The Baltic Course  

A remote presence of biodiesel

By Zhidrunas Damauskas (Lietuvos rytas)

Despite recommendations from the EU, the introduction of biodiesel into the market of car fuel is in the Baltic states hindered by the price for oil products which is currently too low. The most inexpensive product for car refueling today is natural gas. However, it is popular mainly only in Lithuania

Methyl ester from Lithuanian rape

Already this summer Lithuanian drivers will be able to refuel their car tanks with petrol diluted with spiritss, while the manufacture of biodiesel is expected to begin next year.

According to Lithuanian legislation, 7% of spirits and petrol 95 can be used in production of biofuel.

Biodiesel must consist of 30% of rape methyl ester, or ethyl ester. The law, which will come into force starting from June, provides that no excise tax will be imposed on spiritss produced for the manufacture of biofuel.

Kaunas-based state company Stumbras, which is the producer of spiritss, was the first to show interest in production of biofuel.  The company is ready to produce in one of its plants up to 10 thousand tons of spirits meant for further dilution with petrol already this summer. Having such an amount of ethanol it is possible to dilute 150 000 tons of petrol. Spirits producers have already visited the distillery of the American company Williams which manages the Lithuanian company Mazeikiu nafta and is also one of the producers of biofuel.

Mazeikiai-based company Rapsoila is already building a factory which will process rapeseeds. Manufacture of first production - methyl ester intended for further dilution with diesel is planned to begin in January of the following year. According to Gintautas Shmaizhjus, head of the company, construction costs of the plant will account for approximately 4.6m dollars, but there are no problems of financial character since banks even compete with each other for rights to finance this project offering favorable conditions. The new factory is advantageous also for local farmers since the company plans to cooperate with about 1,500 little farms.

Future prospects in relation to this matter do not seem to be so good for all sellers of the car fuel. Plans concerning production of biodiesel were suspended by the major seller of oil products in Lithuania - LUKoil Baltija. "It was planned to launch the factory into operation in autumn this year, but presently it is investment which doesn't pay off", said Ivan Paleichik, director of the company. Therefore, everything was postponed until next year. Among the reasons he mentioned the lack of benefits concerning the value-added tax and low prices for products manufactured by Mazeikiu Nafta. "Unless the price for diesel in fuel stations is no lower than 50 American cents, production of biodiesel is not cost-effective", claimed I. Paleichik.

In his opinion petrol diluted with spirits will bring profit only provided it is by 10% cheaper than ordinary fuel. Seeing no favorable changes in the future, LUKoil Baltija stopped its negotiations on implementation of a joint project with Stumbras.

Norms concerning consumption of biodiesel are set by the EU, and in 2005 it must account for 7.25% of all fuel consumption in each member country.

According to Stasis Ilakis, employee at the marketing department of Mazeikiu Nafta, production of biofuel will cut the market share of Mazeikiu Nafta for at least 10 thousand tons a year. "But this type of fuel has been acknowledged all around the world and its production expands with every day, so Lithuania cannot lag behind", said S. Ilakis. He also believes that biofuel in fuel filling stations will cost few cents less than 95-octane count gasoline, but for the same distance cars will consume more biofuel than ordinary petrol.

Natural gas is currently the most inexpensive type of fuel in Lithuania - its price is twice as lower than the price of 95-octane count gasoline. Natural gas has remained inexpensive despite the fact that the government imposed the excise tax on this product several years ago. According to Juozas Miliunas, acting director of Suskystintos dujos company, which runs 46 natural gas filling stations, from economic point of view drivers should choose natural gas if it is twice cheaper than petrol, and such a difference in prices can be observed in Lithuania. "Car running on natural gas can save 10% of money, so the difference is quite obvious", said J. Miliunas. Meanwhile, the excise tax on natural gas (approximately 53 dollars per ton) reduces the profit for companies selling this product. He believes the government should not further increase the tax on environmentally-friendly product.

LUKoil wants to return natural gas to Estonia

What concerns Estonia there are virtually no alternative types of fuel, but the future project on construction of natural gas filling stations causes doubt.

According to Vladimir Kleiner, managing director of LUKoil Eesti, this project was supported and approved already in the beginning of the year and is just waiting for the moment when the price for petrol 95 will reach 10 crowns. He thinks that only then will the commencement of the project be economically reasonable. If it doesn't happen in near future, the other variant foresees launch of the project in case Estonia gives up petrol 95 in favor of EURO 95.

As opposed to Lithuania and Poland, where vehicles with gas equipment is quite a normal thing and the petrol price is a kroon or so higher, Estonians will have to start everything from the very fundamentals. Firstly, it will require development of network of car service stations ensuring installation of gas equipment. Secondly, it is necessary to upgrade already existing filling stations by installing gas modules. Finally, the whole process should be popularized by means of an advertising campaign.

According to Kleiner, Estonian consumers should gradually get used to the idea that natural gas as a car fuel is less expensive. Jaak Mikkel, sales manager of Shell Eesti, thinks that the price is the only advantage of natural gas. "It should cost twice less than petrol. There was already a period in Estonia when 95-octane count gasoline cost more than 10 kroons, but LUKoil somehow did not start installation of gas equipment", mentioned J. Mikkel.

"Since the consumption of gas is higher, its utilization will become beneficial only in case the excise tax on this product is reduced and what is currently also the prior objective for the Eesti Gaas company", said Victor Grigoriev, advisor at the Estonian Ministry of Environment. European countries welcome the usage of natural gas since it is the cleanest-burning fuel, containing no lead or sulfur. "In many cities, for instance, in Budapest the municipal transport is running on natural gas. Cars with built-in equipment for both petrol and gas are being manufactured", said Grigoriev. Besides, he believes there will be no general transition to natural gas in Estonia in the near future, since, according to safety rules, natural gas filling stations must stand separately from petrol filling stations, and therefore the number of them might turn out to be insufficient.

Although quality gas equipment for vehicles in Estonia are being manufactured by both foreign and Russian companies, Grigoriev thinks there's still a negative attitude towards the type of fuel used in Soviet times when vehicles spread the smell of a defective gas-cooker due to low-quality equipment.

Alternative fuel in Estonia is virtually no utilized, and several gas stations are practically out of operation. Within the framework of a pilot project we equipped one such a station in the town of Parnu, but its operation turned out to be unsuccessful over the whole year. Rarely some trucks pull in to fill their tanks, but these are basically drivers from Lithuania", said Kleiner.

There was much discussions going on with regard to the project concerning production of diesel from rape oil, the usage of which is so welcome in the EU. In European countries areas sown with this crop are constantly on the increase. For example, in Germany the share of biodiesel accounts for approximately 12%. According to Estonian experts, the hullabaloo concerning biodiesel is created artificially. Biodiesel cannot solve all the problems, as it is of little use in winter conditions due to its thick consistency.

Besides, it has good lubricative qualities and it is cleaner than ordinary diesel. Production of biodiesel may become profitable since Estonian farmers cultivate rape in sufficient amount, and it is planned that companies could manufacture about 200 tons of biodiesel from local crops. Still, the project was not launched. According to Grigoriev, farmers tried to use biodiesel but it didn't catch on, and formally it is not utilized in Estonia.

"Selling alternative fuel will be profitable only in case of a reduction of excise tax which will be possible only after completion of the ongoing process of developing the efficient control system in Estonia", said Grigoriev. Meanwhile, the work of the supervisory body overseeing the actions in the power sector is being intensified along the development of a modern state laboratory which could carry out an independent analysis of the quality of a particular product without experiencing pressure from companies engaged in the fuel business.