Second generation biofuels from wood gasification are thought to become competitive in the face of effective climate and energy security policies. Cost competitiveness crucially depends on the optimization of the entire supply chain-field-wheel involving optimal location, scaling and logistics. In this study, a linear mixed integer programming model has been developed to determine the optimal geographic locations and sizes of methanol plants and gas stations in Austria. Optimal locations and sizes are found by the minimization of costs with respect to biomass and methanol production and transport, investments for the production plants and the gas stations. Hence, the model covers competition in all levels of a biofuel production chain including supply of biomass, biofuel and heat, and demand for bio- and fossil fuels. The results show that Austria could be self-sufficient in the production of methanol for biofuels like M5, M10 or M20, using up to 8% of the arable land share. The plants are optimally located close to the potential supply of biomass (i.e. poplar) in Eastern Austria, and produce methanol around 0.4 is an element of(-1). Moreover, heat production could lower the methanol cost by 12%. Copyright (C) 2008 John Wiley & Sons, Ltd.