Commercial Biodiesel Production in South Africa

Objectives for Study

Production Process
Raw Materials
Fuel Properties & Quality
Background on Biodiesel
Standards
Advantages & Disadvantages
Global Production

Current Energy Situation
Biodiesel in South Africa Biodiesel Driving Forces
Current Biofuel Situation

Economic Feasibility

Market Financial Agricultural

Conclusions &
Recommendations

Figure 1: Mind map showing a broad overview of the study

Introduction 5

Below is a very brief outline of the thesis:

Chapter 1 gives an introduction and broad outline of the study and defines it and its
objectives.

Chapter 2 gives a brief background on biodiesel; discussing the production process, possible
raw materials, the properties of biodiesel and the advantages and disadvantages of its use.
The final section of this chapter looks at the global biodiesel production.

Chapter 3 looks at the driving forces of biofuels and the current biodiesel situation in South
Africa.

Chapter 4 is an initial investigation into the economic feasibility of commercial biodiesel
production in South Africa. The chapter is divided into three sections, namely the market
feasibility, the financial feasibility and the agricultural feasibility of commercial biodiesel
production.

Chapter 5 concludes all the findings of the study.

Chapter 6 has some recommendations based on the findings of this study.

Background on Biodiesel 6

2 Background on Biodiesel

Chapter 2

Background on Biodiesel

2.1 Definition
According to Friedrich (2003), biodiesel is defined as the fatty acid alkyl ester derived from
the transesterfication of vegetable oils or animal fats. Thus it is the product obtained when a
vegetable oil or animal fat (triglyceride) reacts with an alcohol in the presence of a catalyst.
Glycerol is produced as a by-product (Figure 2).

In South Africa biodiesel is restricted by the SANS 1935 automotive standard to being a fatty
acid methyl ester (FAME) derived only from vegetable oils (The South African Bureau of
Standards, 2006). This means that either oilseeds or their subsequent crude vegetable oil can
be used for the production of biodiesel or FAME (fatty acid methyl ester) in South Africa.

Figure 2: Reaction mechanism for transesterfication of triglycerides with methanol

2.2 Production Process
The vegetable oil used to make biodiesel has to be extracted from its oil crop and in some
cases pre-treated before it can undergo transesterfication to produce a mixture of biodiesel and


glycerol. These products and unreacted reactants have to be separated and purified to obtain
the final product of biodiesel.

Figure 3 is a simplified schematic presentation of the ‘earth to engine process’. The processes
involved are discussed in greater detail in the following sections.

Crude Pre-treated Glycerol
Vegetable Crude &
Oil Crop Vegetable Oil Vegetable Oil Biodiesel Separation Biodiesel
Oil Pre- Trans-
Oil &
Treatment esterfication
Extraction Purification

Protein Oilcake Glycerol

Figure 3: Schematic presentation of the ‘earth to engine’ process

2.2.1 Vegetable Oil Extraction

Vegetable oil extraction from oilseeds can be done by either chemical or physical extraction.
Chemical extraction uses solvent extracts while physical extraction uses a number of different
types of mechanical extraction methods such as expeller, screw or ram press. Chemical
extraction produces higher yields, is quicker and less expensive and is used for large scale
extraction processes (Wikipedia, 2006). Oil extraction of oilseeds also produces an oilcake
(or meal) which is considered a valuable livestock feed product.

2.2.2 Oil Pre-treatment

Most crude vegetable oils, with the exception of palm and soybean oil, can be fed directly to
the transesterfication process without any pre-treatment. Due to their high phosphatides
content, palm and soybean oil need to be degummed. This refers to the removal of
phosphatides (Mittelbach and Remschmidt, 2005). Phosphatides raise the level of
phosphorous in the fuel which could cause the deactivation of the exhaust catalyst (Tyson et
al., 2004). Oils with a high free fatty acid (FFA) content, >5%, need to undergo
deacidification (Mittelbach and Remschmidt, 2005). This entails the removal of excessive
free fatty acids in the oil to less than 1mg KOH/g equivalent. These free fatty acids reduce
the catalyst, especially alkaline, activity and hinder the glycerol and biodiesel separation
process. The degumming and deacidification processes can be conducted concurrently by
adding an alkali catalyst such as NaOH which reacts with the FFA to form soap and in the


presence of hot water causes the phosphatides to swell (Tyson et al., 2004). Both these
products can be precipitated. If the acid number of the oil is very high, such as in waste
vegetable oils, an acid catalyzed pre-esterfication of the free fatty acids with methanol or
ethanol is recommended (Mittelbach and Remschmidt, 2005).

The final pre-treatment step is dehydration, to remove all traces of water in the oil. Traces of
water in the oil decrease the conversion of alkaline catalyzed transesterfication and harm the
acid catalyzed reaction. Dehydration is done either by low pressure distillation or by passing
a stream of nitrogen through the oil (Mittelbach and Remschmidt, 2005).

2.2.3 Transesterfication

Transesterfication is the chemical reaction whereby the glycerine is removed from the
triglyceride (vegetable oil) by reacting it with an alcohol to form an ester (biodiesel) and
glycerol as by-product. If methanol is used in the reaction, the resulting product is a methyl
ester and ethanol will produce an ethyl ester. Figure 2 illustrates the typical transesterfication
reaction of triglyceride and methanol. The approximate proportion of each reactant and
product is also shown (Biodiesel Education, 2006).

