Chase for Lower Cost May Further Delay ME Petchem Projects

MUMBAI (ICIS news)--New refinery and petrochemical projects in the Middle East are likely to see further delays as companies have started negotiating for a 15-20% reduction in construction costs, industry sources told ICIS news on Thursday.

"Clients are renegotiating engineering, procurement and construction (EPC) contracts and asking for a 20% reduction; many projects are getting delayed or put on hold for this reason," said a source at a leading engineering and construction (E&C) company.

Construction costs in the Middle East had risen sharply in the last few years as the economic boom in the region pushed up prices of materials such as steel and cement. 

A tight labour market also contributed to make the region one of the highest cost destinations for construction of new refineries and petrochemical plants. Projects in the region saw frequent delays as companies adjusted to a tight construction market.

But the situation started changing in the second half of 2008 when regional economies significantly slowed. This has prompted companies with projects in the early stages of execution to re-assess schedules.

"The cost of steel has fallen and therefore people expect lower costs. Companies are re-visiting projects," said a project planner at a Saudi petrochemical company.

A source from a second E&C company said projects were typically being delayed by six months as companies hoped to get better prices.

He cited Saudi Aramco’s decision late last year to renegotiate contracts for its Manifa oil and gas project. 

Costs had dropped and Aramco wanted contractors to share the advantage, he added.

In addition to the Manifa project, Saudi Aramco also delayed awarding contracts for joint venture refinery projects with Total at Al Jubail and with ConocoPhillips at Yanbu.

But sources from EPC companies also said that clients’ expectations for a 20% cost reduction were too high.

"Costs have fallen by only 8-10% now; they may fall further after the third quarter of 2009," said the first source.

A source from an engineering company also said that it would take a few more months to achieve the 20% mark. 

"If clients can wait for five months they can get a 20% discount. Those that can wait will wait," he said.

He also pointed out that equipment costs had yet to fall. "Workshops are still running full as there is a backlog of orders." 

But he added that with vendors not seeing many new orders coming in, the equipment costs would also ease.

source: www.ICIS.com

Read more...

Abu Dhabi Deepens April Crude Supply Cuts to Asia

TOKYO - Organisation of the Petroleum Exporting Countries (Opec) member United Arab Emirates deepened its curbs on crude oil supply to Asia in April, surprising traders and a possible signal that the oil groupcould cut production further at its March meeting. 


Opec members have been trimming supply to refiners in line with agreed output cuts, but this has not been enough to stop oil prices sliding by over $100 a barrel since a peak in the middle of last year. Various group members have signalled that further cuts could be agreed at the group’s next meeting in March. 

In a statement on Thursday, Abu Dhabi National Oil Co (ADNOC), the main supplier for the UAE, said it will supply its customers less of its flagship Murban crude and three other main grades in April than it did in March.

The move came as a surprise to traders, who had expected the UAE to keep April supply curbs largely unchanged from March. The state oil firm ADNOC said it will supply 15 per cent below contracted volumes of middle-distillate rich Murban in April, compared with a 10 per cent cut in March. Supplies of Lower Zakum and Umm Shaif crudes will be cut by 15 per cent in April versus a 10 per cent cut in March, while Upper Zakum will be cut by 17 per cent versus a 15 per cent cut in March.

“For Murban, the supplies had been cut by 15 per cent (in February), so the cut was within expectations,” said a trader with a North Asia-based refiner. “Upper Zakum’s 17 per cent cut, however, was a surprise. Lower Zakum and Umm Shaif’s 15 per cent were also the biggest cuts since November and are larger than expected. This will also have an impact to our spot crude purchase plans.” Abu Dhabi has been cutting crude supplies to Asia since November last year, in line with agreements by the Opec to cut production as a means to support oil prices that have plunged more than $100 a barrel since July. ADNOC also said it will continue to keep shipping limits on exports in place for April, depriving buyers of the option to load an additional 5 per cent above contracted volumes on each cargo, a standard industry practice known as “operational tolerance”. 

Since September the group has decided to lower supply by a total of 4.2 million bpd, about 5 per cent of daily world demand, and several Opec members have signalled that the group may reduce production further when it meets again next month to decide oil output policy.

 
source: KHALEEJ TIMES online

Read more...

Yahoo Open to Sale, Tie-Up in Search Business

SAN FRANCISCO Internet pioneer Yahoo is open to selling its Web search business or entering into a partnership with another company, but doing a deal would be hard, a top executive said on Wednesday.

“We are not opposed to doing a deal that would maximise the value of the business in one way or another, be it a partnership or be it a long term sale,” Yahoo chief financial officer Blake Jorgensen said.

“We’re very focused though on building our business and doing that in a way which we can benefit all from the search side,” he added during a Goldman Sachs technology conference here.

Microsoft has expressed interest in Yahoo’s search business and made a bid for the Sunnyvale, California-based firm last year but Jorgensen did not mention the US software giant as a potential partner. He stressed the difficulties of doing a deal.

“What people don’t quite appreciate is the complexity of the business, and how these businesses are intertwined,” he said. “For example at a data center, we don’t parse between search or non-search.

“It’s extremely difficult to draw a line down the middle of the organisation and split it in two pieces,” Jorgensen said. 

Yahoo! rejected a takeover bid by Microsoft last year but Microsoft chief executive Steve Ballmer has said the software giant remains interested in a search partnership with Yahoo.

source: OMAN TRIBUNE 

Read more...

Oil Rises Above $44 After UAE’s Asia Cut

LONDON Oil rose above $44 a barrel on Thursday after the United Arab Emirates announced deeper cuts in crude supply to Asia for April in a possible signal that Opec will cut output further at its next meeting in March.

Abu Dhabi National Oil Co (Adnoc), the main oil supplier in the UAE, said it will sell customers less of its flagship Murban crude oil and three other main grades in April than in March.

The move came as a surprise to traders, who had expected the UAE to keep April supply curbs largely unchanged.

US crude for April delivery was up $1.80 at $44.30 a barrel by 1457 GMT, after hitting an intra-day high of $44.39. London Brent crude gained $1.40 to $45.69.

Europe’s leading stock markets jumped on Thursday, driven up by rising banking shares, dealers said, with London’s FTSE 100 index gaining 1.73 per cent to close at 3,915.64 points.

In Paris, the CAC 40 index gained 1.78 per cent to close at 2,744.84 points and Frankfurt’s DAX soared 2.51 per cent to 3,942.62.

In Asian markets, a key Japanese index, the Nikkei of the Tokyo Stock Exchange, lost 0.04 per cent to close at 7,457.93 points.

The Hang Seng, a key index of the Hong Kong Stock Exchange, also shed 0.85 per cent from its last close.

The dollar dipped against the euro as investors fretted once more over the plight of the troubled US banking sector, analysts said.

The euro also gained ground despite news that European consumer and business confidence slumped to a record low in February, they added.

In morning London trade, the European single currency rose to $1.2774 from $1.2721 late on Wednesday.

Against the Japanese currency, the dollar advanced to 97.87 yen from 97.37 yen on Wednesday.

“Investors remain concerned that some of the largest (US) banks face nationalisation in the immediate future,” said UBS analyst Geoffrey Yu.

“The lack of details on the government’s comprehensive plan to resolve outstanding problems in the financial sector is proving to be a serious hindrance to sentiment.”

But the greenback rose against the yen amid renewed hopes of action by Washington to help banks hammered by the credit crunch.

In London trading on Thursday, the euro changed hands at $1.2774 against $1.2721 late on Wednesday, at 124.89 yen (123.89), 0.8945 pounds (0.8955) and 1.4840 Swiss francs (1.4885).

The dollar stood at 97.87 yen (97.37) and 1.1629 Swiss francs (1.1699).

The pound was at 1.4267 dollars (1.4204).

On the London Bullion Market, the price of gold fell to $946.08 an ounce from $978.50 on Wednesday.

Edward Meir, analyst at MF Global in New York, said the market was expecting further cuts in production by the Opec countries.

source: OMAN TRIBUNE 

Read more...

Japan’s Recession Looks Worst Since WWII: S&P

TOKYO Japan’s recession looks set to be the worst since World War II with its economy expected to contract 4 per cent in 2009, Standard & Poor’s said on Thursday.

The outlook for Asia’s biggest economy “remains bleak with another annualised double-digit contraction expected” this quarter, the credit ratings agency said in a report.

“Japan now looks very likely to suffer its worst recession since World War II,” said S & P analyst Takahira Ogawa.

“The business climate for Japanese corporations is deteriorating dramatically amid a sharp decline in demand for products,” he said.

With corporate giants including Toyota Motor and Sony sinking into the red, “Japan’s manufacturing sector as a whole may record a fiscal year loss,” he warned.

Japan’s economy shrank at an annualised pace of 12.7 per cent in the fourth quarter of 2008, its worst performance since 1974. The government has already warned that the economic crisis is the worst since World War II.

Japan’s exports almost halved in January as recessions in many parts of the world pummelled demand for Japanese cars, electronics and high-tech goods. Political deadlock meanwhile has hindered efforts to revive the economy.

“Government action aimed at addressing the nation’s economic woes has been relatively ineffective,” Ogawa said.

“The government is hamstrung by the stalemate in Japan’s parliament... and by the nation’s weak fiscal position,” he said.

The report said Japan’s central bank may revert to a zero interest-rate policy in response to the threat of deflation. The Bank of Japan has already reduced its key lending rate to 0.1 per cent.

Meanwhile, Japan’s finance minister said on Thursday that a stable dollar was in the interests of Asia’s largest economy but downplayed the chances of Tokyo intervening to prop up the currency. “The US dollar is in fact the world’s base currency now and there’s nothing to replace it,” Kaoru Yosano said.

source: OMAN TRIBUNE 

Read more...

RBS Plunges to Record $34.3b Loss in 2008

LONDON Royal Bank of Scotland reported the biggest loss in British history on Thursday and said the government’s stake could rise as high as 95 per cent after it stumped up billions to insure risky bank assets.

RBS said it made a £24.1 billion ($34.3 billion) loss last year, the biggest deficit in British corporate history.

RBS said the Treasury would inject a further £13 billion to help the bank pay for a new scheme that will transfer most of the risk from £325 billion worth of toxic RBS assets and risky loans to the taxpayer.

The so-called Asset Protection Scheme launched by the British Treasury on Thursday is expected to insure well over £500 billion ($712 billion) worth of assets by the time other banks have signed up to it.

Banks around the world have trillions of dollars of potential losses on their books after the collapse of the US property market triggered a credit crunch and then a full-blown global financial crisis.

