UK's D1Oils continues to expand jatropha plantations globally

In its interim report [*.pdf] for 2007, D1 Oils, the only truly global biofuel company, shows it keeps expanding its Jatropha curcas plantations in India, South East Asia and Africa. For the first time, it is entering South America, while it is exploring Australia's agro-ecological potential for the crop. However, the Jatropha oil is not yet on the market, so D1Oils is temporarily utilizing other feedstocks for its 42,000 tonne biodiesel plant in Teesside. High prices for these feedstocks combined with competition from subsidised US biodiesel exports have more than doubled D1Oils' first-half pre-tax loss. Both problems are described as 'short term' challenges because the much less costly Jatropha oil is set to flow soon and the EU is taking action against the US's 'illegal' export subsidies (the socalled B99 loophole, more here). Jatropha remains a wild crop, but an ongoing plant improvement and molecular breeding programme promises to result in the emergence of high-yielding cultivars.

In June, D1Oils created a joint-venture with BP, D1-BP Fuel Crops Limited, to create a global Jatropha business (earlier post). The establishment of D1-BP Fuel Crops was a significant endorsement of the new feedstock strategy, which relies on the comparative advantages of developing countries that will grow the crop and the rural communities where planting will be based. The new joint venture, with an oil major choosing to produce biofuel feedstocks in the developing world, also represents a turning point for biodiesel globally.

Planting programme
Up to 15 September 2007, D1 has planted or obtained rights to offtake from a total of 198,690 hectares of jatropha worldwide. This represents an increase of over 53,000 hectares on the total of 145,625 at 16 March 2007 and an increase of 23,609 hectares on the total of 175,081 hectares at 30 June 2007. The cumulative position at 15 September 2007 is summarised in the table below (click to enlarge):

The table indicates the broad geographic locations and types of arrangements associated with jatropha planting worldwide in which D1 has an interest. The level of investment costs and security of future oil supply are proportional to the degree of direct involvement by D1 and its joint venture partners.

Managed plantations are those farms where land and labour is held by D1, either through its subsidiaries or joint venture partners. Under contract farming, the farmer plants his own trees on his own land. D1 and its partners assist with the provision of seedlings and the arrangement of bank finance for planting, and offer a buyback of harvested grains with an offtake agreement, subject to a floor price and the achievement of agreed quality standards.

D1 Oils provides support and advice during cultivation, and monitors the condition of the crops. Seed and oil supply agreements are arms-length supply contracts with third parties whereby D1, either directly or through joint venture partners, has offtake arrangements in place over future output from jatropha plantations which the third party is developing. D1 has limited involvement in this planting and relies on third parties to measure and manage the crop effectively.

During the period D1Oils continued to develop planting partnerships and expand planting footprint across all three operating regions. A joint venture relationship in North East India with Williamson Magor, one of India’s leading tea companies, has been particularly successful. Ongoing planting of jatropha is now approaching 50,000 hectares:
energy :: sustainability :: biodiesel :: biomass :: bioenergy :: biofuels :: Jatropha curcas :: plantation :: plant breeding ::

Two Memoranda of Understanding (MOU) were recently signed in Indonesia. The first, with PT Astra Agro Lestari, part of the Jardine Matheson Group and the largest publicly traded agribusiness in Indonesia, concerns the creation of a 500 hectare Jatropha curcas pilot plantation, planting of which is planned to start in Q4 2007. Once the pilot is successful, the relationship will then turn to commercial planting. The second, a tripartite MOU between D1 Oils Asia Pacific, PT Medco Energi International, a publicly listed integrated energy company, and PT Mambruk Sarana Interbuana, a pioneer of solar energy in Indonesia, is for a 500 hectare pilot plantation in West Java. Planting operations here will commence in Q4 2007 with the intention to expand to 10,000 hectares.

In a key development for planting operations in South Africa, D1 is working together with the South African Government to establish the first commercial level jatropha pilot project in that country. The initial plantation size will be 5,000 hectares of which 1,000 hectares is expected to be planted in the first year. Planting will be carried out by D1 in co-operation with the Central Energy Fund, the Department of Agriculture and a commercial farming concern made up of both black and white farmers.

The project is intended to determine economic feasibility and will be used as a model for commercial jatropha planting in South Africa.

In addition to continuing planting in Africa, India and South East Asia, D1-BP Fuel Crops will expand planting to new, emerging markets, in particular South America. To this end D1 has signed a strategic partnership agreement with a Brazilian group, Curcas Diesel Brazil, to develop jatropha plantation projects throughout that country.

In the medium term, D1Oils believs that Australia has potential as a production location for jatropha and we are in active dialogue with the relevant Federal and State authorities regarding permission to import seeds and begin the first controlled trials for commercial planting of Jatropha curcas.

Plant improvement
D1Oils continued to collect individual accessions of Jatropha curcas from around the globe, and we began putting the most promising varieties from an already significant collection through the first ever commercial breeding and product placement trials.

