US flooding of subsidised biofuels could ruin Europe’s market

by Jill Treanor

The US is flooding Europe with subsidised biofuels that threaten to destroy Europe's domestic refining market, the head of the UK biofuel company D1 Oils warned as its shares lost a third of their value.
Admitting that some 35 jobs could be lost as a result of the cheap imports, Elliott Mannis, chief executive, said: "The simple fact is that you can buy the subsidised American imported material cheaper than you can buy virgin oil for processing."

D1 Oils told the stock market of its plans to begin consultations with employees at its Middlesbrough and Bromborough, Merseyside, sites about job losses.
"The decision to begin consultations with employees is not one we have taken lightly," Mannis said. "Imports of heavily subsidised biodiesel fuel from the US, so-called B99, have eroded margins to the point where we have no choice but to consider how to reduce operating costs.”
"We are taking this action in order to manage the business proactively in a difficult market,"he added.

Mannis said the EU was trying to negotiate change in Washington and would take the case to the World Trade Organisation, which regulates free trade, but that changes could take months.
"If you believe in free trade, this isn't a fair market." He feels it is unlikely that the US will end subsidies to its powerful farming lobby in an election year. The B99 blend of biofuel receives a subsidy in the US and also tax exemption when it is imported into the UK.

The situation is coming to a head because for the fiscal year 2008 (which runs from April 2008 to March 2009), the UK has to meet an EU target for biofuels that requires 2.5 % of all fuel sold from pumps to come from renewable sources. Mannis warns that this target will be achieved by cheap US imports rather than from firms such as his making biodiesel. As an example, it costs about $ 1,200 (£ 600) to buy a ton of B99 but $ 1,400 to buy soya to convert into biofuel, which in turn costs $ 150 a ton to process.
"It's about the price," Mannis said.

The company, based in Middlesbrough, employs 120 staff in total but Mannis was at pains to point out that the troubled refining business was not the core part of its operations. He believes the most important is planting jatropha, a drought-resistant tree which has seeds that can be used to produce non-edible oil for use in heavy diesels or be refined to high specification fuel.
This is supposed to help address concerns about biofuels competing with crops grown for food.

The company, chaired by the former Shell chairman Lord Oxburgh, has a joint venture with BP to plant the crop in various parts of the world. This part of the business was unaffected by the announcement, which helped to reassure some analysts.
Not all were convinced though.
"If the company finally closes the facility [at Bromborough] it would be a big blow to the hopes of the biodiesel industry in the UK and, indeed, the EU, as well as costing D1 in terms of reputation and cash," said analysts at the brokers Ambrian.