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China and Biofuels - Stir-Fry or Fly?

China and Biofuels - Stir-Fry or Fly?

China’s omnivorous global appetite for energy resources is well known.

While biofuel production is one of the rising energy stars of the 21st century, it is unlikely to become a significant source for China in the near future, as the country’s arable land is devoted first and foremost to feeding the country’s massive population 1.3 billion citizens, unless a feedstock can be found that grows well on marginal land.

But the issue of food may yet prove to contribute to the country’s energy output by recycling a traditional component of Chinese cuisine – used cooking oil.

According to a recent article in the People’s Daily, Beijing’s 19 million inhabitants are seeing the grease used to fry up their dim sum and other delicacies carted off by eight licensed collectors of used cooking oil, known as “hogwash,” for recycling into biofuel.

Beijing Hailianghongxin Bioenergy Ltd. President Li dong said, "We have contracts with 300 catering firms, including most McDonald's, and collect 3,000 tons each year."

Beijing Hailianghongxin Bioenergy Ltd.’s collected hogwash oil is transported to a refinery in Gu'an county in Hebei province, owned by Gu'an Zhongde Lihua Petrochemical Co, the largest hogwash-to-biodiesel processing company in Beijing, and processed into biodiesel.

Hogwash oil is extracted from rotten pork and peroxided oil, used repeatedly in frying.

The bad news is that when hogwash oil is reused in restaurants, it can breed a number of diseases, doctors suspecting that it is even a potential carcinogen.

Recycled into biodiesel fuel, hogwash oil accordingly becomes a public health service.

The good news for Chinese capitalists is a conservative estimate is that China produces 30,000 tons of hogwash oil each and every day from restaurants and that China’s annual production of oily restaurant slop is no less than a most impressive 60,000,000 tons per annum, a mere 20,000 times the modest collection efforts of Mr. Li’s cohorts.

As Beijing alone currently has more than 50,000 restaurants, hotels and canteens, the city produces 90,000 tons of hogwash oil each year but currently the bulk of the used cooking oil is still being siphoned off illegally, to be used again in restaurants. Beijing Hailianghongxin Bioenergy Ltd.’s Gu'an county refinery, which opened in May, is capable of processing 40,000 tons of hogwash oil a year but it only expects to receive 15,000 tons of hogwash feedstock to process this year, according to Lu. Lu added, "Our costs include an oil-water separator for each restaurant and always payment to them in order to collect hogwash oil, recruitment of staff, buying vehicles and renting storehouses."

Unfortunately, illegal collectors don't need so much investment, with Lu noting about the competition, "A tricycle and a big scoop are all they need, and at the cost of $47 per ton they can recycle the hogwash oil to be edible oil and sell it to restaurants for $1,400 to $1,560 per ton,"

China Biodiesel Industry Association deputy secretary-general Sun Shanlin commented that insufficient feedstock input is a large industrial constraint and the collection and disposal of hogwash oil has yet to be properly organized by the relevant authorities.

Shenzhen-based CIC Industry Research Center analyst Shen Hongwen said, "The greatest difficulty for the industry is the short supply of hogwash oil. The profits in the manufacturing of biodiesel from hogwash oil cannot compare with the profits in selling it as edible oil, so it's hard for enterprises in the biodiesel sector to get sufficient raw materials to expand their production scale."

A research report issued by the China Association of Senior Scientists and Technicians a year ago noted simply, "More than 90 percent of the hogwash oil in Beijing is controlled by illegal collectors."

The Chinese government is belatedly waking up to the potential of recycling cooking oil, as earlier this month the government announced it would spend $98.5 million to support the recycling of used kitchen cooking oil into biofuel in 33 cities and districts nationwide, including Beijing’s Chaoyang district, the city’s second largest and home to the majority of Beijing's many foreign embassies.

Amusing as it is on the surface, China’s great “hogwash” imbroglio illuminates a number of contradictory truths about China’s headlong rush to prosperity. For China, 60,000,000 tons per annum of recycled cooking oil into biofuel is not an insignificant consideration.

First and foremost perhaps, is that enterprising Chinese, obeying the late Deng Xiaoping’s alleged exhortation, “To get rich is glorious!” have embraced its ethos with enthusiasm – and why not go where the profits are highest, in this case, the back door of the local carryout? In the absence of a clearly defined government policy, why not slip the used oil out the restaurant’s rea rdoor for great profits?

Second is that pesky issue of food security.

A recent U.S. International Trade Commission publication says that China's food security objectives may clash with its energy independence and environmental objectives, inhibiting the development of renewable biofuels. The China's Agricultural Trade: Competitive Conditions and Effects on U.S. Exports report notes that while China is the world's second largest corn-producing nation, using the grain primarily for animal feed and secondarily ethanol production, bad harvests in 2009-2010 coupled with rising demand led China to import around 1.5 million metric tons of U.S. corn and in 2010 China consequently became a net corn importer.

China's National Reform and Development Commission strictly regulates both the supply of and demand for biofuels and only state-owned enterprises are involved in production and the NDRC plans to increase domestic biofuel production to 12 million metric tons in 2020.
Unlike corn imports from the U.S., hogwash oil is an indigenous resource. Given both government public health issues and energy concerns, it would seem that the country’s furtive hogwash oil barons can expect to come under increasing government pressure.

More ominously for China’s illicit hogwash oil trade long term prospects, KLM Royal Dutch Airlines has recently successfully tested hogwash oil biofuel derivatives as a possible Jet A-1 “drop in” civilian airplane fuel.

Microwave, anyone?

Chinese free enterprise versus government control?

As the late great U.S. blues singer Rufus Thomas almost said, “Wok the dog!”

By. John C.K. Daly of OilPrice.com

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