Hiving off troubled assets and purging banks of their worst liabilities will be a focal point of discussion at next month’s meeting of G20 finance ministers and central bankers in Britain.

So far, there has been little consensus and international meetings earlier this month simply had to agree on looking at a common set of principles.

Surpassing a £21.8 billion loss by Vodafone in 2006, the deficit represents 16.2 billion in write-downs against RBS’ acquisitions, including its 2007 takeover of parts of ABN Amro, and £7.9 billion in operating losses.

RBS shares, which have lost 95 per cent of their value since early 2007, were up 22.9 per cent at 29.4 pence by 1307 GMT, while the FTSE 100 share index was 1 per cent higher. UK gilt prices fell sharply.

“The favourable pricing of the asset protection scheme, along with the additional capital injection from the government, will remove the immediate capital concerns about RBS,” Panmure Gordon analyst Sandy Chen wrote in a note to clients.

“For now, the markets will probably focus on the favourable terms of this bailout.”

Shares in Lloyds Banking Group were up 25 per cent ahead of its results on Friday when the bank is also expected to sign up to the insurance package.

 Lloyds said on Thursday that it was in talks with the Treasury about participating but that there was no certainty its involvement would be on the same terms as RBS.

RBS also unveiled plans to cut £2.5 billion ($3.56 billion) in costs as part of a restructuring plan which will see it exit or reduce its presence in 36 of the 54 countries it operates in.

“The £2.5 billion cost-base cuts will translate into tens of thousands of job cuts,” said Martin Slaney, head of derivatives at GFT.

RBS chief executive Stephen Hester said the key building blocks for recovery were now in place with the insurance scheme providing the necessary stability to restructure.

“That doesn’t mean we will recover successfully, there’s a massive amount of hard work to do and obstacles to overcome, but we now have the job of execution,” Hester told reporters on a conference call.

Hester said he did not dissent with speculation that the number of job cuts at the bank could be as high as 20,000. 

Under the insurance scheme, RBS will pay a 6.5 billion pound signing up fee and be responsible for the first 19.5 billion pounds of any losses. The taxpayer will be liable for 90 per cent of any losses above and beyond that.

source: OMAN TRIBUNE

Read more...

Stimulus Can Absorb 3M New Workers

The government expects its stimulus package to absorb an extra 3 million workers amid large scale layoffs from companies hit by the global economic downturn. 

On late Tuesday, the government received approval from the House of Representatives to launch the stimulus package. The House even raised the amount by Rp 2 trillion to Rp 73.3 trillion in total. 

The Rp 2 trillion increase, which will be added to fund infrastructure projects, is expected to help absorb an additional 3 million workers, said State Minister for National Development Planning Paskah Suzetta. 

His estimate was based the assumption that each additional 1 percent economic growth achieved could generate employment for between 431,000 and 450,000 people. 

According to the Finance Ministry, as of January export-oriented industries had laid off 24,790 workers, and were planning to lay off 25,000 more in the coming months. 

Of the total Rp 73.3 trillion stimulus package, Rp 12.2 trillion is allocated to infrastructure projects and empowerement programs for the people living in rural areas. 

This amount is on top of over Rp 90 trillion already set aside in the 2009 state budget for infrastructure projects under the auspices of various relevant ministries. 

“With an economic growth of between 4.5 percent and 5 percent, helped by the extra Rp 2 trillion increase in the stimulus, the poverty rate is expected to drop to between 12 percent and 13 percent. 

“Last year it was 15.4 percent,” said Paskah. 

Finance Ministry head of fiscal policy Anggito Abimanyu said the Rp 2 trillion increase would be allocated to build roads in villages and municipalities, and irrigation schemes, which “can quickly generate employment”. 

The House said the government should finish the stimulus package details in five days, launching it as early as March to limit the negative impact of the global financial crisis. 

“In five days the budget document will be ready. Thus, the money can be absorbed in the first semester (of 2009),” said Anggito. 

Critics said if the government failed to launch the stimulus in early 2009, Indonesia’s economy might have a slower growth than expected. 

Finance Minister Sri Mulyani Indrawati said the economy might only expand 4.5 percent this year, far lower than the 6.1 percent growth achieved last year. 

Bambang Susantono, the deputy minister to the coordinating minister for the economy, in charge of infrastructure, said the government would launch the stimulus in early March, although it “still depends on the projects”. 

He said the government had also worked with the International Labour Organization (ILO) to generate more employment. 

“ILO said there are labor-based methods, which can generate employment 1.5 times higher based on the (same) jobs and sectors.” 

He added that the government expected ministries and government agencies to create more employment without raising project costs or reducing project quality. 

To reduce the burden of low- to mid-income workers, the government will introduce an income tax cut to workers having a monthly income of less than Rp 5 million, said the Finance Ministry’s director general of taxation Darmin Nasution. 

He said the tax cut would be applied to February’s income tax, but the government was still designing which sectors would get the benefit of the tax reduction. 

The regulation is expected to be issued soon. 

Since last October Indonesia’s economy has increasingly suffered negative impacts from the global economic downturn. 

According to the Central Statistics Agency (BPS), the economy grew the slowest in two years in the fourth quarter of 2008 as the global slowdown slashed commodity prices and export demand. 

The economy expanded 5.2 percent in the fourth quarter of 2008 from a year earlier, slower than the annualized growth rate of 6.4 percent booked in the previous quarter. 

Also, on a quarterly basis, the economy contracted by 3.6 percent in quarter four from the previous quarter, replicating a similar trend that occurred in the same period during the last two years.

source: The Jakarta Post 

Read more...

Indonesia, Malaysia Agree to Cut Supply of Commodities

Indonesia and Malaysia have agreed to work together in strengthening the prices of global commodities, particularly crude palm oil and rubber, through production cut backs.

Malaysia and Indonesia jointly account for 85 percent of global palm oil production and 40 percent of natural rubber production.

State news agency Antara reported Thursday that the two countries had issued a joint statement saying that they were preparing measures to “ensure stable pirces in particular for palm oil”.

"These measures include managing palm oil stocks and reducing supply through replanting programs," the statement said.

Plantation Industries and Commodities Minister Peter Chin Fah Kui and Minister of Agriculture of the Republic of Indonesia Dr. Ir. Anton Apriyanto met in Kuala Lumpur on Wednesday to discuss bilateral cooperation on the matter.

The Indonesian Minister is in the city to attend the Developing-Eight (D-8) Ministers Meeting.

For palm oil, the ministers have agreed to accelerate replanting of oil palm trees which are above 25-years old, implementation of biofuel program, increasing domestic demand for crude palm oil and jointly engage major importing countries of palm based methyl ester in addressing non-tariff barriers for the exports of biofuel.

Malaysia has implemented the blending of five percent palm based methyl ester with fossil diesel.

Indonesia implemented a minimum of one percent blending program in the public transportation sector and a minimum of 2.5 percent blending in the industry and commercial sector. These minimum percentages will be increased to 2.5 percent in the public transportation sector and five percent in the industrial and commercial sectors.

Both ministers also want to exchange production and stock level data on a regular basis to facilitate stock management and promote palm oil through engaging the related legislators of importing countries.

As for rubber, both countries will accelerate replanting of rubber trees aimed at managing the supply of natural rubber.

"Malaysia has revised upwards the original target of replanting rubber areas to 50,000 hectares in 2009 from 32,000 hectares. Indonesia is replanting 55,000 hectares with rubber in 2009," the statement was quoted by Bernama as saying.

Meanwhile, both countries also agreed to control the expansion of new planted area for rubber, encouraging the reduction of tapping frequency.

The ministers hope that these measures will reduce price volatility and contribute towards stability of both palm oil and natural rubber prices in the longer term.

source: The Jakarta Post

Read more...

Asian Stock Markets Mixed as Economic Fears Weigh

HONG KONG: Asian stock markets were narrowly mixed Friday, with Japan's benchmark up more than 1 percent, as persistent worries about the deteriorating world economy and financial system sidelined many investors. 

Trade was listless throughout the region's markets after a bruising, volatile month that saw Asia's export-driven economies sink deeper into recession amid collapsing global demand and their currencies get hammered. 

Sentiment was buoyed somewhat after the British government said Thursday it would prop up ailing banks by allowing them access to government insurance against future losses on toxic assets. 

But most investors were holding back as the flood negative of news about the global economy showed no signs of letting up. 

The recession's toll on global economies widened as Royal Bank of Scotland and General Motors Corp. reported billions more in losses on Thursday. 

And in Japan Friday, figures showed that industrial production plunged a record 10 percent in January from February as manufacturers continued to slash output. Household spending and retail sales also fell. 

Until there was evidence sweeping government measures to jump-start the global economy were starting to work, equities markets were likely to remain lackluster, traders said. 

"Confidence remains really beaten up," said Miles Remington, head of Asian sales trading at BNP Paribas Securities in Hong Kong. "Internationally the picture is very negative. A lot of people are very happy to be sitting on the sidelines." 

The Nikkei 225 stock average rose 103.35 points, or 1.4 percent, to 7,561.28, and Hong Kong's Hang Seng added 21.39 points, or 0.2 percent, to 12,916.33 in a back-and-forth session. 

Elsewhere, South Korea's Kospi rose 1.8 percent to 1,074.22. Taiwan and Australian shares gained as well. 

China's Shanghai benchmark dropped almost 2 percent as investors continued to pocket gains from the market's recent rally. Markets in India and Singapore also sank. 

In the U.S., major stock indexes gave up early leads to close lower, with health care stocks bearing the brunt of the selling. The Dow Jones industrial average fell 88.81, or 1.2 percent, to 7,182.08. The Standard & Poor's 500 index fell 12.07, or 1.6 percent. 

U.S. stock index futures were down modestly. Dow futures were down 18 points, or 0.25 percent, to 7,160. 

In currencies, the dollar shed some if its recent gains, falling to 97.55 yen from 98.27 yen. The euro trade higher at $1.2727. 

Oil prices weakened in Asian trade after an overnight rally. Light, sweet crude for April delivery down 70 cents at $44.52 a barrel. On Thursday, the contract jumped $2.72, or 6.4 percent, to settle at $45.22 on the New York Mercantile Exchange.

source : http://timesofindia.indiatimes.com

Read more...

Obama to Forecast $1.75tn Deficit in Budget Proposal

WASHINGTON: President Barack Obama will forecast a 2009 deficit of $1.75 trillion in a budget proposal on Thursday that sets goals of overhauling the healthcare system and shoring up the US economy. 

The huge deficit would represent 12.3 per cent of US gross domestic product — the largest share since World War II. 

