The Biodiesel Opportunity in China

The fast pace of economic growth in recent years has turned China into the second-largest energy user in the world. According to the National Development and Reform Commission (NDRC) China's total energy consumption in 2004 was 1,970 mtce (million tons of coal equivalent), representing 13% of the total energy consumed worldwide.

China Clean Energy entered this lucrative market in 2005 by producing biodiesel. Our initial capacity was 4800 tons per year, and is now increased to 10,000 ton per year capability.Currently, we are in the process of increasing our biodiesel production capacity by approximately 100,000 tons per year by end of 2009.

On December 11, 2006 China Clean Energy signed a contract to purchase land usage rights for 50 years for the construction of this new biodiesel factory. Mr. Tai-ming Ou, China Clean Energy's Chairman and Chief Executive Officer commented, "Our new facility will allow us to meet the rapidly increasing demand for environmentally-friendly energy sources in China."


Multiple Growth Drivers for Renewable Energy

Going forward, multiple drivers will support the rapid growth in Chinese demand for renewable energy in general, and biodiesel in particular, including economic growth and rising income levels, the PRC government¡¯s strategic imperative to improve energy security by diversifying energy sources and reducing reliance on imports, and the need to enhance the use of cleaner energy to preserve the environment. In the 11th FYP (Five Year Plan) the Chinese government increased its commitment to promote renewable energy, with the NDRC setting a goal to increase the share of renewable energy in the total energy consumption in China to 20% by 2020.

Robust Growth in Biodiesel Demand is Forecast

Demand for motor vehicles grew at 14.5% from 2000 through 2005 to 31.6 million vehicles, 24% of which use diesel fuel. The increase in the motor vehicle fleet has been driven by higher demand for transportation as a result of the construction of national roads and highways that interconnect cities throughout China. In addition, the widespread use of mechanized farming has resulted in a significantly growing number of farming trucks. These trends have resulted in a rapid rise in the consumption of diesel to approximately 90 million tons in 2005 equivalent to approximately 10% annual growth rate over 2000.

Analysts forecast demand for diesel to grow at 5.7% in the 2006-2030 period to 360 million tons. Using a conservative assumption of a 5% biodiesel blend yields forecasted demand for 6 million tons of biodiesel by 2010, 10 million by 2020 and 18 million in 2030, up from 110,000 in 2005 (source: Credit Suisse, IEEJ, US Department of Commerce).

China Clean Energy¡¯s competitive cost structure arising from the use of waste oil feedstock as well as its proprietary technology should enable the Company to capture market share and grow its revenues aggressively. In addition, the Company may leverage its cost position to capture market share in the global biodiesel market, which is expected to reach 619 million tons by 2010, up from an estimated 36 million tons in 2006.

  • Surging diesel fuel demand and pollution concerns
  • Global pressure to address oil shortages
  • Large amounts of low cost feedstock; i.e. cottonseed leavings & waste cooking oil
  • Low production, facility, and labor costs
  • Governmental incentives to promote widespread use of diesel engines and biodiesel fuels.
  • Transition towards advanced diesel technologies and clean burning fuels - more diesel vehicles

China's biodiesel industry is still very much in its infancy. Total production nationwide was only 50,000 to 100,000 tons while the total consumption of diesel in China is in excess of 100 million tons annually. With soaring oil prices and worsening pollution, Beijing is keen to promote low-polluting alternatives to foreign oil and many view biodiesel as the leading near term solution to offset increasing energy costs, pollution concerns, and to improve its profile as a responsible international player.

The integration of biodiesel into China's national fuel supply at the retail level can be swift and immediate. Since it can be blended at any level with petrodiesel or used in its pure form (B100), biodiesel utilizes the existing fuel supply chain; i.e., tankers, storage depots, and filling stations.

Recently the Standing Committee of the National People's Congress passed "The Renewable Energy Law of the People's Republic of China". The legislation aims to "promote the development and utilization of renewable energy, improve the energy structure, diversify energy supplies, safeguard energy security, protect the environment and realize the sustainable development of the economy and society." This legislation states that fuel retail businesses must begin to include "biological liquid fuel" in their enterprises or they will suffer imposed fines as China is seeking to reduce its dependence on fossil fuels in its diesel transportation vehicles.

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