An excess of alcohol shifts the equilibrium to the right hand side of the reversible reaction.
Methanol is the preferred alcohol used for the reaction on large scale; this statement is
discussed in section 2.3.2.

Regardless of which alcohol is used, some form of catalyst has to be present to achieve high
yields under relatively mild conditions. The two most common process options are either
acid or alkali catalysed transesterfication reaction. Table 3 gives a comparison of the two
different processes (Mittelbach and Remschmidt, 2005).

Not surprisingly, alkaline catalysis is by far the most commonly used reaction type for
biodiesel production (Mittelbach and Remschmidt, 2005). It is very important for the reaction
mixture to be homogenized during the initial stages of the process so that the
transesterfication can proceed properly. This can be achieved by either vigorous mixing, low
frequency ultrasonic irradiation or by using a common solvent. Once a sufficient amount of
methyl esters and partial glycerides has been formed, they serve as a common solvent for
alcohol and oil; this is no longer a problem (Mittelbach and Remschmidt, 2005).


Table 3: Comparison between alkali and acid catalysed transesterfication

Catalysis Alkaline Acid

Example • KOH, NaOH, LiOH • H2SO4

Advantages • Lower alcohol:oil ratio 3-5:1 • Not sensitive to free fatty acids
(mol) in feedstock

• Lower reaction temperature &
pressure for high yield

• Faster reaction time

• Less corrosive to equipment
means lower capital costs

Disadvantages • Very sensitive to free fatty • Requires higher temperature,
acids in feedstock – needs more pressure & volume of alcohol
pre-treatment of waste oils
• Slower reaction times

• Corrosive material

• Very sensitive to water in
feedstock

2.2.4 Separation and Purification

After the transesterfication step the glycerol layer has to be separated form the reaction
mixture. Phase separation occurs spontaneously if methanol is used in alkali catalyzed
transesterfication. To accelerate the phase separation one of the following might prove
helpful: Adding water, extra glycerol or hexane to the mixture, cooling the reaction mixture or
extraction of the esters by centrifugation. Once the glycerol and ester phases have been
separated, each phase needs to be purified.

Methanol is recovered from the ester phase by vacuum distillation.

Removal of glycerol and partial glycerides from the ester phase is achieved by water or
acid solution washing. However, this method is not recommended by Mittelbach and
Remschmidt (2005) because of ester losses due to hydrolysis. They state that glycerol and
glycerides should be removed by converting into triglycerides with the reverse


transesterfication reaction. These triglycerides can then be easily removed from the ester
phase and recycled back to the feed of the transesterfication reactor. This reverse reaction is
achieved by adding an alkaline catalyst and heating the mixture to a temperature of 80 to
100°C. The methanol released during the reaction can be recovered by distillation.

Removal of free fatty acids from the ester phase, if necessary, is done by distillation as
methyl ester has a lower boiling point than FFA. Due to the catalyst’s solubility in water, it is
removed during the water washing stage. However, if traces of catalyst remain in the ester
phase, Mittelbach and Remschmidt (2005) suggest contacting the ester phase with cation
exchange resin under anhydrous conditions to remove the catalyst from the ester phase or
alternatively adsorbents such as silica gel or synthetic magnesium silicate can be added.

Purification of the glycerol phase also needs to take place due to the fact that the glycerol
phase contains fatty acids, soaps and traces of the desired FAME. The first step is to add
phosphoric acid to decompose the soaps into FFA which are insoluble in glycerol and form a
separate phase which is then separated (Mittelbach and Remschmidt, 2005). If KOH was
used as a catalyst during transesterfication, potassium dihydrogen phosphate is produced
which can be used as fertilizer (Mittelbach and Remschmidt, 2005). Otherwise the resulting
separated solids have to be considered as waste products. The resulting FFA can either be
esterfied with sulphuric acid and ethanol or contacted with FAME and alkaline glycerol for
two hours at 200°C to produce triglycerides. Both these products can be recycled back into
the feed of the transesterfication reactor (Mittelbach and Remschmidt, 2005). A schematic
diagram of biodiesel production process according to Mittelbach and Remschmidt (2005) is
seen in Figure 4.


Figure 4: Typical biodiesel production process according to Mittelbach (2005)

2.3 Raw Materials

2.3.1 Oil Crops and Vegetable Oils

Any type of oilseed or its subsequent vegetable oil can be processed into biodiesel. Waste
vegetable oil (WVO) is also a commonly used feedstock, but due to its high FFA content it is
normally pre-mixed with a low FFA content crude vegetable oil or has to undergo pre-
treatment. WVO is not considered for commercial biodiesel production as there is no secure
supply of this feedstock for commercial biodiesel production.

Table 4 shows the major crops that are produced in South Africa with their 2005/06
production, harvest area, yield (SAGIS, 2006) and potential oil yield per hectare.

Results show that groundnuts have the highest oil yield per hectare but due to the low annual
production and the high price of groundnuts, they are not an ideal oilseed for commercial
biodiesel production. The canola production is lower than groundnut production in South
Africa but a lower canola price may make it a potential crop for biodiesel production, even
though it would only be able to contribute to a small part of the necessary feedstock.
Sunflower seeds show a decent oil yield per hectare and are currently the main oilseed
produced in South Africa which makes it the primary candidate for commercial biodiesel


production. Soybeans have a lower oil yield per hectare but are also produced on large
enough scale to be considered for biodiesel production. Based on the facts above, the cost of
biodiesel production is examined for the following oilseeds: Sunflower seeds, soybeans and
canola.

