21 November 2007 15:51 [Source: ICIS news]
By John Richardson
SINGAPORE (ICIS news)--The Asian biofuels industry has gone from boom to bust in just six months as the processing levels of biofuel producers have declined sharply due to soaring feedstock costs and weak demand.
Compounding this are rising environmental concerns, the food versus fuel debate and the reluctance of refiners to change the way they have always done things.
Distribution systems are not set up to handle large quantities of biofuels, plus in the case of biodiesel there is the added complication that conventional diesel is becoming a great deal greener.
This is leading to unfavourable comparisons between the plantation-to-wheel emissions of palm oil-based biodiesel and those of ultra low-sulphur diesel.
The other problem is that one of the major efforts to break the link between food and fuel - switching to jatropha-based biodiesel - is facing some big hurdles.
An even further cause for gloom is the large capital costs for third or second-generation technologies, which use biomass as feedstock.
Either you opt for the enzymatic route, where the enzymes are very expensive to produce, or you go for gasification using the established Fischer Tropsch process.
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But Tony Regan, Singapore-based senior consultant with Nexant ChemSystems, says that the huge investment in R&D in the
“A short while ago, I would have said that second and third-generation technologies were 10 years away from being commercially proven. Now I would say five years,” he adds.
Regan also says that the cost of feedstock, such as palm oil and soy prices, may moderate as the increases are cyclical and have been driven mainly by the food industry. However, he warns that the economics of biodiesel plants might not substantially improve unless crude oil prices remain high.
The industry also faces the problem that it has built capacity ahead of demand.
Refiners and end-users need to be persuaded to use more biodiesel and ethanol.
If a minimum blending level were to be introduced and enforced, the price of crude oil-based diesel would have to be hiked and/or heavy subsidies would have to be handed out to local biodiesel producers in order to boost consumption.
Regan calculates that with palm oil prices at current levels, exporting palm oil generates the equivalent of $113/bbl for the Malaysian palm growing industry. It has been suggested that the diversion of crude palm oil to domestic biodiesel could reduce palm oil exports by about 40%.
A mandate has now been introduced but to only increase the blending rate by 0.5% per annum until it reaches 3% in 2012.
Ethanol is more established in
Soaring crop prices globally have been blamed on biofuels, but the industry should not take the entire blame; increased meat and dairy consumption as incomes rise in the developing world and speculation by agricultural commodity traders are also responsible.
Nevertheless, a well-placed source close to official policymakers says that some Asian governments are becoming increasingly reluctant to promote biofuels because of the food versus fuel debate.
But a second source that other governments remained enthusiastic with banks still willing to lend money, despite the deeply flawed economics.
Efforts are being made to tackle the poor economics and the food versus fuel concerns by finding alternative raw materials for the current generation of technologies.
The star turn at biofuels conferences over the last few years has been jatropha.
However, when grown on marginal land jatropha bushes are small, low-yielding and not suitable for harvesting.
A much more effective means of making jatropha flourish is to grow the plant on agricultural land, but this defeats the purpose as governments and investors may be dragged back into the food versus fuel controversy.
And wherever you grow jatropha and, of course, any other crop, you need water and fertilisers and it can take three-five years for a jatropha plantation to reach maturity.
Water is very scarce in some parts of
A huge amount of land, water and chemical fertilisers would be needed to replace a significant percentage of conventional fuels with biofuels.
There is also the orangutan factor - rising environmental concerns in Europe over the clearing of rainforests in s
Greenpeace recently highlighted the huge release of carbon dioxide from peat bogs. This occurs when rainforests, which sit on top these bogs, are cleared.
But ChemSystems' Regan says that biofuels have an important role to play in coordinated energy policies, along with conservation and other forms of alternative energy.
Will governments and prospective investors now play the waiting game, though, until the new technologies or on the market?
Existing investors, in the absence of the right levels of government support, could go to the wall as a result.
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