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9 Jun 05 FACTBOX - Biofuels Take Off in Some Countries FACTBOX - Major Biofuel Projects Around the World Malaysia Biofuel Plan to go to Cabinet Next Week ANALYSIS - Farm-Grown Biofuels Look to Siphon Oil Demand Story by Charlie Zhu and Neil Chatterjee (Additional reporting by Melissa Akin in London and Timothy Gardner in New York) SINGAPORE/LONDON - Traders pondering how the world's growing number of motorists will fill up their tanks in coming decades may want to focus a bit less on fields of oil and more on those of corn. With $50-plus oil prices increasingly seen as the rule instead of the exception, major consumers worldwide are looking to dramatically increase their use of biofuels, environmentally friendly fuel made from sugar cane, vegetable or corn oils. Homegrown crops offer consuming nations the opportunity to cut hefty oil import bills, reduce greenhouse gas emissions and revitalise agricultural incomes. They could also help sate briskly rising consumption of motor fuel, which has pushed the oil industry to the brink of its capacity and helped inflate world prices. But biofuels have a long way to go before they will register on global markets. Last year the world produced about 30 billion litres of fuel-ready ethanol from fermenting and distilling mainly sugar or corn. In oil terms, that's more than 500,000 barrels per day (bpd), 2 percent of global gasoline use. "Although biofuel is taking off in a number of areas, in terms of absolute volumes it is still relatively small," said Jeff Brown, oil demand analyst at Paris-based International Energy Agency (IEA). "The real potential is in the longer-term." Under the most optimistic scenario, ethanol could make up 10 percent of world gasoline by 2025, the IEA estimates. For that to happen bio-energy will have to clear a number of hurdles -- high cost, diminishing land and water availability and mixed policy initiatives, to name a few. But the payoff would be tremendous. Assuming 1.5 percent annual growth in gasoline demand up to 2025, ethanol fuel consumption could rise to 3.4 million bpd, analysts estimate. That would equate to about a tenth of incremental oil demand. "By substituting up to 10 percent ethanol... you could displace one medium-sized OPEC country, like Iran," said oil consultant Geoff Pyne in London. Up to 10 percent of biofuel can be blended into motor oils without the need for costly engine conversions. TARGETS Stubbornly high oil prices have renewed worldwide interest in biofuel and other clean energy sources, such as solar and wind power, as well as liquid fuel produced from gas and coal -- all of which siphons demand away from oil. While major consumers have given some incentives to spur development, largely to help meet Kyoto Protocol emissions targets, few have established mandatory levels that would help organic-based fuels take a significant market share. The European Union last year set a non-binding target of 5.75 percent biofuel content by 2010, but is likely to miss a more modest 2 percent target this year; Japan allows the use of up to 3 percent ethanol, but does not require it. The United States, the world's top oil consumer and No. 2 biofuel producer, is taking bigger strides as it sees domestic crops as a way to curb its growing dependence on foreign oil. A US Senate committee last month set a target of doubling ethanol production to 8 billion gallons by 2012 -- over 500,000 bpd and more than 5 percent of current gasoline use. Brazil, the world's biggest producer of ethanol accounting for nearly half global output, already blends its domestic gasoline with 25 percent ethanol and is looking to US, Japanese and Indian markets to double exports in coming years. In Southeast Asia, palm oil and sugar farmers hope to boost crop income by selling to biofuel producers. "The potential of biofuels has the added attraction, at least for government policy makers in developing countries, of possibly also being a means of raising incomes for rural producers," said Andrew Symon of the Institute of Southeast Asian Studies. Thailand has mandated a 10 percent ethanol-mix called gasohol from 2007, boosting production from nearly zero to 1.5 billion litres (26,000 bpd) by then. The Philippines is studying a diesel fuel blended with oil extracted from its abundant coconuts. Biodiesel is less established than ethanol but is being actively pursued in Europe, where half of all cars run on diesel instead of gasoline. HURDLES Oil prices that have averaged over $50 a barrel for the past six months have helped wipe away one of the biggest hurdles for ethanol -- its relative expense versus refined oil products. But while Brazil can make ethanol from cheap domestic sugar cane at about $50 a barrel, international crude prices need to reach $70 for grain ethanol produced in Europe to be competitive without hefty