Table 4: South Africa’s major crops

Crop Oil Yield Area Harvested Production Yield Oil Yield
kg/ton Thousand Ha Thousand Tons Tons/ha kg/ha
Maize 50 3,223 11,716 3.63 182
Wheat - 805 1,905 2.37 -
Sunflower 380 460 620 1.35 513
Soy beans 180 150 272 1.82 328
Sorghum - 260 86 3.01 -
Dry beans - 48 72 1.5 -
Groundnuts 420 40 64 1.6 672
Canola 400 44 40 1.1 440
Cotton seed 130 23 32 1.36 177

The main crude vegetable oils used for biodiesel production in the world at the moment are
soybean oil (USA), rapeseed oil (Europe) and palm oil (Mittelbach and Remschmidt, 2005).

As the properties of the different oils differ, so do the properties of their succeeding methyl
esters. Section 2.4.1 gives a brief overview of the properties of the most common vegetable
oil methyl esters.

2.3.2 Alcohol

Methanol is the most common alcohol used for transesterfication because of its low price and
high reactivity compared to longer chain alcohols (Mittelbach and Remschmidt, 2005).
Alkali catalyzed methanolysis can be conducted at moderate conditions to obtain a high yield.
Another advantage that methanol has over ethanol is that it can easily be obtained in its pure
form. This is of great importance as even traces of water drastically affect the reaction rate of
the transesterfication reaction.

The stoichiometry of the reaction requires 3 mol of alcohol per 1 mol triglyceride (see
equation in Figure 2), but in order to shift the equilibrium of the reaction to the right hand
side, an excess amount of alcohol is used. Usually the suggested molar ratio of 6:1 methanol


to vegetable oil in alkali catalysis is not exceeded (Mittelbach and Remschmidt, 2005). Acid
catalysis however, requires molar ratios of methanol to vegetable oil of up to 30:1.

Although ethanolysis is considered more environmentally friendly, as ethanol can be
produced by fermentation, and gives the biodiesel a higher cetane number, it is more energy
consuming and creates problems for the product separation process.

2.3.3 Catalyst

The different catalyst options and their benefits and drawbacks have been discussed in section
2.2.3. The optimum concentration alkali catalyst is about 0.5-1.0% by weight of oil
(Mittelbach and Remschmidt, 2005).

2.4 Fuel Properties and Quality Standards

2.4.1 Fuel Properties

Biodiesel and petroleum diesel vastly differ in their chemical composition. These differences
give biodiesel different physical and chemical properties. The composition and properties of
the biodiesel depend on the feedstock used in the manufacturing process.

The cetane number is an indication of a fuels readiness to auto ignite after it has been
injected into the diesel engine. Diesel fuels are required to have a cetane number higher than
40 and most refineries produce diesel with cetane numbers between 40 and 45. Biodiesel has
a higher cetane number between 46 and 60 (depending on the feedstock used) which shortens
the ignition delay in the engine which improves the combustion characteristics (Biodiesel
Education, 2006).

The flashpoint of a fuel is the temperature at which the vapour above the fuel becomes
flammable. Petroleum-based diesels have flashpoints of 50°C to 80°C which makes them
intrinsically safe. Biodiesel has a flashpoint of over 160°C which means that the fire hazard
associated with transportation, storage and usage of biodiesel is much less than with other
commonly used fuels (Biodiesel Education, 2006).

Lubricity can be defined as: “The property of a lubricant that causes a difference in friction
under conditions of boundary lubrication when all the known factors except the lubricant


itself are the same. Lower friction means higher lubricity” (Friedrich, 2003). Removing the
sulphur from petroleum diesel, as required by recent world regulations, has decreased the
lubricity of the fuel. Pure biodiesel and high level blends have excellent lubricity while even
small amounts of biodiesel to fossil diesel has a dramatic effect on the lubricity of the fuel
(Biodiesel Education, 2006).

The sulphur content of fossil diesel has to be below 50 ppm since the beginning of 2005
(SAPIA, 2006) as high sulphur contents in fuels have been associated with negative health
effects and an increased service frequency on vehicles. Biodiesel is essentially seen as
sulphur free when made from fresh vegetable oil. Biodiesel made from WVO might contain
traces of sulphur and would have to be tested to fall into regulatory limits (Mittelbach and
Remschmidt, 2005).

Cold temperature properties are measures of the behaviour of the fuel under low ambient
temperatures. These are especially important in countries where the temperature is known to
drop below 5°C. The cloud point denotes the temperature at which the first visible crystals
are formed. The pour point is the lowest temperature to which the sample may be cooled
while still retaining its fluidity. The cold-filter plugging point (CFPP) is considered a good
indicator of operability limits of the fuel (Mittelbach and Remschmidt, 2005).

The heating value, also known as the heat of combustion, of biodiesel depends on the oil
source. On a mass basis fossil diesel has a higher heating value; about 13% higher than that
of biodiesel, but due to the higher density of biodiesel, the disadvantage of biodiesel is only
about 8% lower on a volumetric basis. This means that for the same injection volumes,
engines burning biodiesel have slightly lower power and torque. If injection volumes are
changed for biodiesel, the same power and torque can be achieved. Flexi-fuel vehicles use
intelligent motors which can detect the type of fuel being used (biodiesel, petroleum diesel or
a blend) and automatically adjust the injection parameters (Mittelbach and Remschmidt,
2005). An increase of the injection volumes leads to a slightly higher specific fuel
consumption when using biodiesel.

