Industry Overview
The market for biodiesel and alternative fuels is growing at a rapid pace due to
continuing increases in petroleum prices, the availability of government
subsidies, and federal regulations. In 2002, approximately 15 million gallons of
biodiesel were produced in the United States. In 2003, the number increased to
25 million, and 75 million in 2004. The expected demand based on estimates from
the National Biodiesel Board for 2006 is forecast to be between 100 and 125
million gallons. There are currently about 1,000 distributors and 200 biodiesel
retail pumps in the United States, up from a handful two years ago. The National
Biodiesel Board ("NBB") has estimated that the number of consumer biodiesel
fueling stations rose nearly 50% last year to 200. Momentum believes that
biodiesel will be further integrated into the existing petroleum-delivery
infrastructure as more terminals begin to carry the product. Terminals currently
carrying biodiesel are located in Texas, Kansas, Alabama, Georgia, Indiana,
Minnesota, Wisconsin, and Iowa. The U.S. Department of Energy ("DOE") has
identified biodiesel as the fastest growing segment of the alternative fuel
market. The DOE has estimated that biodiesel sales could reach about $2 billion
annually with government incentives, representing about 8% of conventional
highway diesel fuel consumption. Based on current rates of petroleum
consumption, the DOE also predicts that demand for petroleum products will
outstrip supply around 2037. The need for the United States to reduce its
dependence on petroleum provides unique opportunities for makers of alternative
fuels, such as biodiesel. Momentum believes that it is in a unique position to
exploit the growing demand for biodiesel.
The biodiesel industry remains in its infancy, with no single company possessing
a dominant market position. Momentum also believes that the availability of raw
products will not be impacted by this projected growth because there are
numerous large companies that provide the feedstock necessary for Momentum to
manufacture its product and the U. S. is a net exporter of soy oil. In addition,
there are many satisfactory substitutes for feedstock, although some are more
costly, that are just as abundant and readily available.
The biodiesel industry is part of the broader alternative fuel industry.
Alternative fuel is any fuel that can be substituted for traditional gasoline or
diesel fuels. Compressed natural gas, methanol, ethanol, propane, electricity,
biodiesel, and hydrogen are all federally recognized alternative fuel sources.
While there are vehicles that are currently designed to run on such alternative
fuels, biodiesel has the advantage of working with unmodified diesel engines,
eliminating modification costs that would ultimately be passed on to consumers.
Federal, state, and local governments that own fleets of diesel trucks continue
to be a driver of demand for the biodiesel industry. It is estimated that
federal fleets have increased usage of biodiesel fuel from approximately 500,000
gallons in 2000 to around 30 million gallons in 2004. According to the NBB, as
of May 2004, there were more than 400 major fleets using biodiesel, including
all branches of the United States military, Yellowstone National Park, NASA,
several state departments of transportation, major public utility fleets, cities
such as Berkeley, California, and more than 50 school districts.
The extent of biodiesel's penetration in these markets is largely a result of
the requirements of the Energy Policy Act ("Act"). Passed in 1992, the Act
requires federal, state, and some local fleets to phase in partial use of
alternative fuel vehicles by 2006. Government vehicles can meet the requirements
of the Act by using B-20 (B-20 is a mix of 20% biodiesel and 80% petroleum
diesel) in their existing diesel engines. Because B-20 does not require fleets
to purchase new equipment, it is the cheapest way to comply with the Act. A
survey conducted on behalf of the NBB was presented to 53 fleets representing
more than 50,000 diesel-powered vehicles and found that 91% of respondents were
in favor of using biodiesel. Forty-five percent of fleets surveyed were
currently using biodiesel, and among them, B-20 was the fuel of choice.
Momentum believes that new "clean diesel" rules requiring the marketing of only
low sulfur promulgated by the Environmental Protection Agency ("EPA") also have
the potential to increase demand for biodiesel fuels. Starting in mid-2006, the
EPA will require diesel refiners to reduce nitrogen oxide emissions by removing
up to 99% of the sulfur content in the fuel. Reducing sulfur in traditional
diesel reduces the fuel's lubricity. Biodiesel produced from soybean oil,
however, has no sulfur and serves as a good lubricator--providing a solution to
refiners seeking compliance with the regulations. In May 2004, the EPA announced
that these same rules would apply to diesel for "off-road" diesel vehicles, such
as farm and construction equipment, starting in 2007. Industries affected by the
change will include agriculture, construction and mining--all of which rely
heavily on larger diesel machinery. Momentum believes that these regulations
represent a strong opportunity for Momentum to increase sales and expand its
customer base.
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https://sec.report/Document/0001072588-06-000237/
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