"This year demand for blending will probably rise to 35 to 40 percent of our output," said Arnd von Wissel of the association of German biodiesel producers.
Von Wissel estimated Germany's 2004 biodiesel output at around one million tonnes against 720,000 tonnes in 2003 and just 550,000 tonnes in 2002.
With several new biodiesel plants coming into production, Germany's 2005 biodiesel output could rise to between 1.4 and 1.6 million tonnes, he said.
In early 2004, Germany permitted oil companies to mix biodiesel with conventional fuels up to a maximum five percent biodiesel content.
Blended diesel is sold at petrol pumps as conventional fuel, so the public does not know it is using a mixed product.
This has opened up an enormous new market for Germany's biodiesel industry, which has struggled because mainstream oil companies still decline to sell pure biodiesel at their petrol stations.
"Last year demand from oil companies started expanding substantially in March when BP and Shell started blending it. Other refineries followed and I think about 15 percent of our output was for blending," von Wissel said.
"This was a major factor in helping the industry to work at full capacity for the last five months."
Other output is sold directly to large customers such as trucking companies or by independent petrol stations.
However, output was lower in winter when sales of all diesel fuels are seasonally low and oil companies need less for blending.
Surging prices for conventional diesel meanwhile have encouraged more trucking companies to consider where they can make savings. Biodiesel is about ten euro cents a litre cheaper than conventional diesel, although real savings are around five cents a litre as more fuel is consumed.
"But for operators of large trucking fleets a large sum can still be saved," he said.
BIG MARKET FOR FARMERS
Producing around one million tonnes of biodiesel requires about 2.2-2.3 million tonnes of rapeseed. "Biodiesel is now a very important additional market for German rapeseed farmers," he said.
Germany's 2004 rapeseed crop was 5.2 million tonnes. It is widely cultivated on setaside land, a scheme in which the European Union compels farmers to grow some non-subsidised crops.
"Supplies of rapeseed are ample both for biodiesel and edible oil production," he said.
Some Canadian rapeseed (canola) oil was imported by German biodiesel producers in summer 2004 leading to speculation the industry was expanding so rapidly it would regularly turn to foreign supplies.
"I think more rapeseed imports will take place, not because of German rapeseed supply shortages but because the biodiesel sector is an attractive, expanding market," he said.
"European biodiesel production is also a market still open to genetically-modified Canadian rapeseed oil, and it must be expected that this oil will be exported to Germany this summer."
Strong German demand has also attracted suppliers from Denmark, Poland, the Czech Republic, France and other neighbouring countries which together export around 200,000 tonnes of biodiesel to Germany annually, he said.