O2Diesel Developing New Fuel for Department of Defense

NEWARK, DE Apr 7, 2006; O2Diesel Corporation a pioneer in clean burning ethanol diesel fuel blends announced today that it is now under contract to develop a new cleaner burning alternative diesel fuel for the U.S. Department of Defense. This new fuel will help to comply with Executive Order 13149 which requires federal agencies with fleets of 20 or more light, medium, and heavy-duty on-road vehicles in metropolitan areas to reduce their petroleum consumption by 20%.

The fuel will be composed of at least 20% renewable sources including the company's patented and proprietary natural oil based solubilizing additive -- O2D05. This fuel, when finalized, will help the Department of Defense (DoD) facilities meet local air quality requirements and strengthen its commitment to reducing the USA's dependency on foreign oil imports.

Research on this new fuel, underway at the Southwest Research Institute in San Antonio, Texas, will ensure that the fuel meets DoD's environmental, health, and performance requirements. The research will be followed by a real-world demonstration at one or more of DoD's U.S. facilities. O2Diesel's ethanol diesel blend, O2Diesel(TM), is currently in use at Nellis Air Force Base in Las Vegas, NV where it has been operating successfully since mid-summer 2005.

O2Diesel has received a contract for $800,000 in DoD appropriations to perform this research. This and similar funding has enabled O2Diesel(TM) to be recognized for its emissions benefits and petroleum displacement opportunities in the growing and highly-segmented 55 billion gallon per year U.S. diesel fuel market.

O2Diesel(TM) is an extensively tested blend of 7.7vol% fuel grade ethanol, regular diesel and the company's patented and proprietary fuel technology. The use of this fuel significantly reduces emissions without effecting power or performance.

DoD, for example, is the largest single consumer of diesel & distillate fuels in the United States. O2Diesel(TM) shows great promise in helping the armed forces reduce diesel engine emissions at U.S. military installations and meet DoD and presidential directives to cut petroleum consumption by as much as 20% in the near future.

O2Diesel(TM) has demonstrated its ease of use through testing at facilities that centrally-fuel diesel-powered equipment, including urban buses, mining and port handling equipment. Current fuel distribution equipment is used and no special engine modifications are required.

"Given the obvious need for the United States to begin taking much larger steps to reduce importation of petroleum products and to improve urban air quality, our company is beginning to take an important place in the emerging renewable liquid fuels markets. Funding from the government is enabling O2Diesel to complete all the regulatory and verification requirements that any new fuel has to meet," said Alan Rae, Chief Executive Officer.

O2Diesel(TM) is or can be made available today in any fuel market utilizing the existing diesel fuel storage, supply, and distribution network. The Company's patented renewable, natural oil derived additive technology produces a stable ethanol-diesel blended fuel which when used in standard diesel engines results in a more complete combustion and emissions of fewer toxic and ozone-forming pollutants.

More About O2Diesel: The Company and Its Fuel Technology

O2Diesel Corporation and its U.S. subsidiary O2Diesel, Inc., is a pioneer in the commercial development of a cleaner-burning diesel fuel alternative that provides exceptional performance and environmental qualities for centrally fueled fleets and off-road equipment of all kinds. Engineered and designed for universal application, O2Diesel(TM) is an ethanol-diesel blend that substantially reduces harmful emissions without sacrificing power and performance. Extensive independent and government-recognized laboratory and in-use field tests have demonstrated the effectiveness of O2Diesel(TM) -- the introduction of this cost-effective, cleaner-burning diesel fuel is now underway in the United States and other global markets. For more information please refer to www.o2diesel.com.