It is important to keep in mind that the above properties are those of pure biodiesel. If
biodiesel is blended into fossil diesel at 5% or 10%, the properties of the fossil diesel would
not be affected to a noticeable extend. It is only the ‘lubricity’ property of the biodiesel that


has an effect even if used in very low blends; this property makes biodiesel an ideal additive
for fossil diesel.

Table 5 illustrates the fuel properties (Mittelbach and Remschmidt, 2005) of petroleum diesel
and the different vegetable oil methyl esters which are discussed in this study.

Table 5: Properties of petroleum diesel and biodiesel

Fossil Palm oil Canola oil Soybean oil Sunflower
diesel ME ME ME oil ME

Density [kg/m3] 835 (15) 867 (15) 888 (15) 884 (25) 880 (25)
(T in °C)

Kinematic [mm2/s] 2.7 4.3-6.3 3.50-5.00 3.05 - 4.08 4.20 – 4.40
viscosity (at 38 °C)

Cloud [°C] -15 13 to 16 -3 to 1 -2 to 2 0 to 3
point

Pour [°C] -33 - -15 to -9 -3 to -1 -3
point

CFFP [°C] -18 9 to 11 -19 to -8 -2 -3

Flash [°C] 50 - 80 155 - 174 153 – 179 141 - 171 164 – 183
point

Heating [MJ/kg] 42.7 41.3 40.07 39.8 39.71
value

Cetane 47 52 56 50 53
number

2.4.2 Quality Standards

Quality standards are prerequisites for the commercial use of any fuel product. They serve as
guidelines for the production process, guarantee customers that they are buying high-quality
fuels and provide the authorities with approved tools for the assessment of safety risks and
environmental pollution (Prankl, 2002).

Specifications for biodiesel require particularly close attention due to the large variety of
vegetable oils that can be used for biodiesel production, and the variability in fuel
characteristics that can occur with fuel produced from this feedstock. Numerous biodiesel


standards are currently in force in a number of countries, including the EN 14214 in the
European Union and the ASTM D 6751 in the USA (Mittelbach and Remschmidt, 2005).

South Africa currently uses the SANS 1935 Automotive diesel fuel standard. This is a
voluntary standard for biodiesel which is a slight modification of the EN 14214. According to
the South African Bureau of Standards (Manaka, 2006) the SANS 1935 has the following
weaknesses:

• It has a narrow definition of biodiesel, as methyl esters derived only from vegetable
oils. It excludes all ethyl esters and esters derived from other oils.

• It specifies the iodine number of the biodiesel that is aimed at excluding oils that have
a higher value.

• Some of the requirements measured by correlated properties which makes the testing
against the specifications expensive.

• It specifies the properties expected of biodiesel meant to be used directly as a pure fuel
without blending. However, without taking into account the dilution effects of blends,
it requires that the same requirements be applied to the biodiesel that is meant for
blending.

With national standards being living documents that are continuously updated, this standard
will most probably change in the near future.

2.5 Biodiesel Use
Biodiesel can be used in its pure form, also known as neat biodiesel or B100. This is the
approach that provides the most reduction in exhaust particulates, unburned hydrocarbons,
and carbon monoxide. It is also the best way to use biodiesel when its non-toxicity and
biodegradability are important. Although neat biodiesel would not be expected to cause any
operational problems, its solvent properties are at their highest intensity and may cause
problems with loosening of varnish deposits in fuel tanks and lines, degradation of fuel lines
because some elastomers are not compatible with biodiesel (such as BUNA rubbers), and
cause paint removal near fuel fill ports (Biodiesel Education, 2006).


Biodiesel can also be used as a blend. Typically this can range from 5% to 50% biodiesel in
95% to 50% fossil diesel and is known as B05, B10, etc. depending on the blend. Blends
reduce the cost impact of biodiesel while retaining some of the emissions reductions. Most of
these reductions appear to be proportional to the percentage of biodiesel used (Friedrich,
2003).

Biodiesel can also be used as an additive (1%-2%) and is known as B01 or B02. Tests for
lubricity have shown that biodiesel is a very effective lubricity enhancer. Even as little as
0.25% can have a measurable impact and 1%-2% is enough to convert a very poor lubricity
fuel into an acceptable fuel. Although these levels are too low to have any impact on the
cetane number of the fuel or the emissions from the engine, the lubricity provides a significant
advantage at a modest cost (Friedrich, 2003).

2.5.1 Advantages of biodiesel use

Using biodiesel has the following advantages for consumers (Journey to Forever, 1999):

• No engine modification is necessary. Most diesel engines manufactured after 1995
can run on either a blend or on pure biodiesel.

• Biodiesel is more environmentally friendly. It burns up to 75% cleaner than
conventional fossil diesel as it substantially reduces unburned hydrocarbons, carbon
monoxide and particulate matter and eliminates sulphur dioxide emissions in exhaust
fumes. And its ozone-forming potential is nearly 50% less than fossil diesel fuel.

• Biodiesel is a renewable energy source as it is plant-based and adds no CO2 to the
atmosphere.

• Biodiesel is considered non-toxic and bio-degradable.

• Biodiesel has a high cetane rating which improves engine performance and is a much
better lubricant than fossil diesel and can extend engine life.

