Strategic Management

BIODIESEL

Submitted To:
Prof. V.V. Ratna
Faculty (Strategic Management)

Submitted By:
Prateek Shrivastav (cft07-104)
PGDM (2007-09)

JAIPURIA INSTITUTE OF MANAGEMENT, LUCKNOW

 Introduction

Biofuels can be broadly defined as solid, liquid, or gas fuel derived

from recently dead biological material. This distinguishes it from fossil
fuels, which are derived from long dead biological material. Biofuel can
be theoretically produced from any (biological) carbon source, though
the most common by far is photosynthetic plants. Various plants and
plant-derived materials are used for Biofuels manufacture. Biofuels are
used globally, most commonly to power vehicles and cooking stoves.
Biofuel industries are expanding in Europe, Asia and the Americas.

Biofuels offer the possibility of producing energy without a net increase

of carbon into the atmosphere, because the plants used in to produce
the fuel have removed CO2 from the atmosphere, unlike fossil fuels
which return carbon which was stored beneath the surface for millions
of years into the air. Therefore, Biofuels is in theory more nearly
carbon neutral and less likely to increase atmospheric concentrations
of greenhouse gases. (However, doubts have been raised as to
whether this benefit can be achieved in practice, see below). The use
of Biofuels also reduces dependence on petroleum and enhances
energy security.

There are two common strategies of producing Biofuels. One is to grow

crops high in sugar (sugar cane, sugar beet, and sweet sorghum) or
starch (corn/maize), and then use yeast fermentation to produce ethyl
alcohol (ethanol). The second is to grow plants that contain high
amounts of vegetable oil, such as oil palm, soybean, algae, or
jatropha. When these oils are heated, their viscosity is reduced, and
they can be burned directly in a diesel engine, or they can be
chemically processed to produce fuels such as biodiesel. Wood and its
byproducts can also be converted into Biofuels such as wood gas,
methanol or ethanol fuel. It is also possible to make cellulosic ethanol
from non-edible plant parts, but this can be difficult to accomplish
economically.

Biofuels are discussed as having significant roles in a variety of

international issues, including: mitigation of carbon emissions levels
and oil prices, the "food vs. fuel" debate, deforestation and soil
erosion, impact on water resources, and energy balance and efficiency.

Biodiesel refers to a non-petroleum-based diesel fuel consisting of

short chain alkyl (methyl or ethyl) esters, made by transesterification
of vegetable oil, which can be used (alone, or blended with
conventional petrodiesel) in unmodified diesel-engine vehicles.
Biodiesel is distinguished from the straight vegetable oil (SVO)
(sometimes referred to as "waste vegetable oil", "WVO", "used
vegetable oil", "UVO", "pure plant oil", "PPO") used (alone, or blended)
as fuels in some converted diesel vehicles. "Biodiesel" is standardized
as mono-alkyl ester and other kinds of diesel-grade fuels of biological
origin are not included.

Blends of biodiesel and conventional hydrocarbon-based diesel are

products most commonly distributed for use in the retail diesel fuel
marketplace. Much of the world uses a system known as the "B" factor
to state the amount of biodiesel in any fuel mix: fuel containing 20%
biodiesel is labeled B20, while pure biodiesel is referred to as B100. It
is common to see B99, since 1% petrodiesel is sufficiently toxic to
retard mold. Blends of 20 percent biodiesel with 80 percent petroleum
diesel (B20) can generally be used in unmodified diesel engines.
Biodiesel can also be used in its pure form (B100), but may require
certain engine modifications to avoid maintenance and performance
problems. Blending B100 with petrol diesel may be accomplished by:

• Mixing in tanks at manufacturing point prior to delivery to tanker

truck
• Splash mixing in the tanker truck (adding specific percentages of
Biodiesel and Petrol Diesel)
• In-line mixing, two components arrive at tanker truck
simultaneously.
 Biodiesel Industry Structure

The Biodiesel industry is still young and relatively small, so as it grows

to a larger scale and when an infrastructure is developed, the costs of
producing and marketing biodiesel may decline. New cost-saving
technologies will likely be developed to help producers use energy
more efficiently, increase conversion yields and convert cheaper feed
stocks into high-quality biodiesel.

However, in the longer term, the biggest challenge may be the ability
of the feedstock supply to keep up with growing demand. The supply
of soybeans, rapeseeds and other feed stocks available for biodiesel
production will be limited by competition from other uses and land
constraints.

