Big Oil has good chance at making ethanol profitable - analyst

05 November 2009 16:41  [Source: ICIS news]

PARIS (ICIS news)--Oil companies could have an easier time turning a profit in biofuels by acquiring failed ethanol plants and running the operations at significantly lower costs, an analyst said on Thursday.

Oil companies can succeed where others failed because they can get the plants at a much lower cost, said Standard & Poor's associate Mark Habib during a presentation at the World Ethanol 2009 conference in Paris, France.

Big Oil interest in biofuels made headlines earlier this year after Sunoco and Valero snapped up ethanol plants that had gone bankrupt.

US refiner Sunoco paid $8.5m (€5.7m) for a 100m gal/year plant in June, which had cost its previous owner some $200m to build.

The company followed in the footsteps of Valero, which in April bought seven plants from bankrupt ethanol producer VeraSun for $477m.

Valero last week said it had earned $49m of operating income from its ethanol business in the third quarter, more than double the $22m it earned in the second quarter.

Oil companies are also showing interest in developing second-generation biofuels, which could be an even more profitable proposition for them.

ExxonMobil in July said it would invest $600m in a US algae biofuels programme, while BP was expected to launch commercial-scale biobutanol production in the UK by 2013.

The company will use wheat as a feedstock.

Habib said oil companies could do well in advanced biofuels because of overlaps in the production process.

“Advanced biofuels can use existing refining infrastructure that is already in place,” he said, echoing a statement from BP Biofuels chief executive Philip New earlier this week.

New said BP expected the cost to produce biobutanol to be equivalent to that of making regular ethanol.

But the executive said that unlike ethanol, biobutanol could be transported via existing pipelines and be blended directly at the refinery.

($1 = €0.67)

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By: William Lemos
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