2.5.2 Disadvantages of biodiesel use

Although the advantages make biodiesel seem very appealing, there are also several
disadvantages to consider when using biodiesel (Beer and Grant, year unknown):


• Due to the high oxygen content, it produces relatively high NOx levels during
combustion. But these can be reduced to below fossil diesel fuel levels by adjusting
engine timing and using a catalytic converter.

• Storage conditions of biodiesel must be monitored strictly as biodiesel has a lower
oxidation stability and oxidation products that may be harmful to vehicle components,
could be produced. Contact with humid air must be avoided due to its hygroscopic
nature.

• The lower volumetric energy density of biodiesel means that more fuel needs to be
transported for the same distance travelled.

• Biodiesel has a higher cold-filter plugging point temperature than fossil diesel which
means it will crystallize into a gel at low temperatures when used in its pure form (see
Table 5).

• It can cause dilution of engine lubricant oil, requiring more frequent oil change than in
standard diesel-fuelled engines.

• Biodiesel is a strong solvent and scrubs out all the tars, varnishes, and gums left by
fossil diesel in the fuel system which means that the fuel filter will have to be replaced
a few times during the initial stages of biodiesel use.

• A modified refuelling infrastructure is needed to handle biodiesel, which adds to their
total cost.

2.6 World Biodiesel Production
Biodiesel currently accounts for only 10% of the world biofuel production, with ethanol
making up the rest. Global biodiesel production has expanded nearly fourfold between 2000
and 2005 (Figure 5) with the top five producers in 2005 being Germany, France, USA, Italy
and Austria (Table 6) (World Watch Institute, 2006).

Considering the fact that biofuel, ethanol and biodiesel, production has more than doubled in
the last 5 years while world oil production increased by only 7%, it might be thought that
overall, biofuels have the potential to substitute petroleum fuels and increase energy security
for many nations.


Table 6: Top five biodiesel producers in 2005

Production
(million litres)
Germany 1,920
France 511
United States 290
Italy 227
Austria 83

Figure 5: World biodiesel production, 1991 – 2005 (World Watch Institute, 2006)

Biodiesel in South Africa 20

3 Biodiesel in South Africa

Chapter 3

Biodiesel in South Africa

3.1 The Current South African Energy Situation
Approximately 14% of South Africa’s total primary energy supply is imported in the form of
crude oil. Furthermore South Africa’s liquid fuels are manufactured by feedstock consisting
of more than 50% imported crude oil, 30% coal, 10% domestic crude oil and 8% natural gas.
This makes South Africa the largest emitter of greenhouse gasses in Africa and one of the top
twenty carbon-intensive countries in the world (Wilson et al., 2005).

In 2005 South Africa consumed about 8.1 billion litres of diesel (SAPIA, 2006). This figure
has been increasing at about 5% per annum since 2000. At an average annual increase of 5%
per year, South Africa will be consuming about 10 billion litres by 2010 and about 17 billion
litres by 2020 (See Appendix A). Diesel prices have reached new record heights selling at
about R6.80/litre at the coast (2 August 2006) due to an all-time high global oil price caused
by various political factors. Taking the volatile crude oil price and fluctuating Rand/Dollar
exchange rate into account, a diesel pump price of R10.00 per litre does not seem that
impossible in the foreseeable future.

3.2 Driving Forces of Biodiesel and Biofuels in South Africa
Biofuels could become part of the answer to the above mentioned problems as it would:

1. decrease South Africa’s dependence on fossil fuels and imported oil,

2. promote renewable energy,

3. decrease pollution, and


4. assist South Africa in achieving the objectives of the White Paper on Renewable
Energy, which states that by 2013, SA should be generating 10,000 GWh of energy
from renewable sources (Wilson et al., 2005).

5. Ratification of the Kyoto Protocol by South Africa in 2002.

3.3 The Current Biofuel Situation in South African
According to the Department of Minerals and Energy (DME) former chief director of energy
planning, Kevin Nasiep, South Africa will have a preliminary biofuels strategy by the end of
2006 and is looking at creating a market to use the end product and so reducing South
Africa’s reliance on imported oil (Engineering News, 25/04/2006). At a workshop held in
June 2006 (a workshop aiming to establish the way forward for biofuels in South Africa) he
stated that “the South African Biofuels Strategy Development has the following objectives: (i)
avoidance of the adverse impact on Balance of Payments due to escalating crude oil prices,
(ii) protection of the environment, and (iii) job creation potential of biofuels, particularly in
the so-called second economy”. The urgency of this initiative is motivated by the
vulnerability of crude oil prices, high unemployment, climate change concerns, the need for
the growing economy to use its resources sustainable and the potential integration of biofuel
production into the Accelerated and Shared Growth Initiative of South Africa (ASGISA).
ASGISA aims to halve unemployment and poverty by 2014 by stimulating economic growth.

Funding for projects and research on renewable energy has been set aside by organizations
such as the Department of Minerals and Energy (DME) and the Department of Science and
Technology (DST). The Southern African Biofuels Association (SABA) was established in
April 2005 as a non-profit organization to support the development of a sustainable biofuel
industry in Southern Africa. SABA is the largest biofuel association in Southern Africa and
its members include biofuel producers (such as D1Oils Africa, De Beers Fuel and Ethanol
Africa) equipment and technology suppliers (such as Shaval Bio Diesel, Praj Industries, Lurgi
SA and Thyssen Krupp Engineering), academia (such as Wits University), agricultural
producer associations (such as Grain SA, SA Cane Growers’ Association and the Southern
African Confederation of Agricultural Unions), financial institutions (such as Absa and
Standard Bank), government departments (such as the DME), and state owned organisations
(such as the Central Energy Fund). The government has established a task team to develop a
biofuel strategy for South Africa by the end 2006. This task team consists of members from


the Department of Agriculture, Environmental Affairs and Tourism, Land Affairs, Minerals
and Energy, Trade and Industry, National Treasury and The Presidency.