As such the key to the future of Biodiesel is finding inexpensive feed

stocks that can be grown by farmers on marginal agricultural land, and
Jatropha is one of many plants that hold a great deal of promise.
Jatropha proves to be a promising Bio Fuel plantation and could
emerge as a major alternative to Diesel thus reducing our dependence
on Oil imports and saving the precious Foreign Exchange besides
providing the much needed Energy Security.

Jatropha oil displacing conventional fossil fuel makes the project fully
eligible as a CDM project, i.e. recipient of CO2 credits.
 Industry Performance
In India biodiesel is mainly prepared from the plant called “Jatropha”.
Jatropha is a drought-resistant perennial, growing well in
marginal/poor soil. It is easy to establish, grows relatively quickly and
lives, producing seeds for 50 years.
Jatropha the wonder plant produces seeds with an oil content of 37%.
The oil can be combusted as fuel without being refined. It burns with
clear smoke-free flame, tested successfully as fuel for simple diesel
engine. The by-products are press cake a good organic fertilizer, oil
contains also insecticide. It is found to be growing in many parts of the
country, rugged in nature and can survive with minimum inputs and
easy to propagate.
Medically it is used for diseases like cancer, piles, snakebite, paralysis,
dropsy etc.

The process of converting vegetable oil into biodiesel fuel is called

Transesterification and is luckily less complex then it sounds.

Chemically, Transesterification means taking a triglyceride molecule, or

a complex fatty acid, neutralizing the free fatty acids, removing the
glycerin, and creating an alcohol ester. This is accomplished by mixing
methanol with sodium hydroxide to make sodium methoxide. This
liquid is then mixed into the vegetable oil. After the mixture has
settled, Glycerin is left on the bottom and methyl esters, or biodiesel is
left on top and is washed and filtered.

The final product Bio Diesel fuel, when used directly in a Diesel Engine
will burn up to 75% cleaner then mineral oil Diesel fuel.

The technology is mature and proven

Presently, the indigenously designed bio-fuel plant for 250 lt./day is in

operation. We have to design and develop bio-fuel plants of 3 to 10
tones per day capacity for installation in different parts of the country.
Effective marketing chain needs to be planned for enabling farmers to
reap the benefits directly. Bio-fuel mission will provide technological
and employment generation focuses for the rural sector. Use of eleven
million hectares of wasteland for Jetropha cultivation can lead to
generation of minimum twelve million jobs

Jatropha grows wild in many areas of India and even thrives on

infertile soil. A good crop can be obtained with little effort. Depending
on soil quality and rainfall, oil can be extracted from the jatropha nuts
after two to five years. The annual nut yield ranges from 0.5 to 12
tons. The kernels consist of oil to about 60 percent; this can be
transformed into biodiesel fuel through etherification.

Cost Benefits Scenario:

Cost benefits scenario will depend on various factors such as seed

yield, area of Production, its gestation period, and raw oil yield during
various stages of bio-diesel production-plantation, extraction, and
transesterification.
An integrated Jatropha Biodiesel Project has three stages:

• The first stage of the production process of bio-diesel from the

seeds of Jatropha is the plantation stage.
• Extraction stage of bio-diesel production
• The final stage of bio-diesel production is the transesterification
stage in which raw oil is transesterified to bio-diesel.

The combination of three stages of bio-diesel production and the role

of each player in these stages have to be objectively defined as they
can affect the economics of bio-diesel production.

Therefore, we have carried out Economic analysis considering all

above three stages as separate entities.

Plant Tissue Culture, also called micropropagation, is a practice used

to propagate plants under sterile conditions, often to produce clones of
a plant. different techniques in plant tissue culture may offer certain
advantages over traditional methods of propagation.

Plant tissue culture relies on the fact that many plant cells have the
ability to regenerate a whole plant (totipotency). Single cells, plant
cells without cell walls (protoplasts), pieces of leaves, or (less
commonly) roots can often be used to generate a new plant on culture
media given the required nutrients and plant hormones.

The cost of Bio Diesel is largely dependent on the choice of feedstock

and the size of the production facility.