subsidies, analysts say. Beyond the economics, specialists still debate the environmental soundness of encouraging biofuel use, especially if the fuels have to be shipped to faraway markets. "There is great uncertainty about just how much land really will be available to grow 'bio-energy' crops in the future," said IEA transport energy specialist Lew Fulton. To spur the use and trade of biofuels, the IEA has urged a worldwide phase-out of import tariffs on biofuels. The US, the world's second-largest biofuel producer, launched a futures contract for ethanol this spring on the Chicago Board of trade. Axel Friederich, who heads the department of transport and noise at Germany's Federal Environmental Agency, says biofuels merely eat up land resources and encourage intensive farming. "The best alternative fuel is the one that is not used," Friederich told a Hart Energy Publishing conference in Brussels. Malaysia Biofuel Plan to go to Cabinet Next Week KUALA LUMPUR - Malaysia, the world's largest producer of palm oil, is putting the final touches to a plan to spur national use of a green fuel made by blending palm oil with the diesel sold at pumps. The plan for the nation's first commercial biofuel will be presented to cabinet for discussion next Wednesday, Commodities Minister Peter Chin said. Cabinet approval is the first step in taking a biofuel bill to parlimaent and making it law. "Maybe by next week, I will be able to table it at the cabinet," Chin told Reuters. "We still have to get it through the hurdle of the cabinet to see whether the legislation needs to be amended before it goes to parliament." Climbing oil prices and dwindling supplies of petroleum make it commercially viable to produce palm diesel, which Malaysia plans to blend with petroleum diesel in the ratio of two to five percent, Chin has said earlier. Biofuels have taken on new importance worldwide as countries look to cut their emissions to adhere to the UN Kyoto Protocol. Burning the environmentally friendly fuel is considered carbon dioxide neutral and does not require emissions rights. The Malaysian Palm Oil Board and Golden Hope Plantations Bhd have joined hands to set up an $11-million plant to produce upto 5,000 tonnes of palm fuel for export every month, which is expected to be complete by the end of next year. Japan has expressed interest in Malaysia's green fuel, and officials say a German rail company that tried out the fuel was satisfied with the results and wants to buy it regularly. EU MEASURES BOOST INTEREST EU measures to reduce dependence on fossil fuel oil imports and cut greenhouse gas emissions have boosted interest in biofuels in Europe. The EU wants member states to use vehicle fuel with two percent biofuel by 2005 and 5.75 percent by 2010. On Tuesday Chin did not say what the proportions of Malaysia's green fuel mix would be. But he said it would be a blend of methyl ester -- the raw product input for biodiesel -- and conventional diesel. "Suffice it to say, we can never have enough palm oil to produce all the diesel required in our country," he added. Malaysia consumes up to 190,000 barrels per day of diesel and gas oil, while it produces less than 14 million tonnes of palm oil, more than 12 million tonnes of which are exported. Biofuels are expensive, and growing the crops to make them in quantities sufficient to satisfy global energy demand would require unfeasibly large tracts of farmland, some experts say. The palm crop's high year-round yield gives it an edge over rapeseed and soybean, the other crops from which biofuels are most commonly made. It is also cheaper. Elsewhere, ethanol fuel is produced from sugarcane, maize and other grains. Chin visited the United States in March to woo American firms to help produce and market Malaysian biodiesel for the automotive industry. "Our private sector will be collaborating with the Americans on this," he said, elaborating on that plan. "The Americans have the technology as well and they want to work with us." But some green groups say the environmental benefits of biofuels depend on where they are made, and countries should produce their own biofuels, since importing green energy could negate the environmental gain. FACTBOX - Biofuels Take Off in Some Countries SINGAPORE - Environmental concerns and hopes to cut oil import bills while helping farmers have rekindled global interest in biofuels, a form of "green" energy with the potential to become a key transportation fuel. Biofuels include ethanol and biodiesel derived from organic matter such as sugar cane, vegetable or corn oils. Not all ethanol is suitable to be used as a motor fuel blend. The International Energy Agency (IEA) predicts ethanol alone has the potential to make up 10 percent of world gasoline use by 2025 and 30 percent in 2050, up from around 2 percent. The following is a list of major biofuel-producing countries or regions: BRAZIL