Currently no blending mandates or incentives regarding the production or use of biofuels have
been implemented by government. There is however, a voluntary fuel standard for biodiesel,
the SANS 1935 Automotive diesel fuel standard, in South Africa (Section 2.4.2).

The South African Revenue Service (SARS) has stated that the fuel tax and levies on
biodiesel are as follows: 60c fuel levy, 36.5c road accident fund and 4c customs and excise,
which makes it R1.01/litre biodiesel. According to the South African Customs and Excise
Act of 1964, Amendment DAR/19 scheduled with effect from 1 April 2006, biodiesel
producers are considered commercial manufacturers, which need to register their business
with SARS, if they produce more than 300000 litres biodiesel per year (SARS website, 2006).

Since the introduction of this tax regime, the demand for small scale biodiesel plants has
increased; showing that producers rather opt for smaller production to decrease their
production cost by avoiding the fuel tax and levies.

Friedrich (2003) describes a three-stage biodiesel industry development as follows:

• Phase I consists of the very first ideas and thoughts of biodiesel being used as a fuel
until the actual adaptation of the ideas on the part of the decision maker who are then
motivated to put these ideas into practice. The end of phase I (and beginning of phase
II) is the political decision to invest money and other resources into biodiesel research.

• Phase II is characterized by research efforts, pilot projects, setting of frame conditions
and financially supported technical trials.

• Countries in phase III show a biodiesel economy based primarily on a feasible
economic production, distribution and use of biodiesel, and a self supportive biodiesel
economy.

According to this classification, South Africa would be considered a “phase II-country”. In
order to progress to phase III, the production of biodiesel will have to be economically
feasible to all stakeholders in the industry; from the farmer to the consumer of biodiesel.

The Preliminary Feasibility of Commercial Biodiesel Production in South Africa 23

4 The Preliminary Feasibility of Commercial Biodiesel Production in South Africa

Chapter 4

The Preliminary Feasibility of Commercial
Biodiesel Production in South Africa
The preliminary economic feasibility of commercial biodiesel production is investigated by
examining the following:

1. The market feasibility of biodiesel in South Africa: examines whether there is a
market for biodiesel in South Africa and how to successfully form and sustain an
expanding biodiesel market by creating a regulation and policy environment.

2. The financial feasibility of biodiesel production: investigates the costs of biodiesel
production in South Africa and the major factors affecting this. This is done by
looking at two different optimal sized plants (Seed extraction biodiesel production and
Crude oil biodiesel production) and examining their capital and manufacturing costs.
The influence of agricultural commodity price changes on the manufacturing cost is
also examined.

3. The agricultural feasibility: considers the current agricultural situation in South
Africa regarding its oilseed production capacity, market prices and oil crop demand
and considers whether the South African agriculture would be able to support
commercial biodiesel production.

This study focuses solely on commercial biodiesel production. It is assumed that all the
stakeholders operate on an independent basis: the commercial biodiesel producer buys its
feedstock from farmers or oilseed crushers at the market price and sells its product to the
distributors in order to make a profit. This study does not consider producers that produce


less than 300000 litres per annum or produce biodiesel from their own oilseeds as it only
looks at the biodiesel industry as a whole.

4.1 Market Feasibility

4.1.1 Potential biodiesel market size

The biodiesel market potential is defined by the size of the existing fossil diesel market.
Although there is no principal technical limitation for replacing fossil diesel by biodiesel;
feedstock availability in South Africa could become a limiting factor (See Section 4.3).

The number of diesel vehicles on South African roads has increased drastically the last few
years and with that the South African diesel consumption has increased by more than 5.5%
annually since 2002 (See Appendix A). By 2010 South Africa will be consuming about 10
billion litres of diesel per annum and by 2020 this will have risen to about 17 billion litres per
year, assuming a conservative annual consumption increase of 5%.

South Africa would need to produce about 1 billion litres of biodiesel by 2010 to replace 10%
of its fossil diesel consumption. 2010 can be seen as a reasonable goal seeing that the White
Paper Act and AGISA targets are set for 2013 and 2014, respectively.

Table 7: Future biodiesel needed to replace fraction of fossil diesel in South Africa

Fraction of fossil Future prediction based on an annual 5% increase
diesel to be replaced (million litres)
2006 2010 2015 2020
1% 85 104 132 169
5% 426 518 661 844
10% 852 1036 1322 1687

Another criterion to define the market size of biodiesel is the amount of vehicles with given
biodiesel warranties. The exact amount of these vehicles in South Africa is unknown but a
guideline can be used, stating that vehicles manufactured after 1995 should be able to run on
at least a blend of biodiesel. Although a blend of 10% biodiesel should not affect the running
of a diesel car, vehicle owners would be very hesitant to use such a blend if their vehicle does
not have a biodiesel warranty. This issue will have to be addressed by phasing in the use of
biodiesel while ‘biodiesel-incompatible’ vehicles are gradually phased out.