Two senior administration officials, speaking on condition of anonymity ahead of the release of the 2010 budget at 11 a.m. EST, said Obama's expensive policy goals would be offset by cuts to put the country in better fiscal shape. 

Federal spending is skyrocketing as officials try to jolt the faltering economy with public-works spending and tax cuts and bail out the troubled financial industry. 

Obama, a Democrat, has pledged to halve the more-than $1 trillion deficit he inherited from former Republican President George W. Bush in four years. The budget lays out spending cuts in agriculture subsidies and other areas to meet that goal. 

But spending would increase to meet key objectives. The budget sets aside $250 billion as a "placeholder" if Obama decides to ask Congress for more money to help the troubled US financial system. No such decision has been made yet, officials said. 

It also includes a 10-year, $634-billion reserve fund to help pay for the president's proposed healthcare reforms. 

Another official said the budget included hundreds of billions of dollars in revenues, starting in 2012 and going over many years, from a greenhouse gas emissions trading system, one of Obama's key proposals to fight global warming. 

Officials planned a high profile roll-out of the 134-page budget outline on Thursday. A more detailed version will come out in mid or late April. 

The budget, for the fiscal year that begins on October 1, 2009, requires passage by Congress to take effect. 

Obama's $1.75 trillion budget deficit forecast for this year reflects shortfalls accumulated under Bush as well as new spending proposals under the $787 economic stimulus package that the Democratic president recently signed. 

His stimulus package and other efforts to revitalize the economy have done little to cheer Wall Street. US stocks prices hit 12-year lows this week. 

The United States has experienced 14 months of recession triggered by a financial crisis that has spread across the world. Obama says a big increase in government spending is crucial to avoid economic catastrophe. 

A big challenge for Obama will be selling the budget to lawmakers, some of whom may resist cuts to such programs as farm subsidies that are popular in Congress. 

"There's no doubt that there are going to be things that we do that are going to create some political heartburn," one official said. 

"But our fundamental mission is restore the health of the economy, put the budget on a better (footing) moving forward."

RECORD BORROWING 


The budget reflects the delicate balance Obama must strike between making sure there is enough money to fix the economy while avoiding excessive pressure on long-term finances. 

Some experts fear that if the record pace of government borrowing to finance debt continues, it could affect financial markets by raising interest rates for borrowers, which would slow economic growth. 

Obama will aim to bring the deficit down by 2013 to $533 billion, or 3 percent of GDP. 

Tax increases on wealthier Americans and a troop drawdown from Iraq will curb the shortfall, the budget will say. 

The budget projects costs of the Iraq and Afghanistan wars totaling just over $140 billion this year and $130 billion in the 2010 fiscal year. Annual costs will drop after that to $50 billion annually. 

Washington spent about $190 billion on the wars in 2008. Obama looks likely to order US combat troops to withdraw from Iraq over about 18 months, according to US officials. At the same time, he is ramping up the US military effort in Afghanistan. 

Officials were eager to point out Obama's plans for cuts. 

The budget would phase out government payments to crop producers making more than $500,000 — saving $9.8 billion over 10 years — and eliminate subsidies for cotton storage, saving an additional $570 million over the same period. 

But the proposals do not lose sight of Obama's political and economic goals. 

In a major address to Congress on Tuesday night, Obama signaled he has no intention of delaying his campaign promise of expanding healthcare to the 46 million people who are uninsured in the United States, a goal that may prove tough amid eye-popping deficits. 

The United States spends more on healthcare than any other country, but its system is widely considered inefficient and it lags many other nations in key quality measures. Past efforts to make major healthcare changes have died in Congress. 

Obama, who is eager to show he is mindful of the need to tackle the burgeoning deficits, held a "Fiscal Responsibility Summit" on Monday bringing together lawmakers and budget experts to discuss the long-term budget challenges. 

In an open letter to Obama, experts at the Brookings Institution, the Washington think tank, warned that a soaring national debt would have consequences. 

"We will have to borrow money in domestic and international capital markets to finance this debt, and without a serious commitment to long-term fiscal restraint, lenders will eventually question the nation's fiscal credibility," they wrote.

source: http://timesofindia.indiatimes.com

Read more...

Rhodia Posts Loss in Q4 as Volumes Decline

LONDON (ICIS news)--European speciality chemicals firm Rhodia reported on Wednesday a fourth quarter net loss of €28m ($35.9m), down from a gain of €22m a year earlier due to substantial declines in end-market demand.

Net sales for the quarter fell slightly to €1.13bn from €1.19bn in the same period a year earlier, while operating profits slumped 83% year-on-year to €14m.

“With the ongoing uncertainty in the business outlook and persistent depressed volumes, we are exercising financial discipline and focusing on cash generation,” said Jean-Pierre Clamadieu, chairman and CEO of Rhodia.

“We are also implementing new structural cost-cutting measures to save €150m by 2011, thus improving our competitive position,” he added.

For the full year, Rhodia’s operating profits fell 19% to €309m, with sales up 2.9% to €4.76bn.

In its outlook, Rhodia said the severe economic downturn and the erosion of demand had created a persistent lack of market visibility, adding that its end markets had not shown signs of volume recovery since December. 

Although energy and raw material costs had eased, the costly raw materials in stock were still being absorbed in the first quarter and would continue to pressure operating profit, Rhodia said

The polyamide business was the main contributor to Rhodia’s slump in operating profit in the fourth quarter. 

The unit posted a recurring EBITDA (earnings before interest, tax, depreciation and amortisation) loss of €8m for the period, down from a gain of €70m a year earlier.

The polyamide business suffered a 31% volume decrease due to plummeting demand from the automotive market and the continuous erosion of housing and textile markets. 

Investors reacted positively to the results as the company’s share price rose about 11% on Tuesday’s close to €3.04 at 9:45 GMT.

source: www.ICIS.com

Read more...

Biofuels Impact on Food Prices is Challenged

Will the debate between biofuel supporters and food advocates finally cool down?

THE DEBATE between biofuel supporters and food advocates over pricing issues appears to have taken a sharp turn as food prices remain high despite falling energy and commodity prices.

"I think the inflation pressure from both oil and corn prices has abated substantially in the second half of 2008, and that is pretty well expected to continue into 2009. I expect the debate to be a little cooler during this year," says Scott Richman, senior vice president, commercial consulting lead, for Informa Economics, a commodity market analysis and management consulting firm based in the US.

"We haven't seen a change in food prices even though commodity and energy prices have dropped by half since their summer highs. In fact, one food manufacturer recently announced its profits rose during this time of economic turmoil due to price hikes on some of its most popular items," says Jin Chon, spokesperson for Growth Energy, a coalition of American ethanol producers.

"The scenario is certainly changing, and we don't know quite how yet. But certainly the whole ecomonic environment has changed," says Keith Wiebe, deputy director, agricultural development economics division, of the Food and Agriculture Organization (FAO) of the United Nations.

FOOD VERSUS FUEL?
A general consensus has arisen that biofuel production, namely ethanol, drove up food prices last year. Although biofuel production may have had an impact on food prices, a number of other factors have been just as significant, if not more significant.

"There are numerous global factors behind food inflation, including energy prices, increasing demand for food from a growing global population, regional droughts and commodity speculators. These are far bigger factors in increased grain prices than biofuels, which uses only 4% of world grain and has a minimal impact on food prices," says Chon.

Last year, food prices in general were very high, and there was clear concern that biofuels were one of the factors driving these high prices.

"Most studies found around 30-40% of the grain price increase between 2006 and 2008 was attributable to biofuels. Some of those grain prices even tripled. We believe it was related to the expansion of biofuels, but biofuel expansion was only one of a number of factors going on," says Wiebe.

Other factors that influenced grain prices were oil prices, trade restrictions and poor harvests in several key countries. 

"I think first of all, there have been a lot of things going on at the same time that have contributed to what has happened with food prices," says Richman. 

In fall 2006, grain prices started to take off, and oil prices had been rising steadily for a few years before that. During 2006 and following through to 2007, Australia was hit with a draught that destroyed its wheat crop.

"What happened this time last year is that oil prices were going up over $100/bbl at the same time that there were shortages in some agricultural commodities, like rice and Australian wheat. Given all these things, food prices went up in the first half of 2008," says Richman. 

Other events such as floods and extremely wet weather in the US Midwest delayed planting until past optimal times. Meanwhile, at that time crude oil prices were continuing to spike, reaching record levels in July. Concurrently, corn prices reached record levels the month before, Richman explains.

"After that, a succession of things happened. First of all, the US was able to get its crops planted, namely corn, and it was the second largest crop ever. There was also a bumper wheat crop in the summer/autumn of 2008 because of higher plantings around the world after the Australian draught in 2006. During the same time, oil prices began to fall because of the economic situation," says Richman.

All these events happening together created a frenzy in the commodities markets, as well as in the debate over biofuels' impact on food prices. 

"The Consumer Price Index (CPI) went up 5.8% in 2008, which was substantially above general economic inflation," notes Richman. 

Some of this gain was due to higher commodity prices and some due to higher oil prices, he adds.

"If you look at what happened, the compound annual rate of the CPI as reported by the Bureau of Labor Statistics in the last three months of 2008 was 1.7%, which is very consistent with historical inflation rates for food. It had just been during that period of peak frenzy that food prices went up substantially," says Richman.

In April 2008, a period when Growth Energry notes there was "rampant commodity inflation," a Texas A&M university study found important food items with high prices that were largely unrelated to ethanol or corn prices. Rather, these prices corresponded to fundamental supply and demand relationships in the world.

"Further, the study went on to state, 'the underlying force driving changes in the agricultural industry, along with the economy as a whole, is overall higher energy costs, evidenced by $100/bbl oil.' Additionally, a US Department of Agriculture (USDA) study found that labor costs account for 38 cents of every dollar a consumer spends on food. Farm value accounts for roughly half of that, or 19 cents of the consumer food dollar," says Chon.

To date, ethanol production has had a very small impact on food prices, and this impact won't grow in the future, according to Growth Energy.

Between 1970 and 2005, corn yields increased by 90%. This was the result of increased corn productivity through better seed variety, better farming practices, and other agricultural measures.

The 2004-2008 five-year average crop size was 11.7bn bushels, compared to the 1999-2004 average crop size of 9.6bn bushels, according to Growth Energy.

"In the US, we're producing more than 150 bushels of corn per acre, far ahead of other parts of the world. China produced 90 bushels per acre in 2008, which was higher than the 82 bushels per acre it produced in 2007. Brazil produced 60 bushels per acre last year." says Chon.

