Market News

 September 06, 2007
Poland: Biofuels Market 2007

 Poland's biodiesel sector is still in the early development stage, producing 120 thousand tons of biodiesel annually. By comparison neighboring Germany produces 2,300 thousand tons. For the last several years Poland's production of biodiesel has remained at a consistent level. One reason for lack of growth has been legal turmoil caused by disagreements between legislators and biofuel producers. This matter has finally been resolved resulting in a new law which regulates this sector.

EU regulation requires 5.75% of liquid fuels used for transportation to be of renewable energy origins. In Poland, part of this requirement is met through rape seed cultivation. In 2006 Polish producers harvested approximately 1.5 million tons of rape seed, but will need to increase production significantly in order to comply with EU regulations.

Market Highlights and Best Prospects

The European Committee adopted a White Paper in September 2001 which encourages three potential groups of alternative fuels: liquid biofuels, natural gas, and hydrogen achieved by the utilization of renewable energy sources and fuel cells in vehicles. European transportation policy, as cited in the White Paper predicts that emissions of CO2 will reach 1,113 billion tons in 2010. In 2003, the EU Commission issued Directive 2003/30/EU recommending the promotion and usage of biofuels in all EU countries. Target usage for 2005 was set at 2% and should reach 5.75% by 2010.

Poland's compliance with the Directive is inadequate to date. Bio-components' share of total fuels used in transportation in recent years was as follows: 2004 0.30%, 2005 0.48%, 2006 0.92%.

According to the newly adopted Long-term Program for Promotion of Biofuels or Other Renewable Fuels for 2008-2014 prepared by the Ministry of Economy and adopted on July 24, 2007, Poland's usage rates are set as follows: 2007 2.30%, 2008 3.45%, 2009 4.60%, 2010 5.75%

Moreover, the Polish government plans to attain the level of 7.55% usage by 2014. Achieving the 2010 rate requires that an estimated 650 thousand tons of biodiesel and 370 thousand tons of bioethanol will be used annually, based on Poland's projected fuel consumption for 2010. A primary impetus behind promotion of biofuels is to reduce energy dependence on Russia as well as to counter rising oil prices and boost farm incomes while limiting carbon emissions.

In 2006, Poland's government passed a general law on biofuels and a related law identifying specific government agencies to oversee biofuel production and use. Biofuel is defined in the legislation as any fuel with a bio-component of over 5%. Fuels with a bio-component of 5% or less will no longer be considered as such. The major bio-components identified in the legislation include esters, ethanol and methanol. Based on biodisel regulations issued in September 2006 by the Ministry of Economy, up to 20% methyl ester can be added to diesel fuel. There are also 100% biodiesel blends authorized for use in specific machinery and vehicles. This new law also permits farmers to produce up to 100 liters per hectare of biofuels for use on their own farms. As small machines are available to produce methyl ester for biodiesel, Polish farm groups expect that growers will take advantage of this provision.

The Polish Ministry of Economy is preparing its Long-term Program for Promotion of Biofuels or Other Renewable Fuels for 2008-2014 focused on promoting the use of biofuels and increasing demand for them. Among its provisions are creation of restricted areas in cities accessible only for public buses fueled with biofuels, a parking fee exemption for cars using biofuels, as well as environmental fee exemptions for companies using cars and machinery equiped with biofuels fueled engines.

The government has proposed offering subsidies to farmers to make biofuels more profitable, thus counterbalancing a cut in taxes for producers reversed under EU pressure in January 2007. According to the most recent excise tax law approved by the President on May 30, 2007, farmers will receive subsidies from EU funds equal to $46 per hectare of rape seed. The law also decreases the excise tax for biofuel produced from natural raw materials and imposes fines for not adding biocomponents.

Currently the best business prospects in the biofuels sector are for those companies offering technology and expertise in the production of bio-ethanol, (dehydrated alcohol derived from grain, potatoes, malt), as well as of plant oils (rapeseed) both for small and large-scale production. Companies offering complete solutions and assistance in obtaining favorable credit lines will enjoy a competitive advantage. All products and equipment should meet quality standards required by the EU certification law.

Competitive Analysis

Domestic Production and Third Country Imports: The National Biofuels Chamber has forecast that Poland's annual biodiesel production capacity could surge to some 800 thousand tons in 2008 from the current rate of 120 thousand tons with an annual increase of 500 thousand tons each year after that. There is only one full-scale biofuel plant operating in Poland refining rapeseed oil for biofuel.

Refinery Trzebinia, employing German technology, is owned by the largest oil concern in Poland, PKN Orlen. The current capacity of Trzebinia is 100,000 tons of bioesters per year.

Trzebinia sells bioester that is 100% biodiesel and more than $0.10 cheaper than regular diesel oil per liter. Elstar Oils will soon open its plant with an annual capacity of 100,000 tons. Petroleum concern Lotos is also planning a biofuels installation in its refinery in Czechowice. A number of large chemical plants, including ZA Kedzierzyn and ZA Tarnow, ZCh Police together with its American partner Becco, as well as independent investors, such as the petrochemical concern PKN Orlen, the copper company KGHM Polska Miedz, and one of Poland's wealthiest tycoons Aleksander Gudzowaty have made preparations for production of methyl esters. Gudzowaty's company, Bartimpex, through its subsidiary Brasco, plans to invest $200 million in the production of biofuels including esters made of rapeseed as well as bio-ethanols, which are a gasoline additive.

In January 2007 the Spanish firm Sniace, with its Polish subsidiary Greensource, signed an agreement with the Kostrzyn Special Economic Zone to build a 200,000 ton annual output bioethanol production facility. Construction should begin in 2008 and the value of investment is estimated at $165 million.

End-User Analysis

The spectrum of end-users in the Polish biofuels market is broad and will include all automobile owners -- both private and commercial. There are over 16.8 million vehicles in Poland including 12 million passenger cars, over 2 million trucks, and 80,000 buses. There are over 10,000 petrol stations throughout the country.

According to prevailing law, all fuels sold on the Polish market must contain a bio-component portion. Experts estimate that Poland used no more than 1% of biofuel in transport fuel in 2006. Poland currently exports both ethanol and methyl esters mostly to Germany, however this may decrease in order to maintain sufficient domestic supply.

Experts also believe that Poland will manage to meet the EU goal of 5.75% biofuel in all fuel used for transportation by 2010. The Polish government is indicating interest in exceeding this target.

blockquote>Excerpts from "Poland; Biofuels Market 2007", U.S. Commercial Service, August 2007.