Petrotec AG, has decided how to make the best use of their new funds - EUR 60 million - following the recent IPO.

It plans to build one biodiesel plant in Germany, one in the UK and two in the United States by the end of 2009.

Petrotec is one of the biodiesel companies that places an emphasis on used cooking oil from fast food chains as a feedstock. The cynic in me wonders whether this is a good long term bet considering how certain European policymakers would not mind taxing and regulating the likes of McDonalds and KFC out of existence in the pursuit of public health. I'm not wholly convinced that there will always be endless supplies of used cooking oils as a feedstock. Not least because there are no end of websites that tell you how to make your own biodiesel and if the price of oil is high enough, this black market and its inherent lower costs will emerge.

D1 Oils - the company that is making a bet on Europe needing to buy into biodiesel at low cost from abroad - has just announced that takeover talks have ended but they remain interested in an investor taking a large non-controlling stake. In a separate statement the company said it has completed the sale and leaseback financing package for its D1 20 refinery assets, announced in September.

I think you can sum up D1 Oils with 3 points;

i) They believe the cheapest and productive feedstock will win - imported jatropha seeds
ii) They believe distributed small refineries like their D120 which produces 8000 metric tons per year is the future
iii) Europe will need a lot more biodiesel than it is able to grow and refine

All of this makes good sense. It's just that it is highly speculative until they start making a lot more sales. Maybe we'll see this in the next year or two. The challenge for this type of biodiesel company is to start making profits before cellulosic biofuels come to market - perhaps 10 years or more away.

Recently, more than a few people have started voicing their concerns about the benefits of biofuels being not all they are cracked up to be - read this article for a blistering critique of biofuels on environmental grounds.

So it's intriguing to see that D1 Oils is playing up the point that " . . . it is careful to ensure that jatropha does not replace food crops for farmers in Zambia, and it does not plant in nature reserves or protected areas".

It's all about trade-offs. I don't doubt that replacing vast swathes of forest or untouched land with monoculture biocrops would yield a net decline in biodiversity. Yet Brazil has shown how their ethanol programme has saved a great deal of cash being spent on imported oil - apparently profitable with oil in excess of $30 a barrel. This of course gives them more money to do other things, perhaps even save rare species.

This debate is also nothing new. When Julius Caesar arrived in Britain in 54 B.C., he proclaimed the country to be one huge, horrible forest. Today, it is perhaps just 10%. Civilisation started with agriculture because it required order, many additional divisions of effort and above all credit. Debts were incurred for the first time because crops could only be produced once a year. In return for protection of the farmers, hunter gatherers could look forward to a steady supply of food.

Anyway, I digress. The point is this - until (and if) the cost breakthrough is made with cellulosic biofuels, the world will need a lot of land to grow the biofuel feedstock crops. The demand is just too great not to do otherwise.

A very insightful article here by Tom Bergin on Reuters about the first wave of biopetroleum producers - well worth a careful read.

Biofuels still only produces just 1% of total transport fuel in the world - so the growth potential could be massive, especially if like me you think peak oil will happen in the next 20 years. So why haven't the oil companies taken to it?

It's not as if with oil at 60 dollars plus a barrel, they don't have the cash.

The answer is "technology ... because the current first generation of biofuels technology gives a competitive edge to agribusinesses rather than oil companies. The simple manufacturing processes employed today mean that the key to profitability in biofuels production is feedstock costs. Access to cheap seeds and grain provides an edge, not expertise in operating complex facilities, the oil companies' specialty."

This will not continue apparently because the next generation of biofuels "... involve producing gases from cellulose-rich material including straw and waste lumber, which is then converted into liquid fuel. The feedstock costs much less than vegetable oils, and less land is needed to produce a given quantity of fuel".

Cynics at this point might say, now we know why President Bush's administration's has such enthusiasm for cellulosic biofuels . . . it's the future of Big Oil !

Meanwhile, relatively small companies like Switzerland's Biopetrol Industries AG are sitting pretty while the rest of us are waiting for the cellulosic biofuel revolution. Don't hold your breath - I suspect it might well be a good 10 years off yet. This technology is not off the shelf and there are always long lead-times in the investment horizon of the Oil Majors.