If Jatropha feedstock is used, the fuel will cost depending on the

country approximately US $ 0,40 per liter plus tax when applicable.
 FEED STOCK PRODUCTION PER HECTARE & COST THEREOF

FEEDSTOCK Country Yield/hectare (kg) Rate per

barrel(US$)
SOYA OIL USA 375 73
RAPESEED OIL Europe 1000 78
JATROPHA OIL INDIA 3000 43
PALM OIL Malaysia 5000 46
 Industry Attractiveness
A large number of us who form a part of the animal kingdom depend
crucially on the energy from the photosynthesis in plants that is stored
in the grains and seeds. Carbohydrates and fats (or oils) are the two
forms used by plants to create a storehouse in their seed endosperms
supposedly to take care of their young seedlings. While the
carbohydrates in the seeds can be fermented to methane and then
burnt in engines to generate electricity, oils can be directly used as
fuel in diesel engines. Oils have an immediate use, as diesel engines
are ubiquitous and are around us in large numbers. For strategic
reasons, it is best to consider non-edible oilseeds from trees. How
much oil can be obtained from trees? Plantations of cultivated trees
like the oil palms can yield about five tons of oil per hectare per year.
Pongamia, neem and mahua are three commonly found trees in most
parts of India. According to available data, a mature plantation of
about 100 trees would yield about 2.5 tons of oil every year. The
promotion of the use of oils could also provide a poverty alleviation
option in rural areas. Farmers can use vacant, waste and marginally
used lands for growing such trees and benefit from the annual
produce, which will add to their income. The demand for oils will
remain large as long as the need for energy remains unsatisfied. With
increased green cover, the environment will also benefit greatly.

Since diesel constitutes 50% of oil consumption mainly for

transportation and other purposes, its demand is integrally related to
economic growth and is seen as a growth inducing factor. The
estimated increase of demand for diesel from the 2001-02 level of
38.815 Million MT to 52.324 Million MT in 2006-07 and 66.099 Million
MT shows a massive hike of hike if 34% to 70% respectively over
2001-02 level in physical terms which will lead to increase of crude oil
import bill from US$ 13.3 Billion to over US$ 20 Billion. As emissions
from automotive engines using diesel is a major source of air pollution
in urban areas, enforcement of stricter emission norms has become a
national priority.

Bio-diesel has been accepted as clean alternative fuel all over world.
Though Bio-diesel can be produced from soyabean, sunflower, source
of edible oil, existing shortage of edible oil in the country and its price,
would not make these crops viable for use as feed stock for production
of Bio-diesel. Similarly the existing output of 5.253 Million MT of Tree
borne oil seeds have been put to different uses and cannot contribute
to organized production of Bio-diesel on account of a number of factors
including scattered location, low yield and consequently low level of
seed collection of 15-20% of total exploitable seeds.

The rationale of taking up a major program for the production of Bio-

diesel in India for blending with diesel lines in the context of:

• Bio-diesel being superior fuel from the environmental point of

view
• Use of Bio-diesel becomes compelling in view of the tightening of
automotive vehicle emission standards and court interventions
• Addressing global concern relating to containing Carbon
emissions for mitigation of climate change
• Providing nutrients to soil, by using oil cake as manure
• Reducing import of oil and consequentially reducing import and
improving energy security
• Greening the country through Jetropha plantation; and
Generation of gainful employment to the people.
 Competitive Environment

Threats of new Entrants: The industry is still developing, and has

huge potential to grow. So as it grows to a larger scale and when an
infrastructure is developed, the costs of producing and marketing
biodiesel may decline. New cost-saving technologies will likely be
developed to help producers use energy more efficiently, increase
conversion yields and convert cheaper feed stocks into high-quality
biodiesel. There are no real new entrants in this sector, the sector is
booming and the companies involved in this sector have a great
opportunity to grow and develop.

Threats of substitute products: Substitute to biodiesel can be

alternative sources of energy like solar energy, wind energy. But these
sources can be threats in the long run because initial cost of producing
energy is too high, while producing biodiesel is comparatively too low.
We can produce 1 barrel of biodiesel from jathropa at an initial cost of
just $43. So threats from substitutes are too low.
Bargaining power of Buyers: There are not much buyers of
biodiesel, so they have very little opportunity to negotiate on the price
factor. In other words we can say that buyers have less bargaining
power. There are no such threats from buyers in this regards.

Bargaining power of Suppliers: The main raw material used in the

production of biodiesel is the jathropa plant. This plant’s fruit is used in
the production of biodiesel. The main suppliers are the farmers
engaged in the production of jathropa. Since less farmers are engaged
in the production, so they have high power in their hand to bargain.

Rivalry among existing players: As it has been already explained

that many few firms are engaged in the production of the biodiesel,
each company has equal opportunity to grow and develop. Companies
engaged in the production of biodiesel are:

• Aditya Sheel Biotech Co. Ltd.

• National Oilseed and Vegetable Oil Development
Board (NOVOD)
• Lubrizol India Pvt. Ltd.
• Gujarat Oleochem
• Hindustan Biodiesel limited
 SWOT ANALYSIS
Strengths:

Production of biodiesel contributes to independence of energy supply.

