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Asia Pushes Ahead on Biofuel, Despite Cost
Lucy Hornby, Reuters (28 Feb 2005)

SHANGHAI, CHINA: Faced with too many crops and not enough oil, Asian governments are promoting biofuels as a way to cut costly fuel imports.
Ethanol and biodiesel can be more expensive than the oil they replace but this is a price some governments are willing to bear to ensure an outlet for crop surpluses.

"Any time you have an ethanol programme, it's predominantly driven by domestic interests," said Mark Hutchinson, head of research for investment bank Mullis Capital, from Bangkok.

"It's easy to sell to voters. It helps support agricultural prices and promotes self-sufficiency goals of reducing imports."

In East and Southeast Asia, only Malaysia, Vietnam and tiny Brunei are net oil exporters. Other countries, including OPEC member Indonesia, have struggled with several years of high oil bills and volatile crop prices.

King Bhumibol Adulyadej -- who patented a palm oil-diesel blend -- has set the tone for Thailand. It targets ethanol capacity of 4.11 million litres a day by 2006 -- up from 275,000 litres now -- and biodiesel output at 8.5 million litres by 2012.

But Thailand, which imported 82 percent of its oil and gas in 2004, has found home-grown fuel isn't always cheap.

Two of three plants closed after rising molasses prices pushed production costs 30 percent over the maximum ethanol sale price. High tapioca prices could delay the start of a fourth.

"It is not economically viable to produce ethanol, especially without subsidies from the government," said Nattapon Nattasomboon of the industry ministry's ethanol committee.

The government encourages small power plants to burn crop waste, but doesn't require ethanol be mixed with gasoline.


China -- which imported nearly half its oil in 2004 -- sells ethanol-blended gasoline in its Northeast corn belt and in wheat-rich Henan Province.

The government subsidises production at four plants with a combined annual capacity of 1.02 million tonnes, or about 0.5 percent of projected corn and wheat output this year.

"It makes far more economic sense for China to use any surplus grain it has to produce ethanol than to subsidise the export of that same grain to neighbouring countries," said agribusiness consultant Michael Goettl of China Food and Agricultural Services.

Power plants in Malaysia, the No. 1 palm oil producer, burn palm oil when stocks are high. Indonesia's palm plantations have doubled in acreage in the last six years, and the Agriculture Ministry is studying whether biodiesel can sop up the excess.

The Philippine government has pressed bagasse, or sugar cane pulp, into service to relieve the oil-poor archipelago's chronic power shortage. About 267,000 tonnes of raw sugar are slated to fire power plants by 2007.

Pending legislation would require ethanol use from 2007.


Countries that don't need biofuels to support the agriculture sector keep a sharper eye on the cost.

Japan could consume 1.8 million kilolitres of ethanol by 2012, when the fuel will be sold nationwide to help meet Kyoto accord commitments, an Environment Ministry official said.

But it's cheaper to import ethanol from Brazil than refine it at home, leaving Japan's capacity to produce 6.5 million kilolitres a year from wood products, rice straw, sugar cane and beet largely untapped, he said.

Biodiesel in Taiwan is 1.8 times the cost of petroleum diesel, which is entirely imported. A plant in southern Taiwan can recycle 1,460 tonnes a year of used cooking oil.

Biodiesel incentives could force Taiwan to import more soybeans, as biodiesel demand exceeds the supply of recycled cooking oil, the US Department of Agriculture estimated.

Taiwan's government decided not to promote ethanol, since the island is already a net corn importer.

Rising incomes and better returns on cash crops are eating into China's grain surplus, curbing widespread use of ethanol.

"Soon China will be at most at a balance [in corn and wheat], but certainly not a surplus," a grains trader in Shanghai said.

"There's no way they are going to import to produce ethanol." (Additional reporting by Vissuta Pothong in Bangkok, Aya Takada in Tokyo, Richard Dobson in Taipei and Barani Krishnan in Kuala Lumpur)


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News > 2005
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Policies and instruments > Government initiatives and regulations
Alternative fuels and energy sources > Biofuels

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