REVERSAL OF FORTUNE
Pricing trends between between food, commodities and fuel have separated as prices of the latter two declined and prices of the former stayed up.

"Now, of course, you're getting the opposite argument, where people are saying the commodities prices and oil prices came down substantially, therefore shouldn't the food prices come down too? There hasn't been massive reversal of food price increases," says Richman.

"Commodity prices and biofuel prices moved up together over the past four years, but that relationship has turned the corner since last summer," Wiebe adds. 

"Oil was up at roughly $140/barrel and corn was up over $7/bushel last summer. Now oil is down 60-70% to roughly $40/barrel and corn is down to under $4/bushel," he notes.

"I think a part of that is if you look at food prices and the way costs go through the system, as you get closer to the consumer, there's a lot of hesitancy to pass on higher prices. But there's also higher hesitancy to change food prices around rapidly and dramatically," Informa's Richman explains. 

What tends to happen when prices first start to rise is that they are generally absorbed into the system. Margins at the time usually allow food processors and, in some cases, food retailers to do that.

"I think that food manufacturers and retailers felt they were at a critical point last summer and felt like they had pricing power, so they went ahead and started raising prices significantly. It was generally thought that these trends of higher oil, commodity and food prices were going to be set in place for awhile. What they did not expect was the severe reversal in commodity and oil prices," he explains.

Growth Energy asserts that erroneous claims around food and fuel were perpetuated last year by ethanol opponents. "The smear campaign won believers until the prices of commodities dropped, exposing the truth: food costs were high because oil costs were high, among other reasons."

source: www.ICIS.com

Read more...

Faltering Chinese Demand Caps Asia SBR Price Rebound

SINGAPORE (ICIS news)--Growing concerns over the worsening global automobile market and faltering Chinese demand may cap the price rebound of Asian styrene butadiene rubber (SBR), buyers said on Wednesday.

“Consumers are cutting down on spending and holding back purchases of automobiles on worries over job security in a deepening global recession,” a major downstream tyre producer said.

Asia SBR producers have hiked offers for non-oil grade 1502 by about $200/tonne (€156/tonne) to $1,400/tone CIF (cost, insurance, freight) China for March, but the price falls in the domestic Chinese market this week have dampened sentiment and put a lid on the proposed price hikes.

The buy-sell price gap has widened, with Chinese traders seeking to purchase import cargoes below $1,200/tonne CIF China for March delivery.

Domestic non-oil grade 1502 prices fell to yuan (CNY)10,800-11,500/tonne ex-warehouse this week, down about CNY4,000/tonne since mid-December, as traders off-loaded import cargoes below CNY11,000/tonne.

“The price surge in the Chinese domestic market was driven largely by speculative trades as end-user demand is still weak because of the slump in the global automobile market,” a downstream tyre producer said.

Apart from faltering Chinese demand, the drop in the natural rubber prices and weakened market sentiment amid concerns over the global recession and the potential bankruptcies of major US auto-makers - GM and Chrysler - are adding to the woes of the SBR producers.

The price of natural rubber, a substitute for SBR, has dropped to $1.25/kg, down from $1.45/kg in early January.

“The global economy is very fragile and we are closely watching the situation of GM and Chrysler, and its impact on the market if they were to go bankrupt,” a Chinese SBR producer said.

GM and Chrysler are seeking additional funding from Washington to stave off bankruptcy proceedings amid the sharp drop in car demand, raising the bailout package for the US automotive industry to $40 bn.

The slump in the global automotive market has hurt the tyre producers, with most reeling from sharp falls in sales.

Major US tyre maker, Goodyear Tyre and Rubber Co, has announced that it will cut 5,000 jobs to save costs, while other major tyre producers including Michelin, Bridgestone, Kumho Tires and Cooper Tires, have slashed operating rates and closed down production lines.

“We are keeping low inventories and expect the second quarter to worsen as we expect orders to slow down significantly,” a tyre maker in Malaysia said.

source: www.ICIS.com

Read more...

US CF Industries to Consider Agrium $3.6bn Offer

HOUSTON (ICIS news)--Fertilizer producer CF Industries said on Wednesday that it would consider rival Agrium’s $3.6bn (€2.8bn) proposal to acquire all of the capital stock of CF for cash and Agrium shares at $72 per CF share

“CF Industries’ board of directors will evaluate the proposal carefully in the context of CF Industries’ strategic plans to create shareholder value, including its offer to acquire Terra Industries,” the company said in a statement.

Agrium’s proposed plan is contingent on CF dropping its takeover bid for Terra Industries.

“The board will make its determination regarding Agrium’s proposal in due course,” CF said.

Under the terms of Agrium’s proposal, stockholders of CF would receive one Agrium common share and $31.50 in cash for each CF share.

“We believe the proposed plan for CF faces no regulatory hurdles and could close in 90 days,” said Agrium CEO Mike Wilson in a conference call with shareholders and analysts.

Wilson said adding CF’s North American nitrogen, phosphate and crop nutrient distribution assets to Agrium’s global wholesale and retail capabilities would enhance Agrium’s existing portfolio and “enable us to create a premier global franchise across the entire agricultural value chain”.

The combined companies would have revenues of nearly $14bn and triple Agrium’s phosphate and urea ammonium nitrate (UAN) capacity, Wilson said.

Wilson added that Agrium expected to realise annual operating synergies of approximately $150m from the combination within three years.

Shares of CF were trading at $62.75, up 13% from the previous day’s close at midday on the New York Stock Exchange.

Shares of Agrium were trading down about 7% at $37.39.

source: www.ICIS.com

Read more...

Europe Losing Global Battle for Biorefineries

State funding for the development of biorefineries is tiny in this region, compared with the vast sums thrown at their development in the US and China

IN THEworlwide push to develop technology and infrastructurefor biorefineries, Europe is losing ground internationally because of the fragmented nature of its R&D activities and the lack of funds and resources for large demonstration facilities. 

Already in terms of financial commitments to development projects, particularly the construction of demonstration plants, the European Union is trailing the US by a long distance. 

Even China is poised to pour large sums into biorefinery projects as a result of the priority being given to biomass-derived energy production and manufacturing in the country's latest Five Year Plan.

Demonstration units are important for the development of biorefineries because they are required to test technologies for making coproducts. Like their petroleum-based counterparts, biorefineries will need to gain financially from the better margins of higher-value products to be economically viable. These products will mainly be bulk and specialty chemicals.

However, the supply of funds for biorefinery projects is being squeezed by the recession. Furthermore, the fall in oil prices is raising doubts among investors about the competiveness of biorefineries. 

"The problem in Europe, which is being made worse by the recession, is finding money for the building of demonstration plants," says Dirk Cerrez, director for industrial biotechnology policy at the European Association of BioIndustries (EuropaBio). "The EU is now spending a lot more on research in general but it doesn't have a budget for development schemes, like demonstration plants.

"We need three or four big demonstration biorefineries in Europe but at the moment it's uncertain where the money will come from," he adds. "At their present low level,oil prices are no longer a big impetus behind investment decisions."

KNOWLEDGE TRANSFERRED
Among its universities, research institutes and life science, energy and agribusiness companies, Europe has generated a lot of knowledge on technologies for biorefineries and their raw materials. But much of this knowledge is now being transferred abroad because of the lack of development projects in Europe.

Among European companies that are participating in projects for demonstration plants in the US, generously funded by the Departments of Energy and Agriculture in Washington, are Dutch group DSM andDenmark's Novozymes, both specialists in enzyme technologies for biomass processing, and Abengoa, the Spanish-based biofuels producer.


FOLLOW THE MONEY TO THE US
"Most European companies participating in US research projects in this field are multinationals, so being in the US or Europe orAsia is normalbusiness for them," explains Ynte Hoekstra, communications manager at DSM's white biotechnology operation. "The most eye-catching difference between the US and Europe is that while the US is striving and investing in bio-related projects, Europe is lagging behind in stimulating the industry." 

Under former presidentGeorge W. Bush's administration, driven by the urge to make the US more independent of Middle East oil, the country's Department of Energy (DoE) announced plans to spend around $1bn (€784m) on biofuels research and development (R&D). As a result of a combination ofDoE grants and private-sector finance, almost $1bn is being invested in six demonstration biorefineries.

The vast majority of EU-backed R&D programs in biorefineries have been focused on research into biorefinery concepts centered on the processing of a variety of biomass types into diverse bioproducts.


DEVELOPING THE WHOLE BIOCHAIN
In the EU's latest round of R&D programs, under its seventh cooperation framework agreement (FP7), the biggest program will be the development of technologies for the entire value chain. They will extend from biomass production, logistics and pretreatment, to biomass conversion into bio-based energy, fuels and chemicals. 

The program should attract funds totaling around €100m, €55m of which will come from the EU and the rest from the private sector. But its production facilities are unlikely to be much bigger than pilot plants.

The EU is seen as not only lacking initiative in the development field but also in the setting of targets for use of renewable fuels in transport, which will be a major impetus behind the construction of biorefineries. 

The US target, drawn up under the Bush government, is a biofuels output of 36bn gallons (164bn liters) by 2022, equivalent to 20% of the country's transport fuel needs. US President Barack Obama has indicated he wants to raise that target to around 60bn gallons by 2030 bringing the market share of biofuels up to about 30%.

Under the climate-change package thrashed out by the EU in December, 2008, 10% oftransport fuels will have to come from renewable sources. But in addition to biofuels these will also include technologies like fuel cells and batteries.

"The EU's targets for renewable transport fuels are not ambitious enough in relation to biofuels," says Anders Tuxen, energy strategist at Danish bio-innovation company Novozymes. "A lot of different technologies will be competing against each other for a comparatively small share of the market in which there will be no incentive to go beyond 10%. Investors will be worried that the EU targets are too low."

Worries about overcapacity in biofuel production as a result of governments sticking to relatively low renewable fuel targets has led to the cancellation or delay of projects in many EU countries.

In the UK, which has one of the lowest biofuel targets for 2010 in Europe, six companies have recently canceled or postponed the construction of annual capacity of around 1.6bn liters of bioethanol.

Companies going ahead with biofuel facilities in Europeare holding back on their expansion into biorefineries with a wide range of higher-value coproducts.

At Delfzijl, Netherlands, BioMCN, funded by private finance and the Japanese chemical company Tiejin, will spend several years concentrating on the production of biomethanol from glycerin. It will then consider expanding into biorefining through the making of bulk chemicals like bio-based formaldehyde and acetic acid and specialty products like dimethyl ester (DME) as a propellant in cosmetics. 

