:: 05.05.02 ::
Biofuel May Clean Up as World Farm Prices Flounder

By Nao Nakanishi

SINGAPORE (Reuters) - Fuel ethanol distilled from crops such as corn and rapeseed could be the solution for countries seeking an outlet for huge agricultural surpluses.

Biofuels can help raise farmer income, cut large bills for oil imports, improve energy security and combat air pollution and groundwater contamination, said experts gathered in Singapore for an international conference.

Although these fuels are far more expensive than fossil fuels, interest is picking up as agricultural commodities prices flounder at historic lows and concerns about global warming (news - web sites) grow.

The September 11 attacks on the United States and violence in the Middle East pushed up crude oil prices and underlined the dependency on conventional energy sources. "Renewed enthusiasm for biofuels is set to unleash massive growth in global demand for ethanol," said Caroline Midgley, a senior economist at Britain's LMC International Ltd.

If new policy initiatives in the United States and the European Union (news - web sites) are fully implemented, demand for ethanol will match, if not exceed, that of Brazil, currently the largest market for the biofuel, she said. With annual consumption of about 2.42 billion gallons, Brazil has long been the world number one after introducing alcohol-powered vehicles in the 1970s to make use of its massive sugar crop.

Many nations -- including Australia, India, Thailand and Mexico -- are now working on ethanol projects to convert their farm surpluses into fuel for blending with diesel or petrol.

The EU is planning to mandate the use of ethanol in diesel by 2005, while the United States is gradually replacing the toxic oxygenating additive MTBE (methyl tertiary butyl ether) with the biofuel in gasoline.

Fuel ethanol, which also can be produced from palm oil or cassava, cuts greenhouse gas emissions that are held responsible for global warming.

WORLD'S LARGEST PLANT

China, which is committed to improve air quality for the Olympics in 2008, is building the world's biggest fuel ethanol plant in Jilin in the heart of the country's corn belt.

In 2003 it is due to start churning out 600,000 tonnes a year, said Josef Modl, executive vice president of Austria's Vogelbusch GmbH, which is in charge of basic design and engineering services for the plant.

The experts said a major improvement in technology over the past decade had helped fuel ethanol to narrow the gap in price with fossil fuels, although it still needed legislative or financial support such as tax concessions.

"Tremendous progress has been made in the past 12 years," said Werner Koerbitz, chairman of the Austrian Biofuels Institute.

The city of Graz in Austria successfully runs bus services with ethanol made from recyled food oils, including frying oil collected from McDonalds restaurants, he said.

It is now technically possible to produce fuel ethanol not only from multi-feed stocks but also to change the mix from day to day depending on prices, he said.

In addition, ethanol producers could achieve a yield of 100 percent without leaving any potential feedstock as waste, which was crucial for improving profitability, he said.

Many car makers now provided engine warranties as quality standards were being set for fuel ethanol in Europe, he said. There is no need to modify cars for the use of ethanol, except for a minor change in the rubber bulb.

LIMITS ON TRADE

Asked whether such biofuel projects faced resistance from the petroleum industry, Koerbitz told Reuters: "Not all oil multis are bad."

"More sophisticated ones look for the market for providing mobility," he said. "Hydro Texaco (in Norway) is a really interesting example. They have 70 biodiesel outlets. They export a lot of crude oil, while they import biodiesel."

But Midgley from LMC said there had been very little trade in fuel grade ethanol, despite the fact that around 60 percent of ethanol produced around the world was for use as fuel.

"Because fuel ethanol is more expensive to produce than gasoline, it exists only because of the willingness of national governments to subsidize its production," she said.

"As governments are unwilling to allow foreign producers to benefit from these tax concessions, high import tariffs ensure that little fuel ethanol is imported."

She doubted this would change in the near future, despite enormous growth expected in global demand for fuel ethanol.

Exports would remain mainly in industrial and potable ethanol to countries like Japan, South Korea (news - web sites) and Taiwan which have hardly any growth potential, Midgley said.

Analyzing the trade since 1995, she said Brazil moved to a net exporter in 1999 from a net importer as a shift away from alcohol-only cars cut domestic consumption.

Yet by the middle of this decade, growth in Brazilian (news - web sites) demand for ethanol would start rising again, she said, rescuing international ethanol prices that slumped as a result of oversupply in Brazil.

Source: New York Times

Voltar