OUTLOOK 07 - Asia biofuels dogged by issues

27 December 2006 15:51  [Source: ICIS news]

SINGAPORE (ICIS news)--Food versus fuel concerns, feedstock cost issues and new technology are likely to continue to dominate the discussions in the Asian biofuels market in 2007, Asian biofuel players said.

 

The costs of fuel ethanol and biodiesel production have increased due to the surge in agricultural feedstock costs in 2006, bringing the focus squarely on the longer-term viability of biofuels in the region.

 

This was also given the moderation in crude oil prices at the same time and a lack of legislation in most of Asia with regards to mandatory usage of biofuels, a Malaysian biodiesel producer said.

 

Corn prices as well as other feedstock like molasses and tapioca all rose significantly during 2006 as fuel ethanol production surged globally and in the region.

 

Large producers like China, which emerged in 2006 as a significant alternate supplier of ethanol after Brazilian product was soaked up by the US, were also forced to re-examine their biofuel policy by the end of the year.

 

The Chinese government scrapped export tax rebates on ethanol exports, virtually wiping out the competitiveness of Chinese product in the international market as the country looked at using ethanol more for domestic use, large northeast Asian ethanol buyers said.

 

Late in the year, NDRC, the country’s planning and policy formulating body issued statements discouraging fresh ethanol projects based on corn as feedstock after local corn prices shot up in November and December.

 

“It is obvious that food security was a far more serious concern at this time than renewable energy,” an international trader said.

 

Other countries like Thailand, which intends to switch to ethanol as a fuel oxygenate, have continued to lag behind in ethanol production amid lack of ample supplies of tapioca and sugarcane feedstock.

 

India embarked on a 5% ethanol blending programme for gasoline starting early November but has only started it in a couple of states.

 

In other states, the questions of pricing and supply have yet to be resolved, Indian sellers said, noting however, that the country still wants to move ahead and increase its sugarcane production to produce more ethanol in the coming years.

 

Another challenge includes the disposal of by-product glycerine as most biodiesel makers had not invested in glycerine refining capacity and the merchant market for crude glycerine remained very limited.

 

But the biggest challenge over the long term continues to be the availability of palm oil and its availability at the required price to sustain production.

 

Many Asian biodiesel makers are pushing their governments to pass regulations mandating the use of biodiesel or give subsidies to the industry. However, until that happens, the immediate economic viability and profitability of these units remains difficult.

 

The industry also desperately needs step changes in technology which can improve yields and reduce the costs of making biofuels, much of which has not happened at a pace that the industry and the broader public would like to see.

 

While Asia has moved ahead on the path in using higher renewable energy to reduce its dependence on imported energy, several issues still need to be resolved before it gets there.

By: Anu Agarwal
+65 6780 4359

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