The company is scheduled to open a 200,000 tonne-a-year biomethanol plant at Delfzijl in April. It will thenstart raising funds for a second biomethanol facility of the same size to come on stream in 2010.

"We are aiming to expand into biorefining but that is a long-term concept which will not be realized for 10 years," says Rob Voncken, BioMCN's CEO. 

Ensus, a UK-based start-up bioethanol producer, is restrictingits plants to three co-products ofanimal feed, carbon dioxide and electricity. It is due to open at Wilton, inthe UK, in the summer, its first plant, whichit calls a wheat refinery. It will havean annual capacity of 400m liters of bioethanol, 350,000 tonnes of high protein animal feed, and 300,000 tonnes of carbon dioxide for use in soft drinks, as well as 25MW of surplus electricity for adjacent plants at Wilton.

"All the co-product streams makes good business sense as well as improving the contribution to climate change," says Alwyn Hughes, Ensus' CEO.

Some European specialists in renewables now believe that biorefineries will emerge gradually not only from biofuel projects but also from sectors and industries where biorefining concepts are already well established.

One of these is the pulp and paper industry, where for years companies have produced bioethanol for their own energy needs. More recently, paper mills have been using lignin from the black liquor residue from pulp production to manufacture biopolymers for use as binding and dispersion agents, emulsion stabilizers, and extrusion aids.

Chemrec, a Swedish research company, backed by venture capital, has developed a gasification technology for turning black liquors into biofuels as well as biomaterials. If applied in all Sweden's pulp mills, it could provide 25% of the country's automotive fuel consumption, according to the company. Furthermore, because it would be a coproduct of pulp manufacture, its production costs would be much cheaper than that of plants making only biofuels.

Europe may have to rely on additions to existing infrastructure to build up the core of an internationally competitive biorefining capacity.

source: www.ICIS.com

Read more...

US Economy 'Could Recover by 2010'

The US economy is undergoing a "severe contraction" but could recover by 2010 if swift action is taken, the US Federal Reserve chairman has said.

Bernard Bernanke told the senate banking committee on Tuesday that things could get worse in 2009, but that there was a "reasonable prospect" of recovery by 2010.

However, to ensure recovery, Bernanke said it was essential "that we [the US] continue to complement fiscal stimulus with strong government action to stabilise
financial institutions and financial markets".

Bernanke's comments comes as US consumers' confidence hit an all time low amid continuing concerns about the financial crisis, a private research group said.


The New York-based Conference Board said on Tuesday its consumer confidence index last month suffered its worst reading since it began in 1967, falling from 37.4 to 25.


In addition Barack Obama, the US president, is due to give his first speech to the US congress in which he is expected to discuss the implementation of a $787bn stimulus package passed by congress earlier in February in a bid to avert an economic crisis.

Recovery concerns

Bernanke said radical actions by the US government since late last year when the financial crisis intensified have relieved some credit and financial strains in US markets.

However, he warned, "despite these favorable developments, significant stresses
persist in many markets, notably most securitisation markets remain shut ... and some financial institutions remain under pressure.''

Over the weekend it was reported that Citigroup and the Bank of America could receive more government funds to cover losses on risky investments.

And on Monday US insurance giant AIG, which has already received about $150bn of US government aid, asked for more aid ahead of preparing for a record fourth-quarter loss of roughly $60 billion, Reuters news agency reported.

Meanwhile the slump in consumer confidence was larger than expected, and compares with a reading of 76.4 taken at the same time last year.

The board's expectations' index, which examines US consumers' outlook over the next six months, also slumped to 27.5 from 42.5, showing marked fears from consumers that continued job losses and market volatility were affecting the economy.

Cash plea

The Obama administration is hoping its $787bn stimulus package of increased government spending and tax cuts will turn the US economy around, along with the revamped $700bn financial bailout package passed last year under the former administration of George Bush.

Housing, credit and financial crises have plunged the US economy into its worst economic crisis since the Great Depression of the 1930s.

US stocks remained slightly higher on Tuesday, a day after hitting 12-year lows, with the Dow Jones Industrial Index opening up 15 points at 7,130.

Concerns over the global economy led to stock markets falling in Asia and Europe on Tuesday, with London's FTSE 100 index sliding by 0.36 per cent.

Markets dive

In Paris, the CAC 40 dropped one per cent as Frankfurt's DAX 30 dipped 0.37 per cent.
Japan's benchmark Nikkei share average closed 1.5 per cent lower while Hong Kong's Hang Seng lost nearly four per cent and South Korea's Kospi more than three per cent.

Other markets across the region also dived after US stocks fell more than three per cent - recording their lowest close since 1997.

Singapore, Taiwan and India's markets dropped around one per cent each with Shanghai recording a fall of more than three per cent.

source: http://english.aljazeera.net

Read more...

Americas Markets Summary

HOUSTON (ICIS news)--Here is Tuesday’s end of day Americas oil and chemical market summary from ICIS pricing.

CRUDE: WTI: $39.96/bbl, up $1.52; BRENT: $42.50/bbl, up $1.51
Following a late rally, crude prices were practically unchanged in after-market electronic trading, trading around $39.95/bbl. The statistics from the American Petroleum Institute (API) revealed a build in crude and distillate stocks but a drawdown in gasoline and heating oil inventories.

NATURAL GAS: $4.236/MMBtu, up 13.9 cents
Natural gas futures prices rose during floor trading, following colder forecasts for the northern US.

RBOB: $1.0837/gal, up 4.04 cents
Reformulated gasoline blendstock for oxygenate blending (RBOB) futures prices followed crude oil up, gaining on the back of stronger demand outlook.

BENZENE: US benzene participants cited an unexpected drop in prices to $1.22-1.27/gal, compared with the mid $1.30s/gal a week ago.

ETHYLENE: No new February ethylene trades were heard done on Tuesday. On Monday, March ethylene traded at 33 cents/lb and April material traded at 28 cents/lb.

PROPYLENE: No new trades were heard done in the refinery-grade propylene (RGP) market on Tuesday. RGP for February was last traded on 18 February at 24.00 and 24.50 cents/lb.

source: www.ICIS.com

Read more...

Privatization Near to Collapse in Poland's Chemical Sector

Poor timing means that Polish ministers may have lost the opportunity to complete the privatization of Poland's chemical industry

IT WAS late spring 2008 when Poland's treasury minister, Aleksander Grad, pledged a full revival of the sell-off process that had stalled two years previously under the former government.

Grad had pledged rapid progress as officials strived to privatize the state's remaining holdings in 19 chemical and fertilizer producers within two to three years. But the minister, of course, hadn't spotted the severity of the global economic black clouds gathering overhead.

By now, Nafta Polska, the state agency that oversees chemical industry privatizations, offers a far more sober perspective on the course the sell-offs are likely to take. Analysts weighing the latest comments from the agency are convinced that a possible postponement of the process is on the cards.

"The treasury let fat years slip by due to political reasons and now, when the sector's momentum is worsening and listed chemical stocks have collapsed, we doubt the treasury could find the investors ready to pay it as much as it would have received back in 2006," says Barbara Zaleska, a Warsaw-based chemical industry analyst at investment bank Wood & Company. 

"In our opinion, the privatization should be reassessed due to tough economic conditions in the sector," she adds. 

Kamil Kliszcz, an oil, gas and chemical industries analyst at Poland's BRE Bank, concurs. "The right time for this privatization was missed," he says.

"It is now doubtful it can succeed in the remaining few years of the lifetime of this government. The Warsaw stock market lost a third of its value in the months after the financial crisis began, and it is difficult to sell companies in such an environment. Initial public offerings [IPOs] are not likely to achieve prices acceptable to the government."

Wieslaw Skwarko, deputy CEO of Nafta Polska, said a final decision on launching the sale of the biggest Polish chemical companies that feature in the privatization would be taken by April, based on the advice of a leading merchant bank appointed as a financial adviser.

"The whole situation requires a reassessment of our approach. Timing may also be modified. However, we are strongly motivated to complete the privatization as quickly as possibly, but not for any price. We are in touch with potential investors from different parts of the world, including Western Europe, the Middle East, India and the Far East," says Skwarko.

Grad has so far confirmed just one chemical industry IPO still on the horizon for this year - that of nitrogen fertilizer, plastics and oxo alcohols producer Zaklady Azotowe Kedzierzyn (ZAK). 

Asked about ZAK's prospects of going public, Skwarko says Nafta Polska is "testing the capital markets on whether any IPO is possible and, if the answer is positive, we may consider going with ZAK on to the public market prior to privatisation." 

Zaleska notes that ZAK plans to raise zlotych (Zl) 500m ($133m, €103m) from selling 43% of its shares. This is unlikely to happen, she says, given last year's unsuccessful IPO of fertilizer, caprolactam (capro) and polymer producer Zaklady Azotowe Tarnow (ZAT), the first and only IPO in the sell-off so far. 

"ZAT's share price has lost 68% since then, and the current low valuation of chemical stocks would imply a mere Zl300m valuation of ZAK as a whole," calculates Zaleska.

ZAT, she adds, is a good example of a missed opportunity. Back in 2006, Germany's Petro Carbo Chem (PCC) was ready to pay Zl366m for an 80% stake, but the Law and Justice party (PiS) government judged that the price was too low.

"We doubt the current Civic Platform party [PO] government would accept an even lower price, but will it find an investor ready to pay more if this implies a more than 90% premium on the current share price?"

ZAK and ZAT feature in the proposed privatization centerpiece, the Polish Chemical Consortium (PKCh), a special-purpose vehicle formed by the two companies with the largest Polish chemical producer, Ciech. PKCh is negotiating with state giant PKN Orlen to acquire polyvinyl chloride (PVC) and nitrogen fertilizer subsidiary Anwil. Together, the four companies had 2007 revenues of Zl9.1bn.

Orlen is following the government recommendation that it move out of chemicals and concentrate on refining, petrochemicals and reducing its Russian oil dependency. But, say analysts, it is widely known that Orlen and PKCh may differ by as much as Zl1bn in their valuation of Anwil, a company that with Czech PVC subsidiary Spolana has an aggregate PVC capacity of 435,000 tonnes/year, the largest in Central and Eastern Europe. "A year ago, an asking price of Zl2bn was quite possible, now maybe Zl1bn is more probable," remarks Kliszcz. "We could be a few years from getting back to two billion."

If PKCh fails to land Anwil, the consortium could still be offered to a strategic investor, says Skwarko. The treasury, meanwhile, takes the view that more entities than only PKCh would come forward for Anwil. 

"The management board of Orlen will have to select the successful buyer. I do not know whether PKCh will be the winner," says treasury spokesman Maciej Wewior. 