These trials will identify optimal adaptation to different cultivation conditions. continued the development of our breeding programme to create the first cultivars
for future selection of high-yielding varieties. D1Oiuls also added two further Regional Development Centres (RDCs) in Swaziland and Thailand respectively.

Multiplication of the first generation, selected seed material, referred to as ‘E1’, was begun in all three operating regions. This seed material has been selected for higher yield and good biodiesel profile.

During the period, the company also introduced its Sustainable Oil Supply Programme (SOSP), in co-operation with our joint venture partners and farmers. This stewardship programme will record the performance of planting, enable the development of accurate oil production forecasts and will also monitor the implementation of policies for social, economic and environmental sustainability.

As a result of the formation of its joint venture with BP, D1’s plant science programme has been established as a separate company, wholly owned by D1 Oils plc. The activities of this new company will comprise research and development, plant science, breeding, and production and multiplication of seed and seedlings. It will act as the exclusive supplier to D1-BP Fuel Crops, the planting joint venture, on a cost-plus basis, of selected, high-yielding jatropha seeds and seedlings. It will also provide technical agronomy support and expertise to support and implement the SOSP programme. D1-BP Fuel Crops will pay D1 an annual royalty fee for the high yield performance by the plants it supplies.

Plant science operations to support the joint venture are on track. D1Oils anticipates that a proportion of the first of the selected E1 seedlings will be available before the end of this year. It is the intention to plant 50,000 hectares with E1 seedlings in 2008. The company expects to plant out the first 5-10% of this total ahead of schedule in 2007.

Furthermore, D12Oils is expanding research and testing infrastructure in anticipation of the growth in business from the joint venture. New Development Centres are being established in Cape Verde (as a central facility), as well as Indonesia and other countries where D1-BP Fuel Crops will operate, enabling D1 to support fully the joint venture’s planting activities.

A significant development is the recent signing of an exclusive worldwide service agreement with Keygene NV of the Netherlands. Keygene is one of the global leaders in the science of genetic fingerprinting, in particular molecular markers and marker-assisted breeding approaches. The agreement provides D1 with exclusive rights to contract research and molecular services carried out by Keygene on jatropha. Keygene’s genetic fingerprinting technology enables the identification of different jatropha cultivars through genetic markers similar to commercial bar codes. The technology has the potential to increase significantly the effectiveness of D1’s breeding programme for jatropha.

In addition to focusing on jatropha, D1Oils keeps to investigating other inedible oil crops.

Trading and biodiesel production
D1Oils' activities in refining and trading have been impacted by the ongoing challenges of high feedstock prices exacerbated by subsidised biodiesel imports from the United States. Refining margins across the industry have come under increasing pressure, and already in February 2007 D1Oils announced its intention to run refineries below capacity and to manage stocks of vegetable oil previously purchased at lower prices.

There has been no improvement in the overall level of feedstock prices (in fact they have continued to increase), and, having processed existing stocks, D1Oils is no longer refining virgin oil. However, the company is taking advantage of the flexibility and precision of its modular D1 20 refinery units to refine parcels of “off-spec” material purchased from other suppliers.

During the period the biofuel company increased the capacity of its Teesside site with the addition of a fifth D1 20 refinery unit. This is the first upgraded D1 20 units and has an enhanced capacity of 10,000 tonnes per year. Final commissioning is now underway, increasing the production capacity of the Teesside site to 42,000 tonnes.

Having completed the acquisition of a site in Bromborough, D1Oils began the conversion of the existing facilities, which formerly produced fuel and lubricant additives, to create 100,000 tonnes of initial biodiesel refining capacity. Given market conditions, the company has slowed the timetable for commissioning the first 50,000 tonnes of this capacity, which will be completed shortly.

D1 Oils is studying the potential impacts of the UK's Renewable Transport Fuels Obligation (RTFO) on the UK market after April 2008. It expects the RTFO to have a positive impact on trading conditions for UK biodiesel refining, but believes this benefit is likely to be counterbalanced by both higher feedstock prices and the continuation of subsidised soya methyl ester imports from the USA, which are entering the EU market in the form of a 99% soya biodiesel and 1% mineral diesel blend; so-called B99.

US producers are currently eligible for subsidies of US$1 for every gallon (approximately 11 pence per litre) of biodiesel blended with mineral diesel, which then receives further subsidy in EU markets. As a result, this material is setting market prices in the EU and refinery margins are substantially eroded.

The European biodiesel industry is working to get the EU authorities in taking the necessary measures to end the eligibility of US imports for double taxation relief. Unless the B99 taxation “double dip” issue is addressed, it will be difficult for the EU to develop a robust biodiesel refinery industry and for UK refiners to supply motorists and road transport businesses under the RTFO.

Until commercial volumes of low-cost jatropha oil become available for UK refining, D1Oils is purchasing and selling modest quantities of B99 to enable us to meet its obligations to clients and to develop our supply chain. It will continue to do so until the issue of asymmetric subsidies is resolved or feedstock prices reduce.

References:
D1Oils: D1 Oils plc Interim report 2007 [*.pdf] - September 2007.