Brazil is the world's largest producer of sugar-based ethanol, producing about 16 billion litres (3.52 billion gallons) a year and using 14.5 billion litres at home, where cars run on a 25 percent ethanol gasoline blend. It accounts for around half of the world's total output. State oil giant Petrobras plans to boost ethanol exports to 9.4 billion litres in 2010 from 2 billion in 2005. THE UNITED STATES The United States, the world's biggest oil user, is the second-largest biofuel producer after Brazil. The Senate Energy Committee voted in April to require US output of ethanol, distilled from corn and woody biomass materials, to reach at least 8 billion gallons a year by 2012, doubling the current output of the gasoline additive. About 12 percent of the US corn crop is projected to be used for ethanol in the coming year. The Senate Energy Committee's bill would set production milestones for ethanol as follows: 4 billion gallons in 2006, 4.7 billion in 2007, 5.4 billion in 2008, 6.1 billion in 2009, 6.8 billion in 2010, 7.4 billion in 2011, and 8 billion in 2012. THE EUROPEAN UNION The European Union, in an attempt to reduce greenhouses gases in line with its Kyoto Protocol obligations, set a non-binding target last year that fuels should contain 2 percent of biofuels in 2005 and 5.75 percent in 2010. EU's biodiesel production capacity may exceed 4 million tonnes by mid-2006, up from an estimated output of 1.85 million tonnes in 2004 for the EU's 15 members before enlargement. Some 80 percent of EU's biodiesel came from rapeseed oil, with soybean oil and a marginal quantity of palm oil making up the rest. Asian palm oil exporters such as Malaysia and Indonesia could supply up to 20 percent of the EU's biodiesel needs by 2010. By 2006, Germany would have an annual biodiesel production capacity of 1.9-2.1 million tonnes, France 600,000-800,000 tonnes, Italy 500,000-550,000, U.K. 250,000 tonnes, Austria 150,000 tonnes and Poland 100,000-120,000 tonnes. JAPAN Japan may need up to 1.8 billion litres of fuel ethanol a year if it made an optional 3 percent ethanol content in national fuel supplies mandatory. A blending ratio of 10 percent would boost demand to around 6 billion litres per year. Japan, the world's second-largest consumer of gasoline, imported 149 million litres from Brazil in 2004. The world's biggest sugar-ethanol cooperative, Brazil's Copersucar, has signed a deal to sell 15 million litres of ethanol to Japan's independent fuel distributor, Kotobuky Nenryo Co. CANADA Canada's annual ethanol production is about 300 million litres per year, an IEA report published in 2004 showed. The North American country hopes to see an increase in ethanol production by 750 million litres a year. A number of major initiatives are underway to boost production significantly, possibly blending 35 percent of all gasoline supplies with 10 percent ethanol by 2010. THAILAND Thailand, the world's second-biggest sugar exporter after Brazil, plans to replace regular gasoline with a mix that includes 10 percent ethanol in 2007. The Industry Ministry said in September that Thailand's ethanol production capacity would rise 33 times to 1.5 billion litres a year in 2006 when all 24 ethanol plants are running. But other officials have said they were targetting output of just 1 billion litres a year by 2010. INDIA India, the world's biggest sugar consumer and a major importer, produces about 1.5 billion litres of ethanol, although only around a quarter of that is suitable for use as fuel. The rest is used for beverages or export. In January 2003, New Delhi directed oil companies in some parts of India to sell petrol made up of 5 percent ethanol. It planned to make this mandatory throughout the country later, but back-pedalled on the plan due to poor output and high costs. Oil companies had needed 363 million litres of ethanol in the 2003/04 year to satisfy the mandate, but only 196 million litres had been available due to declining sugarcane output. A leading industry official said earlier this year that ethanol production should soon rise as sugar crops increase. CHINA China, the world's second-largest energy consumer, is also the third-largest ethanol producer in the world, with annual production of around 3 billion litres. Most of that is not for fuel use, the IEA said in a report in 2004. The government subsidises production at four plants with a combined annual capacity of 1.02 million tonnes and sells small amounts of ethanol-blended gasoline in its Northeast corn belt and in wheat-rich Henan province. China has selected several provinces to use trial blends of 10 percent ethanol to meet growing demand for gasoline. MALAYSIA Malaysia, the world's top producer and exporter of palm oil, is pushing to create a mandatory blending of a certain amount of the oil with retail diesel. A cabinet meeting is due to consider the proposal next week. INDONESIA