It is clear that there is a definite potential market for biodiesel in South Africa but this is not
all that the biodiesel industry needs to become a major player in the South African economy.
In order to accelerate an expansion of biofuel production, the government should create
policies which focus on creating a predictable and growing market for biofuels in South
Africa.

4.1.2 Policies for developing the biodiesel market

The development of a biodiesel industry requires a framework of laws and regulations to
stimulate demand. Possible laws and regulations that can be implemented by the government
include:

• Tax incentives. These have been used effectively in Brazil, Germany and the United
States to enhance biofuel production and reduce biofuel prices at the pump. To create
a more competitive market for biodiesel in South Africa, the tax on biodiesel, for
commercial producers, is currently 101.5 cents/litre while the tax on fossil diesel is
141.5 cents/litre. Only time will tell whether these tax incentives are enough for
biodiesel to break into the competitive fuel market.

• Use government purchasing power. The enormous purchasing power of the
government could be used to expand the biodiesel market by, for example, letting
regional governments switch entire fleets (municipal, transport, etc.) to vehicles that
run on biodiesel.

• Setting and adhering to fuel quality standards. South Africa currently has the
SANS 1935 automotive diesel fuel standard in place which is at the moment still a
voluntary standard for biodiesel producers. This standard needs to remain up to date
with leading international standards, such as the EN 14214 and ASTM D 6751, and
needs to be enforced at all levels of production. This is important for consumer
confidence and will gain increased importance as international trade in biodiesel
expands. Automakers also need assurance of consistent fuel characteristics so they
can honour vehicle warranties. Strict enforcement of biodiesel regulations should
also eliminate so called ‘cowboy-blenders’ which do great damage to the reputation
of biodiesel.


• Facilitate public-private partnerships. Public-private partnerships have resulted in
important technological breakthroughs in numerous countries and can play a vital role
in advancing next-generation technologies.

• Increase public awareness. Consumer demand could be a powerful driver of the
South African biodiesel market. Strategies to increase public awareness and comfort
level with biodiesel need to be implemented. These could include various forms of
public education, radio discussions, television advertising and signage along
highways. Another option to follow could be to prohibit companies from advertising
any fossil fuels. Public concerns regarding possible environmental impacts of
biodiesel feedstock cultivation must also be addressed if biodiesel is to gain broad
public acceptance.

• Subsidies and blending mandates. Policies regarding subsidies and blending
mandates are still very controversial in South Africa at this stage. The problem with
subsidies are that they are very difficult to discontinue once they have been created
which means that should they be implemented, they need to be strategically phased
out once the biodiesel industry has been established. Blending mandates could also
become problematic as it is impossible to enforce a minimum percentage of biodiesel
blends without knowing the production capacity of South Africa. By placing an
upper limit on the percentage of biodiesel blend (for example 20%) one eliminates
any negative effects of biodiesel that does not totally adhere to the quality standards,
but at the same time restricts the biodiesel production industry. Mandatory blending
policies would have to be coupled to a deadline set out by the government which
could set aims such as a mandatory blend of 1% by 2009, 5% by 2015 and 10% by
2020.

• Price compensation agreement. Up to 1994 the government of South Africa had an
agreement with SASOL that if the crude oil price went below a certain level and
SASOL was unable to compete with the fuel prices in the country, the state would
subsidise them, in order for them to continue production at a reasonable profit. If the
crude oil price went above a certain level and SASOL was able to produce fuel for
much less than the South African fuel price, SASOL would pay an agreed amount to
the state for every litre sold. Such a ‘slide-scale’ agreement between the South
African government and biofuel producers would develop its young biofuel market by


reducing the risk involved and therefore creating a steady market amidst fluctuating
feedstock and crude oil prices.

• Kyoto Protocol ‘carbon credit system’. PriceWaterhouseCoopers recently became
the first organization in Africa to be authorized by the United Nations to audit carbon
credits under its Kyoto Protocol on climate change (Engineering News, 3/7/2006).
Carbon credits are aimed at encouraging developing countries to reduce or lessen the
effects of emission of greenhouse-gases, such as carbon dioxide, which is blamed for
global warming. They are purchased by organisations in developed countries unable
to meet the emission reduction targets committed to under the Kyoto Protocol. This
not only limits the impact of emission cuts in the developed world, but also provides
an incentive for developing countries to implement clean technologies. Carbon
credits are based on organisations undertaking Clean Development Mechanism
(CDM) projects. These CDM’s involve a number of stakeholders, for example, in the
case of biodiesel production this could include the farmer and biodiesel producer.
The South African government has to approve all CDM projects via a Designated
National Entity (DNE), which is housed in the Department of Minerals and Energy.
Once a project is validated, registered and implemented, the actual emission
reductions are verified and the credits are issued. These carbon credits can then be
sold as a commodity and serve as a source of income to the company.
Implementation of this policy should be advantageous to and attract numerous
stakeholders into the South African biodiesel industry.

• Import tariffs on biofuels. As world biofuel production increases it will become an
international commodity. Placing an import tariff on biofuels would protect the local
market by preventing overseas countries from dumping their relatively cheap
biodiesel in South Africa. Countries such as the USA can produce biodiesel for
relatively cheap due to their farming subsidies and resulting low oilseed prices.