Asked about the chances of acquiring Anwil, Ciech spokesman Krzysztof Grad says it is "too early to talk about it." 

He is similarly noncommittal when quizzed on whether the future might see Polish firms moving more and more production abroad for cheaper feedstock, energy and labor costs. "We live in a world of global business, so it cannot be excluded," says Grad. 

Ciech has branched out extensively into Romania and Germany, with acquisitions that have confirmed it as Europe's second-largest soda ash producer, while ZAT is in talks to invest in an 80,000 tonne/year polyoxymethylene (POM) plant in the Middle East. Grad's recommendation for the second main plank of the privatization is that the largest Polish nitrogen fertilizer producer and capro and melamine maker Zaklady Azotowe Pulawy (ZAP) should consider teaming up with the second-largest fertilizer firm and titanium dioxide producer Zaklady Chemiczne Police (ZChP) to find a strategic owner. Their combined 2007 revenues were Zl4.3bn. 

Hubert Kamola, ZAP's chemical division managing director, reacts to this suggestion by saying: "It would bring no extra value business cooperation alone brings the synergies." In an emailed comment on a potential combined sale of ZAP and ZChP, Skwarko wrote: "A trade sale of ZAP and ZChP is not envisaged for 2009. Initially, we thought it might be possible in 2010. We still hope it will happen but."

DOUBTS ARE SPREADING

Such doubt by now pervades the whole privatization, said Kliszcz. Hopes of distinct progress had risen, he notes, when late in 2008, Grad and Polish Prime Minister Donald Tusk prioritized the promotion of chemical company sell-offs, while leading business delegations on visits to countries in the Arabian Gulf. 

Officials hope some that potential Western investors sidelined by the financial crisis can be replaced with Middle Eastern buyers, such as sovereign wealth funds (SWFs). 

"Now it's realized that these investors, including SWFs, have also been affected by the crisis," said Kliszcz. "There's no significant signal that anybody is so keen and nothing definite yet about SABIC Innovative Plastics [the Saudi Arabian company that treasury sources say has expressed initial interest in purchasing a PKCh stake]."

Those steering the privatization should perhaps consider a change of tack, advises Kliszcz. "At the moment they are trying to sell unrestructured companies, many of which are overstaffed. Why not spend the next years completing the often very complicated restructuring themselves? They could then invite buyers to acquire already consolidated companies at a point when the economic situation, and acquisition prices may have improved."

REASONS FOR MERGING

Rationale for combining Anwil, Ciech, Kedzierzyn (ZAK) and Tarnow (ZAT): merged company would be

No. 1 on home market for mineral fertilizers

No. 1 on home market for pesticides 

No. 2 on home market, 

No. 9 on global market for capro and polyamide 

No. 1 on home market for oxo alcohols and plasticizers 

No. 2 on European market for soda and salt 

No. 1 on home market for toluene di-isocyanate (TDI)

No. 1 on home market for epichlorohydrin (ECH)

No. 1 on home market for epoxy resins and polyester

No. 1 on home market PVC

No. 4 on home market for polyurethanes (PUs)

SOURCE: NAFTA POLSKA

Quoted from : www.ICIS.com

Read more...

Europe's Biofuel Industry Frustrated at Lack of Progress on Legislation

Continuing political inertia and lack of support for manufacturers in Europe are hitting the industry hard, bringing some players close to insolvency

FRUSTRATION HAS been mounting since the end of 2008 in the European biodiesel market over ongoing legislative uncertainty concerning product specification, taxation, mandated blending levels and provenance.

The start of 2009 has so far brought little comfort to the brokers that have seen trade levels drop off sharply. A decision taken to delay a vote in the German parliament regarding the future status of imported ­material, has also brought little joy, along with no firm feeling that a final decision on the import duty status of B99 US-origin material is around the corner (the 'B' signifies the amount of biodiesel - in this case 99%).

A major stumbling block for any national legislation is that it must conform with EU legislation and also not contravene any World Trade Organisation (WTO) law. Given that biofuels are an emerging field, new rulings are taken in these supranational bodies on a reasonably regular basis. 

However, the slow decision-making speed of international bodies often hinders nations that want to get legislation passed into national law more rapidly.

The proposed German legislation would make imports of biodiesel, which had already received subsidies (for example, B99 from the US), ineligible to receive further German subsidies, or count towards mandated blending requirements.

The law also proposed that soy and palm-derived biodiesel should not be eligible for use in Germany until production of these products met sustainability criteria. No firm explanation of these criteria was given.

A vote had been scheduled for late January. However, the European Commission voiced concerns that the legislation would not be compatible with WTO law, and the German vote has been postponed pending a rewrite to address this.

Further complications have arisen from the timetabling of the final decision on sustainability criteria for biodiesel at an EU level, which may drag on well into the second or third quarter. The German legislation may be affected by this ruling, as its criteria must be compatible with those decided at EU level. So there is pressure on Germany, and any other country considering legislating on biofuels before EU decisions, to hold off.

A court case is also pending, with a decision expected in April, about the status of imports of biodiesel from the US, which have already picked up a subsidy before entering the EU. 

At the moment, this B99 material is being sold significantly under the value of B100, non-US origin material. This is harming the production economics of European manufacturers, with production estimated to be running at a third of levels this time last year.

In the event of a decision against the import of B99 biodiesel, this material may no longer be eligible to pick up a second subsidy in Europe, or may not count towards blending mandates, or both. The main concern for market participants is that any decision and concomitant ruling on taxation might be retroactive.

Brokers and traders have reported that in the first quarter of 2009 they were seeing a tendency in the market for buyers to opt for B100 material which, despite being more expensive, was not at risk of being hit by any countervailing duty.

The bid to curtail cheap imports from the US has been called protectionist by US producers, with allegations that Europe is trying to protect their farmers and industry. Rapeseed farmers in Europe would be particularly hit by reduced production of biodiesel in Europe as rapeseed oil is a major feedstock. 

Amandine Lacourt, project manager at the European Biodiesel Board (EBB), said: "The EU perspective is not protectionist but is aimed at creating a level playing field. Nowadays, there is a lot of discussion on biofuels sustainability at the EU level. Germany may have to wait for approval for its measures at an EU level. The climate change vote in December outlined big ideas, but it will take a while to get details in place. However, it is difficult for any member state to bypass the process."

While politicians debate the finer points of biofuels legislation, the feeling in the industry is that any decision would be better than the current state of uncertainty.

A biodiesel broker said: "This is incredibly frustrating and disappointing. It is clearly not at the top of their list of priorities, but until the situation is clarified German buyers dare not buy imported material."

Further confusion has been introduced into the German market in particular with a law emanating from the Secretary of the Environment recommending that the biofuel mandatory quota should be reduced from the current 6.25% to 5.25% for the remainder of 2009. This law comes into effect this month.

A spokesperson for the Association of German Biofuel Industry (VDB) says: "This is causing a lot of trouble in the biofuels market. Petroleum companies do not know how much they will be blending, nor when. Producers don't know how much or what kind of raw materials to buy. The whole market is in shock."

Germany is Europe's largest market for biodiesel. However, domestic production has run at reduced capacities as cheaper imported product has prevented manufacturers from achieving required margins.

The proposed German legislation is likely to be backdated to the start of 2009, with the result that there has been scarce buying interest out of Germany in any fatty acid methyl ester (FAME) products, which typically contain palm and soy oil derived methyl esters. 

While rapeseed methyl ester (ROME) is more heavily used in the winter months anyway, because of its low cold filter plugging point (cfpp), it is more expensive than FAME blends and is therefore not used in the warmer months.

The climate of legislative uncertainty was harmful to trade levels and could hold back the development of this emergent industry, according to market sources.

Johannes Lackmann, chief executive at VDB, says: "Germany has a biofuels policy that is based on retroactive measures. We cannot work like this and urgently need a policy based on a long-term strategy."

Lackmann's sentiment is echoed across the industry, with market participants saying they had already resigned themselves to a slow first half of 2009.

While uncertainty is strongest around the German market, the unease has spread with the overall low liquidity levels seen.

While brokers lament the slow deal flow and traders find it difficult to take long-term positions, those with most to lose are arguably the investors in European biodiesel capacities. Rapeseed methyl ester has been selling below replacement cost for the start of 2009, with speculation from traders that producers do not have the facilities to store product, and need the income from selling volumes, even at a reduced price level.

If prices stay low then there is always the possibility of cutting output. However, biodiesel production in Europe already runs at a low level compared to capacity. Also, without income from product sales, there is a real risk of firms not being able to service their debt.

If biodiesel, and biofuels, generally, are to have a chance of becoming an economically viable product then investors must not be put off by a precarious legislative climate. The global economic downturn is bound to have many casualties, but hopefully the promising field of biofuels development will not be one of them.

AND THE RESULT OF ALL THIS MESS IS...

Switzerland-based biodiesel producer Biopetrol Industries expects to report a loss for 2008, and must take substantial restructuring measures to avoid insolvency.

The company forecast an operating loss of €11.5m ($14.7m) compared with a gain of €5.4m in 2007, but expects a 38% increase in annual sales to €300m. 

"Since the middle of the fourth quarter, Biopetrol Industries has experienced drastically worsened market conditions in Europe and in particular in the important markets of Germany and the UK," the company said.

Because of its weaker financial situation, it is unable to pay the interest on a €75m bond it issued in February 2007.

The company blamed European and German energy policies for deteriorating market conditions. Biopetrol said the market for pure biodiesel (B100) had "completely collapsed". 

Rachel Howat covers gasoline, methyl tertiary butyl ether (MTBE), ethyl tertiary butyl ether (ETBE), ethanol (fuel, beverage and industrial grades) and biodiesel markets for ICIS pricing.
source: www.ICIS.com

Read more...

Second-Generation Biofuels Need Work

The development of sustainable biofuel options is progressing well. Who will come out the winners?

ONCE SEEN as a promising alternative to gasoline, corn-based ethanol is being supplanted by a second generation of biofuels promising greater sustainability. Cellulosic materials, algae, pyrolysis and directed evolution are all contributing to these developments.

Pyrolysis

A combined pyrolysis/Fischer-Tropsch (FT) route to biofuels from cellulose is being demonstrated by French gas producer Air Liquide's subsidiary Lurgi at the science and engineering research institution Forschungszentrum Karlsruhe in Germany. Lurgi will be building a gasification plant in a joint project with the Karlsruhe Institute for Technology by 2011.

The Lurgi process takes three steps to turn straw to automotive fuel. The first stage uses fast pyrolysis at around 500°C to convert thin-walled plants, such as straw, into an energy-rich slurry.