98% of the energy used in the transport sector comes from fossil
fuels. Oil reserves are estimated to be limited at 50 years. Biodiesel is
contributing to the diversification of sources and technologies
benefiting to the EU economy.
Mitigating climate change: Biodiesel reduces GHG emissions (30-
71%). GHG emissions are leading to irreversible damages to the
ecosphere affecting the environment, economic development, food
security and livelihood. In EU, transport is responsible for about 21%
of all GHG emissions, it is also the only sector which experienced an
increase of 24% of GHG between 1990-2003.
Biodiesel contributes to rural development: EU farmers would find new
market opportunities thus participating to the objectives of increasing
GDP, employment , social welfare and diversification of the rural
economy
Rising prices of crude oil and finiteness of resources ensures economic
viability of biodiesel.
Biodiesel, with bioethanol, are the only large scale substitute available
for diesel and petrol in transport.

Biodiesel prices are not fluctuating on uncertainties like armed

conflicts/ shortage in supply

Weakness:

Feedstock production (i.e. Rapeseed oil) needs land and requires

significant amounts of inputs like fossil fuel based fertilizers and
pesticides.

An inappropriate use of pesticides and fertilizers may lead to negative

effects for the environment (water)

GHG reduction potential may be neutralized if land use change occurs

(converting land with high carbon stock for Biofuels production)

Price of vegetable oil may be rising because of higher demand and

increase prices of Biodiesel production.

Vegetable based feedstock yields may be fluctuating subject to

adverse weather.
Biodiesel may attract water molecules from atmospheric moisture or
condensations

Biodiesel emits more NOx emissions compared to diesel fuel

Opportunities:

Biodiesel production can be done in accordance with sustainability

principles and without endangering food supply. This will be made
possible notably by raising the EU oilseeds production. Currently
amounting to 23 Mo tons, the EU oilseeds production is expected to
reach 35 Mo tones by 2015-2020.

The possible contradiction between fuel and food production will be

more easily solved by developing new and non-edible feedstock
varieties (jatropha).

The full potential of biodiesel pathway using waste as a feedstock

should be further developed (used cooking oils, tallow) to increase
biomass availability.

Competition with food application is often largely overstated: less that

4% of palm oil imported in the EU is used for biodiesel production.

The largest part of future biodiesel demand, even in the perspective of

the 2020 target can be produced mainly from raw material originating
from the EU. There is indeed an important potential in terms of
surfaces and yields for oilseeds, especially in the new Member states.
It will thus strengthen the impact of the 10% target.

Biodiesel production development will improve the EUs elf-sufficiency

in terms of vegetable proteins. The EU has currently a deficit in protein
meals for animal feed. The development of biodiesel production in the
EU has already increased the availability of oilseeds meals by 3 Mo
tones since 2002. The further development of the production should
provide an additional 8 Mo tones by 2015-2020, thus increasing the EU
self-sufficiency ratio from 20% to 30%.

Threats:

The problem of competition with food application risk remaining a

major issue and impact on the industry’s image.
Land availability and feedstock production can impinge on the
development of biodiesel production.

The suppression of mandatory set-aside for cereals will increase

competition for land use.

The lack of preparedness for high blends, both from the side of the
car-manufacturing industry and the public, could be an obstacle for
reaching ambitious targets.

There is also a lack of awareness-raising measures (communication

and media campaign) in favor of biodiesel towards the public.


 Conclusion
As a substitute for fast depleting fossil fuel. Bio diesel had come to
stay. In future, it should also serve to reduce and maintain the price of
automobile fuel. The under exploited and un exploited vegetable oils
are good sources of Biofuels. Our country is endowed with many such
plants. Research is being carried out now to convert vegetable oils into
biodiesel through biotechnological processes using biodiesel. With a
concentrated and coordinated effort. Wide use of bio diesel in our
country is going to be a reality in the days to come.

A national mission on Bio-Diesel has already been proposed by the

committee comprising six micro missions covering all aspects of
plantation, procurement of seed, extraction of oil, transesterification,
blending & trade, and research and development. Diesel forms nearly
40% of the energy consumed in the form of hydrocarbon fuels, and its
demand is estimated at 40 million tons.

Therefore blending becomes the important National Issue which apart

from giving the dividends , it saves the country's exchequer. India has
vast stretches of degraded land, mostly in areas with adverse agro-
climatic conditions, where species of Jatropha , Mahua etc can be
grown easily.

Even 30 million hectares planted for bio- diesel can completely replace
the current use of biofuels. The production of Bio fuels will also boost
the rural economy which will bring more enthusiasm in more than one
billion lives in the area.