• Rebate on the customs duty on imported feed stocks. SASOL made a proposal
that the import duty on soybeans be reduced so that imported feedstock can be used
for biodiesel production. The reasoning behind this is to ensure that South Africa
would have enough feedstock during the initial stages of biodiesel production. But
the results of such a rebate might be more damaging than good to the South African
agriculture as this would open the door for cheaper imported oilseeds. This would


force down the local price and could even put a halt to local oilseed production. The
import tariffs were implemented to protect the local farmers from cheap imported
crops from countries such as the USA where farming is heavily subsidised. Biodiesel
should be a totally local produced product for all its benefits to be realized. Even if
this would take longer to reach certain production targets, it would at least benefit the
total local economy.

4.1.3 The role of the government

Besides the frameworks of laws and regulations that can be implemented by the government
to stimulate the biodiesel and biofuel market, it also needs to give the necessary financial
support to research and development of energy from biomass technologies.

It is important that the government realises the role that biodiesel, and all biomass for that
matter, play in the realisation of its goals set out in the White Paper Act on Renewable
Energy, which states that by 2013, South Africa should be generating 10 000 GWh of energy
from renewable sources (Wilson et al., 2005). Realising this and other benefits, biodiesel and
biofuels should benefit from higher priority, of currently available renewable energy
technologies, regarding policies and financing from the South African government.

Finally the South African government needs to realise the role it has to play to create a
thriving and lasting biofuel industry in the country because nowhere in the world has a
successful biofuels industry been established without the support of the government.

To have a successful start, the ‘infant’ biodiesel industry requires a ‘pulling-action’ from the
government rather than a ‘pushing-action’ by the involved stakeholders. This ‘pulling-action’
can be summed up as follows:

Step 1: Removing confusion regarding biodiesel and biofuels and demonstrate
government support to various technological and business plans.

Step 2: Implement policies and incentives to produce feedstock and facilitate an infant
biofuel industry by creating a local market for these fuels.

Step 3: Accelerate the growth of an established biofuel industry and free biofuel market
by phasing out all subsidies and keeping policies up to date with situations.


By releasing a biofuel strategy with certain objectives by the end of October 2006 and already
funding some pilot research projects in the country, it seems that the government is starting to
play its part in the establishment of a permanent biofuel industry in South Africa. Although
this is essential, it is only the start and various other factors still play a major role in the
economic feasibility of commercial production of biodiesel.

4.2 Financial Feasibility
On a national level the profitability of biodiesel production, especially during the early stages
of the industry development, largely depends on legislation implemented by the state. But as
the industry moves into a free market situation it needs to be able to maintain its profitability
as subsidies and incentives are strategically withdrawn. It is at this stage that the production
of biodiesel has to be financially feasible. Thus, firstly, would biodiesel be able to compete
with the fossil diesel price or would mandatory blending legislation be necessary to create a
forced market for biodiesel? And secondly, at what cost does biodiesel production become
feasible for various types of feed stocks?

4.2.1 Basis and scope of calculation

The financial feasibility of biodiesel production is based on an optimum size biodiesel
production plant in South Africa. The fixed capital cost and working capital for such a plant
are calculated and discussed. The manufacturing costs and the profitability of biodiesel
production from various types of feed stocks are also calculated, compared and discussed.

Two types of biodiesel production plants are considered for the calculations:

1. Seed Extraction Biodiesel Production (SEBP) Plant:
The SEBP plant uses oilseeds for the production of biodiesel. This requires the
biodiesel producer to buy oilseeds from local farmers at the market price, extracting
the oil from the oilseeds and processing it into biodiesel. The oilcake resulting from
the oil extraction is sold for livestock feed at market price depending on the protein
content. Referring to section 2.3.1, the cost and profitability of biodiesel production
using the following oilseeds are investigated:

Table 8: Potential oilseeds used for commercial biodiesel production


Oilseed Price (August 2006) Source
R/ton
Canola 1 900 Bester Feed & Grain Exchange
Soybeans 1 950 SAGIS
Sunflower seeds 2 220 SAGIS

These oilseeds are currently produced in South Africa and calculations are based on
their current (August 2006) local prices (Appendix E). With oilseed prices varying
greatly, results for different prices are included in the oilseed price sensitivity
analyses.

2. Crude Oil Biodiesel Production (COBP) Plant:
The COBP plant produces biodiesel from crude vegetable oil. It is different from the
SEBP plant in the way that it does not have a oilseed extractor and biodiesel producers
would have to buy crude oil from oilseed crushers to produce biodiesel. This type of
plant adds oilseed crushers as a link between the farmers and biodiesel producers into
the production chain. World oilseed trade is in oil and oilcake and South Africa
currently imports about two thirds of its vegetable oil (GAIN, 2006). If South Africa
would not be able to produce the necessary feedstock, it would have to be imported in
the form of crude vegetable oil meaning that more COBP plants would be necessary.
Based on current world production and price, the following potential crude vegetable
oils are investigated during this study to determine the costs and profitability of
biodiesel production:

Table 9: Potential crude oils used for commercial biodiesel production

Oilseed FOB Price (August 2006) FOR Price Source
US$/ton R/ton
Palm Oil 468 5 220 Oil World & Ocean Freight
Soybean oil 502 5 500 Oil World & Ocean Freight
Sunflower oil 575 6 100 Oil World & Ocean Freight
Rapeseed oil 794 7 920 Oil World & Ocean Freight

Due to the fact that South Africa currently imports most of its vegetable oils, the
calculations are based on imported crude oil prices (August 2006). This is done in
order not to underestimate the cost of the feedstock and so that this study also

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