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Brazil Grapples with Biofuel Supply Glut

Brazil is eyeing a 5% increase in biodiesel requirements in January 2014 and up to a 10% increase in biodiesel requirements for 2020 as the country deals with a supply glut.

The blend rate for biodiesel with regular diesel may rise to 7% before 2020, in line with a gradual increase working up to 2020.

In 2008, Brazil mandated distributors to blend 2% biodiesel with diesel, forecasting a 5% rate in 2013. However, unexpectedly high production has forced a rethink of the requirements, especially with biodiesel growth suspected to increase 40%.

Brazil’s crop monitoring agency, Conab, forecasts a record year for soybean crops, 10% higher than last year, and figures that would make the country the top producer of soybeans in the world. New blend rate requirements of 7% for January would mean using an additional 9 million tons of soybeans.

Related article: EU Kills Bill to Limit Food-Based Biofuels

Brazilian demand for biodiesel for 2013 is around 3 billion liters. With the new 7% blend requirement, demand could reach 4 billion in 2014. Overall, Brazil has a production capacity of 7 billion liters per year.

As in the US, where biofuel producers are supporting the mandate, while distributors are balking, an increase in the biodiesel requirement in Brazil is being strongly lobbied for by soybean producers.

The difference here is that the increase mandate would benefit state-run oil company Petrobras, which is deep in debt and forced to import diesel fuel to make up for shortfalls in domestic refining—and sell it at a loss. For the first six months of 2013, Brazil consumes 38 billion liters of diesel, 7 billion liters of which were imported.

Analysts estimate that an increase in the biodiesel mandate to 7% for next year could save Petrobras $900 million annually just by lowering fuel imports.

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It will also be a boon for multinational companies who have hedged their bets in recent years that Brazil would mandate more biodiesel with the construction of new biodiesel plants.  

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Soybean oil makes up about 85% of the feedstock for biodiesel production in Brazil. Brazil currently houses 64 plants for producing biodiesel, with 10 new plants approved for construction and six more awaiting approval.

By. Joao Peixe of Oilprice.com


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