This slurry is then transported to a central refinery, where it is heated with steam to produce synthesis gas. In the final step, the synthesis gas is converted into fuels by the FT process. 

Edmund Henrich, of theForschungszentrum Karlsruhe outlined the process in a presentation at the second European summer school on Renewable Motor Fuels, in 2007. 

Henrich says that, on average, the cereal harvest for rural Europe yields around 50 tonnes/km2 of straw that is not needed to maintain soil fertility. Square bales of this straw could be transported economically for between 20-30km (13-19 miles) to a pyrolysis plant.

"Taking the larger radius, the plant would convert around 200,000 tonnes/year," he says. "With a dry ligno-cellulose feed, the output is around 134,000 tonnes/year of a pyrolysis oil/char paste, a sludge or slurry with a density of 1,300kg/m³ and a higher heating value of 6 +/-1 kWh/kg." 

Henrich says the output of the pyrolysis paste is about eight times greater than the straw bales and this can make it economical to transport for long distances. Henrich adds that the slurry can contain around 90% of the initial bioenergy and is easily stored in tanks and silos. Because the energy density is much greater than straw, it is economic to transport this by rail to a central refining facility, which can be up to 500km away.

Henrich says about half of the initial biomass energy can be converted into raw FT products, about 80% of the FT raw product energy may be converted into super-clean diesel and gasoline, and he suggests that a synfuel energy yield of 42% is a realistic upper value. Available present-day technology is near 30%. Synthesis pathways via methanol may be more efficient.

How sweet it is

Cellulosic to ethanol via enzymes and fermentation is an area where Swiss-based agricultural chemicals firm Syngenta has been active. The company has partnered with other industrial biotech firms, notably France-based Proteus and US-based Verenium (formerly Diversa), to develop technology. 

Proteus and Syngenta announced in January that they will work together to develop novel, high-performing enzymes for next-generation biofuel production. 

Both diversity screening and directed evolution methods are to be used for the discovery and the optimization of enzymes for the conversion of biomass into biofuels.

Proteus has a range of technologies and a source of new genes. It also has tools to generate new proteins that enable it to produce tailored enzymes, as well as a protein manufacturing platform to generate them.

Just over two years ago, Syngenta signed up Verenium to develop a range of novel enzymes to economically convert pretreated cellulosic biomass to mixed sugars.

This route to producing ethanol from cellulose is likely to be a long haul. Syngenta says that converting biomass to biofuels requires breakthrough developments in three areas: chemical preparation of the cellulosic biomass (pretreatment), conversion of pretreated cellulosic biomass to fermentable sugars by combinations of enzymes (saccharification), and the development of novel microorganisms to ferment the sugars to ethanol or other fuels (fermentation).

Dutch chemical giant DSM is using its longstanding expertise in industrial processes that use yeast and enzyme technologies to help develop routes to ethanol from cellulose.

"Our focus is on how to bring conversion technology into play, into second-generation, second-wave technology," says John Monks, business director bioproducts. He is not interested in making biofuels as such, but rather in the processes that make them possible.

DSM has partnered with Spain-based biofuels firm Abengoa, and the combination has won a grant from the US Department of Energy to look at ways of turning agricultural residues into biofuels. The firm's focus is wheat straw and corn stover. "Will it be the best feedstock? Who knows?" says Monks, "Whatever is chosen, there are many hurdles to be overcome in getting the fuel from the field. The challenge is in delivering technology, which enables cost-effective production. People have to be broad-minded about what's out and what's in." 

Cost effective means biofuel from cellulose that can compete with oil at around $65/bbl. DSM's routes are currently "several orders of magnitude" above that price level, so there is plenty of room for development.

Wood's bioproducts business has pulled in yeast technology from Gist Brocades and a number of processes and ideas to develop yeasts that deliver enzymes capable of handling not only C6 sugars like glucose and fructose but also C5 saccharides produced by the decomposition of cellulose and lignin.

"Yeast classically consumes C6 sugars," says Monks. "Some of the work we're doing in the lab is to change the diet of yeast. Typically it turns its nose up at C5 sugars, and we're trying to persuade it to be more broadminded." This can be done through natural selection, protein engineering, or a combination of the two. 

One concern about using field waste as a source of biomass is the effect of removing cellulose on soil structure and fertility. Monks says that research needs to be done to ensure that the right level of cellulose is left on fields to protect the soil below. This is especially important in areas like the US Midwest, where wind erosion can be a problem if soils become too dry and lack organic matter. 

Aqueous solution

Algae, grown in freshwater lagoons or the sea, may be one answer. Algae can yield over half their biomass in oil, which can be converted to biodiesel. They also produce sugars that can be fermented to ethanol. 

However, there is still some way to go before biofuels produced from algae can become a reality, says Dominique Duvauchelle, chairman and CEO of France-based industrial biotech company Eco-Solution. Duvauchelle puts the current best yield at around 25g/m2 for algae from open ponds. His company, like DSM, sees its niche as providing technology and tools to make biofuels. 

Eco-Solutions started with a platform that enables it to stress a range of microbes from bacteria to yeast to algae, encouraging them to respond through accelerated evolution to the environments to which they are subjected.

According to a rule of thumb, bacteria will divide once an hour and algae once every day, says Duvauchelle. Eco-Solutions has a patented method for increasing this rate, so that algae placed in the reactor will mutate faster than naturally. After a short time a natural mutation in the algae will likely have developed to become the dominant form in the reactor, being the fittest for that environment. 

Duvauchelle says this process can be repeated as necessary and combined with high throughput screening to rapidly develop algae that will have high yield and high growth rates.

Eco-Solutions has been working for three years to understand algal metabolism in an attempt to tackle algae's problems as a biofuel source. 

"It is slow-growing and must be faster," says Duvauchelle. "There are some problems with contamination at the start of growth after the algae has been seeded in open ponds, and the amount of biomass required."

These problems go some way to explaining why the economics are still unclear. "We will need a 1ha (2.5 acre) pond to better define that," he says. 

The firm is in discussion with two companies that are interested in CO2 mitigation, he says, and a trial may be possible by the end of 2010.

Duvauchelle believe that a combination of open ponds and glassware might offer the best economics. His current strategy sees algae started in glass and then added to the ponds. But it is important that the biofuel algae grow quickly to minimize the amount of contamination from competitive algae. "There are about 30,000 species of algae," he says. "100 are well known and between 15 and 20 are used for production." So there is plenty of scope for competition.

But the diversity of algae also means that there is scope to produce niche algae for different conditions. He says it is unlikely that there will be single algae that works well in the cold climates, the tropics, salt and fresh water.

All of these technologies could offer considerable range for producing biofuel from nonfood sources. The pyrolysis route looks to be the closest to commercialization, but is some way off. For companies looking to bet for the longer-term enzyme, fermentation and algal routes could still pay off though.

CORN POWER: 
Corn-based ethanol still has a future, according to US biofuel company poet 

One biofuel company, US-based Poet, claims to be making around 20,000 gals/year (75,700 liters/year) of ethanol using corn cobs as feedstock. Poet has a research center in South Dakota, and it is pursuing an integrated starch and cellulose to ethanol refinery model. The company is supported by DuPont and Novozymes. 

Speaking in May 2006, DuPont executive vice president and chief innovation officer Thomas Connelly said: "We have worked over the last three years to develop a technology package that can efficiently break down the complex sugar matrix found in corn stover into ethanol from cellulose at a high yield. We are excited about the progress we have made and, while we still have to complete more research, we are ready to take the next steps to bring cellulosic ethanol to the market."

In 2004,Broin and Novozymes partnered in the development of a new enzyme for Broin's BPX technology, a patent-pending raw starch hydrolysis process that converts starch to sugar, which then ferments to ethanol without heat.

The innovative technology was taken to commercial-scale production after four years of research and development and eliminates the cooking process that has been part of ethanol production for hundreds of years.

The results included higher ethanol yields, increased nutrient quality and flowability in distillers dry grain soluble, reduction in plant emissions and reduced energy costs by up to 15%. During the development phase, Broin obtained from Novozymes a sample of acid fungal amylase enzyme that ultimately became specific to the process.

source: www.ICIS.com

Read more...

Asian Biofuels Suffer Growing Pains

Governments across Asia have seen biofuels as the answer to many problems, but volatile oil prices and environmental concerns have given the industry a bumpy start 

THE ASIAN biofuels industry is confronting a cycle reminiscent of the early days of the railroads in the US.

Other challenges include the food-versus-fuel controversy, arguments over the net environmental impact of palm oil-based diesel and the difficulty in aligning the agriculture and refining industries.

Palm-oil prices went through the roof in 2007, driving many new biodiesel players out of business. Price have since declined, but too late for those that have gone bust.

Cheaper feedstock costs might end up being only an academic benefit for those still operating. The reason is that governments are looking at rolling back blending mandates for food-crop derived biofuels. 

Palm-oil planting has been blamed for the loss of biodiversity and wildlife. Tigers, clouded leopards and orangutans are all threatened with extinction, say environmentalists.

Since 1996, 9.6m acres of forest have been planted with palm oil, according to Indonesian government figures. Indonesia releases 2.6bn tonnes of carbon dioxide a year as a result of forest clearing, according to a World Bank report. This puts the Southeast Asian country behind only the US and Europe as the world's largest emitter of CO2.

"There are brand-new biodiesel plants in Indonesia and Malaysia that have never been run because of the rise in palm-oil prices," says a Singapore-based biofuels entrepreneur.

"Private equity firms have recently bought some of these facilities for half of what they cost to build. The plan is to run them on jatropha rather than palm oil."

Jatropha can be grown on land not suitable for food crops and so, potentially, might be a solution to the food-versus-fuel row. 

"But commercialization is several years away because of yield and toxic-waste problems. We are thinking about setting up a jatropha futures exchange so farmers and biofuel producers can hedge against likely prices if and when commercial production takes place," he adds.

One means of solving jatropha's yield problem is to grow it on land that can be used for food crops - but this would defeat the purpose.

It's all about trial and error

The problem with the Asian industry in general is that a great deal of trial and error seems to be involved. Policies are constantly being adapted to tackle unexpected consequences such as rising food-crop prices and resistance from auto manufacturers and refiners.

"To be fair, the refiners and the oil industry are doing their best to support biofuels initiatives. However, it's important to ensure that a sustainable, stable and long-term supply of biofuels and relatively stable raw material prices are always available," says Clarence Woo, Executive Director of the Asian Clean Fuels Association (AFCA). 

