Argentina’s oil crushing industry is the most efficient in the world. It has a crushing capacity of 160,000 metric tons per day and exports over 90 percent of its production. Thanks to that, the country’s biodiesel industry is beginning to take off.

In the next few months, two plants, owned by Renova and Ecofuel and each capable of producing 200,000 metric tons, will be inaugurated. Other facilities, including those being built by Unitec Bio, Molinos Rio de la Plata, Louis Dreyfus, Patagonia Bioenergia, Explora and GEA Biodiesel, will come on line within the next year, bringing the country’s annual installed biodiesel capacity to 1.7 million metric tons. By 2010, annual capacity is expected to exceed 2.2 million metric tons, which will position Argentina among the world’s main biodiesel producers and exporters.

Argentina’s biodiesel export industry enjoys a favorable exporting rights regime in relation to vegetable oil. It’s also expected to begin to build up to feed the domestic market. Law No. 26,093 requires that by 2010 diesel and gasoline sold within the country must use 5 percent biodiesel and ethanol, respectively. The market will then demand 690,000 metric tons of biodiesel per year and 208,000 metric tons of ethanol per year.

In 2006, domestic fuel demand in Argentina was 12.9 million cubic meters (3.4 billion gallons) of diesel, 4.3 million cubic meters (1.1 billion gallons) of gasoline and 3,100 million cubic meters of compressed natural gas (CNG). It’s estimated that by 2010 domestic demand will increase to 15.68 million cubic meters (4.1 billion gallons) of diesel oil and 5.23 million cubic meters (1.4 billion gallons) of gasoline. Petroleum refineries are already operating of their full installed capacity, producing a diesel deficit and a gasoline surplus. The diesel shortage will increase by 2010, while there will still be an excess in gasoline.

At the beginning of the 1990s, the majority of existing cars shifted to diesel consumption, thanks to a better fiscal treatment of that fuel. Later, the consumption of CNG increased significantly, which additionally lowered gasoline consumption. However, in the past two years, a natural gas shortage affected CNG supply, and the tendency in consumers’ preference is changing. Fuel prices in the Argentine market are very depressed due to a policy of the administration. With all taxes included—which reach approximately 64 percent for diesel and 92.5 percent for gasoline over price without taxes—an Argentine consumer in Buenos Aires pays US$1.86 per gallon for diesel and US$2.42 per gallon for gasoline.

Those prices are held up by US$40 per barrel crude oil, which is a product of export restrictions (petroleum companies must first secure the internal market supply) and the validity of a shifting export’s deduction regime, which is set according to the price of West Texas Intermediate crude oil (currently 31.03 percent).

The energy crisis Argentina faces today represents an opportunity to create awareness in the current and next administration. If it doesn’t increase energy production, constant economic growth won’t be sustained in the years to come. Within this context, an Argentine biofuels industry is rising, which could be one among other additional solutions.

In the medium-term, Law No. 26,093 could be reformed in order to facilitate a better planning horizon for investments and thus favor biofuels in the domestic market.

If the next administration sends clear signs that biofuels policy will be a state policy, there will be an investment boom in the sector.

Claudio A. Molina is the executive director of the Argentine Association of Biofuels and Hydrogen. Reach him at claudiomolina@fibertel.com.ar.