Indonesia, the world's second-biggest palm oil producer, is exploring the biodiesel market as world palm oil demand stagnates. It plans to double the palm oil area to 10 million hectares (25 million acres) over the next 30 years. THE PHILIPPINES The country decided last July to use a 1 percent blend of methyl ester made from coconuts in diesel for public transport. The government has pressed bagasse, or sugar cane pulp, into service to relieve the oil-poor archipelago's chronic power shortage. About 267,000 tonnes of raw sugar are slated to fire power plants by 2007. Pending legislation would require ethanol use from 2007. FACTBOX - Major Biofuel Projects Around the World SINGAPORE - The following is a list of some existing or planned biofuel projects around the world. UNITED STATES North Dakota Biodiesel Inc. plans to build a $50 million biodiesel manufacturing plant in Minot, North Dakota, drawing on local canola crops as a source, said an article posted on the US Department of Energy's Web site (www.energy.gov/engine/content.do). The facility will be the largest biodiesel refinery in North America, able to produce 100,000 tonnes of premium biodiesel annually from more than 355,000 acres (144,000 hectares) of canola. Construction on the plant is expected to begin in August, with the first sale of biodiesel products likely in December 2006. Union Pacific, the largest US railroad, plans to nearly double its annual tonnage of ethanol shipments by 2008, a company official said in May. Jerry Finan, senior product manager for corn refining at Union Pacific Railroad (UP), told a an ethanol industry conference that UP expects to transport 2.8 billion gallons of ethanol a year by 2008. It currently transports 1.5-1.7 billion gallons per year, he said. MALAYSIA Leading oil palm planters IOI Corp and Kuok Oil & Grains are separately building two refineries in Rotterdam to process more than 1 million tonnes of palm oil a year. Industry experts say the plants will deliver much-needed supply to Europe's biodiesel plants in future. BRAZIL State oil giant Petrobras has projects to increase ethanol exports to 9.4 billion litres in 2010 from 2 billion litres in 2005. Japan's Mitsui & Co. is to team up with Petrobras and Vale do Rio Doce (CVRD) to study how to expand Brazil's ethanol exports, Japanese media have said. AUSTRIA Austrian starch, sugar and food processor Agrana will build a 105 million-euro bioethanol plant with an annual capacity of 200,000 cubic metres. SPAIN Abengoa Bioenergy, Europe's top ethanol producer, is due to open a 200 million-litre plant in northern Spain at the end of this year. It wants to start up another two in Europe in the next five years, and is most interested in Germany and Britain. It is also bidding for a project in France. The bioenergy unit of Abengoa produced 260 million litres of ethanol in Spain last year and about 400 million litres in the United States. FRANCE France's main biodiesel maker Diester Industrie, owned by oilseed producers, should be able to lift its output to around 1 million tonnes a year in 2007-2008 under a new quota agreed by the government earlier this year. French maize producers and Abengoa, the top European ethanol producer and the fifth in the United States, hope to produce 100,000 tonnes of ethanol, or 1.26 million hectolitres (mhl) at a plant to be built in southwestern France. Other French bioethanol projects include two joint sugar and wheat-based production plants, one proposed by France's top sugar producer Tereos and the other by Cristal Union, with a capacity of 200,000 tonnes each. UK A 100,000-tonne biodiesel plant, owned by British supermarket giant Tesco and renewable fuel maker Greenergy, is expected to come onstream on England's east coast by next year, expanding the potential for green fuels. Greenergy hopes to sell up to 3 million tonnes a year of biofuel. British Sugar's largest UK sugar factory has filed a planning application to build an ethanol plant with a production capacity of 50,000 to 60,000 tonnes in eastern England. Dutch independent refiner Petroplus said in May it planned to ramp up sales of its "Bio-plus" (5 percent biodiesel) fuel this year after securing up to 25,000 tonnes per year of biodiesel from Scottish start-up Argent Energy. The company produces 200,000 tonnes of biodiesel a year. SAUDI ARABIA U.K. biodiesel developer D1 Oils has started a joint-venture project to produce biofuel in Saudi Arabia for export to Europe. Saudi company Jazeera for Modern Technology will provide land to grow jatropha, a non-edible plant producing oil for blending with diesel, while D1 will build a processing plant in Saudi Arabia to come onstream in the second half of 2006. The plant will be able to process 8 million litres a year. links Related articles on Global issues: general general environmental issues |
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