Price clouds biofuels outlook

Australia’s emerging biofuels industry could find itself under pressure throughout 2007 from a combination of easing world oil prices and greater production costs due to increasing feedstock prices.

Some potential producers are reconsidering their plans as a result of the uncertain outlook, while others are moving ahead regardless.

Supply constraints is another issue, with an estimated increase in grain demand of 35 per cent, or 2.5 million tonnes, by 2011-12, provided all potential ethanol producers commence operations as planned and run at full capacity.

Currently, only 300,000t of sorghum, of a total two million produced, is surplus after domestic consumption, based on annual production figures for the past three years.

Wheat production decreased by nearly two-thirds in 2006-07 as a result of the drought, and future droughts could further threaten supply.

A report by the Australian Bureau of Agricultural and Resource Economics also suggests that, with a reduction in government support over the longer term and increasing prices of feedstocks due to greater demand and competition from domestic consumption, production costs are unlikely to decrease.

At a state level, the Western Australian government’s biofuels taskforce has issued an interim report to stakeholders addressing issues in the sector, and is due to release its recommendations in a full report by early next month.

The cost and supply issues facing the biofuels sector are affecting some companies’ plans for operations.

Gull Petroleum has put plans for its $18 million biodiesel plant aside, pending support from government and the marketplace.

In April 2006, the company announced its plans to establish a biodiesel plant at its fuel import terminal in Kwinana.

Production was originally scheduled to commence earlier this year, but has been postponed despite all regulatory approvals being in place.

South Perth-based Australian Renewable Fuels Ltd has developed two biodiesel plants, in Adelaide and another locally in Picton, which came on stream late in 2006.

The company intends to establish a biodiesel plant in each state in Australia, although it has no immediate roll-out plans.

However, other companies are continuing with existing expansion plans.

NSW-based Primary Energy Pty Ltd is pushing ahead with its $180 million ethanol plant in Rockingham, having gained conditional approval from the Environmental Protection Authority last month. 

About 160,000 million litres of ethanol are to be produced annually from the proposed plant, as well as aqueous ammonia, organic fertiliser and up to 23 megawatts of electricity.

Under a supplier agreement with BP, the plant’s annual production capacity could be doubled in the future, from 80 to 160ML.

Meanwhile, other biofuels companies headquartered in Perth are continuing to invest in projects overseas.

West Perth-based Sterling Biofuels International Ltd is currently constructing a palm oil biodiesel plant in Malaysia, which is due to commence operations in July this year.

Mission Biofuels is also establishing a crude palm oil biodiesel refinery in Malaysia, and recently established a subsidiary in China, to oversee its joint venture and off-take agreements in the country. The company is also undertaking feedstock cultivation in India through a subsidiary.

Natural Fuel Ltd, which has operations in Australia, Singapore and the US, reported a half year net loss of $24.3 million, although its operations are yet to commence production.