The AFCA, which is also based in Singapore, is a nonprofit organization established to promote the use of oxygenates that cut crude-oil dependence and lead to cleaner air.

Other hurdles include engine performance, quality and consistency issues, says Woo. 

"In addition, RVP [Reid Vapor Pressure] levels have to be adjusted which adds costs to refiners and reduces flexibility in their blending stock."

Bio-ethanol has to be handled properly in order to avoid contamination with water.

A senior Thai industry source admits: "We made the error of introducing bioethanol without always providing proper training. The capital cost of installing separate storage tanks was also something we didn't take fully into account. We are learning."

Thailand is increasing the use of E85 gasohol (gasoline containing 85% bioethanol) through subsidies that keep prices lower than conventional gasoline.

A MAJOR PRIORITY

Elsewhere in Asia, biofuels remain a key government priority, even if private investment is being deterred by collapse in oil prices and the global economic crisis. 

In the case of China, both the above challenges - and that of switching from food-based feedstocks - will be overcome by as early as late 2010, according to Frank Xie, a consultant with global consultancy Frost & Sullivan.

New bioethanol raw materials being researched and developed include sweet potatoes and nonfood celluloses, he adds.

Jatropha, too, is being looked at by China as most of its current biodiesel production is based on waste cooking oil, which, says Xie, suffers from unstable supply.

Biofuels demand growth was at a compound annual average of 15.5% in 2007-2008 by volume, says Frost & Sullivan. Even this year growth is forecast to be close to 9%.

This rapid expansion led to China becoming the world's third-largest biofuels market in 2008, after the US and Brazil, says the consultancy. Biodiesel production was estimated at 360,000 tonnes, with biodiesel at 1,620 tonnes.

Growth is being supported by mandates that permit blending of ethanol up to 7-10% by volume, with no reported limits for biodiesel. Strong government support for R&D is also expected to encourage more private investment over the next few years.

Troubles in India

In India, though, the picture isn't quite as rosy. Its government has deferred introducing a mandatory 10% blending of ethanol, which was due to take place last October. This is the third delay in five years.

Reasons for the latest delay were reservations by auto manufacturers and rising alcohol prices. India requires 12.9m liters/year to achieve its current 5% blending norm.

The latest proposal is for a pilot-project study to be undertaken by Indian Oil Corp. involving E10 blending in the states of Maharashtra and Uttar Pradesh.

And despite the Thai government's commitment to biofuels, companies are rescinding licenses to produce because of falling crude and the credit crunch. The same is happening in the Philippines.

ENERGY SECURITY CONCERNS

But energy security issues persist despite the downturn, leading to a commitment to get policy right, says Woo. Current accounts could easily swing back into big deficits if crude prices once again surge on the back of lack of investment.

Biofuels are also a good way to support agricultural industries that are vitally important - politically and socially - in countries such as India, the Philippines and Thailand.

But coming up with an effective policy takes times, requires good data and a thorough evaluation of economic, environmental and social issues, adds Woo.

"It is important to utilise science and facts to establish the right road map. You need to also look at the total picture for energy usage and fuel efficiency, as biofuels may only ever provide 5% of a country's fuel needs.

"In Japan, the government actively looks into sustainability and has set up a committee to ensure that it's preparing its biofuels road map in the right way."

Good science means making use of fossil fuel-based octane boosters such as methyl tertiary butyl ether (MTBE), which, according to Woo, has a critical role to play in Asia and the Middle East in improving air quality.

The same applies to bio-ethyl tertiary butyl ether (bio-ETBE) - another ether that can help reduce the benzene, aromatic, olefin and sulfur content of gasoline.

"Most governments jumped into biofuels, thinking they were the main solutions to problems such as energy security and current account. It is not easy to get your approach right," says Woo, who adds that the ACFA provides free technical information for governments and companies.

Biofuels will perhaps only ever be one of a broad set of solutions for dealing with Asia's heavy dependence on imported oil and gas.

by John Richrdson (source: www.ICIS.com)

Read more...

Biobutanol Development Makes Headway

Developers find the best microbes in order to outdo ethanol in the biofuel race

BUTANOL, ALREADY a widely used industrial chemical, has the potential to outdo ethanol in the biofuels arena.

Biobutanol is said to offer several advantages over ethanol - it has a higher energy density, can be transported in existing pipelines, is easier to mix with gasoline or use alone in internal combustion engines, has a lower vapor pressure that makes it less polluting than ethanol, and can be managed in the existing gasoline distribution network.

The main problem, several biobutanol developers note, is the cost.

"The challenge with biobutanol has always been the low productivity of the fermentation process and the expensive cost of separating the fuel from the water," says Steven Shevick, chief financial officer of US-based Cobalt Biofuel.

"Now there are technologies than can improve fermentation productivity and reduce energy consumption in the separation phase to the extent of making biobutanol very competitive," he adds.

For the first half of the 20th century, biobutanol was produced via acetone-butanol-ethanol (ABE) bacterial fermentation using microbes such as Clostridium acetobutylicum. The ABE process was eclipsed by lower-cost petrochemical routes during the 1950s, says Ron Cascone, manager of biofuels development at US consulting firm Nexant.

While there are still several existing ABE-based biobutanol plants in China, the dominant petrochemical route today is the propylene-based oxo synthesis process.

Butanol has yet to be applied commercially as a fuel. "In practice, biobutanol is a much more attractive biofuel than ethanol, but developers have to go through certain hoops to get it commercialized," Cascone says.

Companies currently working on biobutanol include a joint venture between US chemical firm DuPont and UK-based oil giant BP US start-up firms such as Cobalt Biofuels, Gevo and Tetravitae Bioscience UK-based biotech company Green Biologics, and French biotech firm Metabolic Explorer.

In an investor conference late last year, DuPont vice president and general manager John Ranieri said the company's biobutanol venture with BP, which started in 2006, is on track to have an operational pilot plant this year and a commercial manufacturing process with economics comparable to grain ethanol by 2010.

DuPont won't disclose the microorganism the company uses, but says it already yields more butanol than the traditional process.

BATTLE OF THE BUGS

Biobutanol fermentation differs from bioethanol mainly in the use of bacteria rather than yeast. Yet, Cascone says it is feasible to adapt existing or new grain and sugarcane-based ethanol plants to produce biobutanol.

Most of the technology being developed in the US, Europe and Asia is based on genetically modified versions of the Clostridium to improve butanol tolerance and yield, says Cascone.

A challenge for biobutanol developers is that bacteria are poisoned by the butanol they produce once its concentration rises above around 6%. 

Cobalt does not disclose the kinds of Clostridium strains it uses, but said that it can run continuous fermentations over 1,000 hours, making its bioprocessing very efficient. Its organism can also use a wider variety of nonfood feedstock.

"We have refined our bug and our technique for selecting bugs we've run highly efficient and productive fermentations for long periods of time, and we have a very efficient separation technology, which are all now proven at the lab scale," says Shevick.

Cobalt Biofuels expects to build a 10,000-35,000 gal/year pilot plant this year. Between 2010 and 2011, the company hopes to build a demo-scale plant with a capacity between 2m and 10m gals/year, and to proceed to a commercial plant by 2012.

"Our goal is to try to accelerate the timeline in order to produce low-cost biobutanol first for the chemical market, and then to the transportation sector," Shevick adds.

Green Biologics says its microbial platform technology is based on a unique collection of heat-loving bacteria (thermophiles) and thermostable enzymes. The company's fermentation technology can process waste and by-product feedstocks such as molasses, a by-product of sugar production.

"The fluctuating commodity prices are a challenge for any biochemical company," says Green Biologics CEO Sean Sutcliffe. "For butanol producers, a deep insight into the microbial and fermentation processes and ability to switch feedstocks is needed to give good operating performance - and that's an opportunity for us."

Green Biologics says it has already tested its technology up to the 300 liter laboratory scale and is currently working with existing biobutanol producers to incorporate its technology into existing facilities.

Late last year, the company signed a letter of intent for a strategic partnership with a Chinese biobutanol producer. Green Biologics also plans to build a 1,000 tonne/year biobutanol demo scale in India with its partner Laxmi Organic Industries, a biochemical manufacturer.

"The first part of our goal is applying our improved technology to the biobutanol plants that have over 300,000 tonnes of capacity already built in China," says Sutcliffe. "Given the reduction in oil prices, they require our technology to switch to lower-cost by-products such as molasses and in due course, cellulosic feedstocks, to be competitive," he adds.

Green Biologics is currently offering new plant designs that combine its advanced microbial technology with existing process technology. The designs can be applied to retrofit small-scale existing molasses/cane juice/corn ethanol facilities of around 10,000 tonnes/year, to larger scale stand-alone plants with 30,000 tonnes/year or more capacity.

BREWING A BIOFUEL BLOCKBUSTER

More designer biobutanol microbes are expected to come out of the woodwork.

Hans Blaschek, a microbiologist in the College of Agricultural, Consumer and Environmental Sciences at the University of Illinois, is working on second generation strains of the soil bacterium Clostridium beijerinckii, which he himself developed 10 years ago at the Illinois laboratory.

The mutant bacterium, which reportedly produces higher concentrations of butanol when added to a vat of plant by-product, is currently the basis for Tetravitae BioScience's biobutanol technology. Tetravitae licensed the strain from the university and is scaling up to use it in larger ethanol plants.

Several scientists from the US Department of Agriculture's Agricultural Research Services (ARS) is also working on the C. beijerinckii bacterium - particularly the strain P260 obtained from the University of Otago in Dunedin, New Zealand. 

ARS researcher Nasib Qureshi said the strain was able to convert nearly 430 grams of sugar into 192 combined grams of ABE in a 22-day fed-batch operating period.

"If scaled up further, the process could yield 307 combined kilograms or 99 gallons of ABE from one short ton of wheat straw," said Qureshi in a statement. "The P260 strain produces a specific ratio of the three chemicals but efforts are now under way to develop genetically modified bacteria that will only make biobutanol."

Producing only butanol or other selected alcohols is what Gevo is aiming for with its patented process called Gevo's Integrated Fermentation Technology (GIFT). In 2007, Gevo was able to acquire exclusive license for certain modified E.coli bacteria from the University of California Los Angeles that can produce bio-isobutanol.

"Our technology produces one and only one product - isobutanol," says Gevo CEO Patrick Gruber. "With only one product produced in the fermentation, the economics and purity are improved. We also don't have to build greenfield, as it is simple enough to run it in ethanol plants."

Gevo says its technology can cost less than 30 cents/gal to retrofit an ethanol plant to make isobutanol. Isobutanol can also be converted to gasoline blendstocks for less than an additional 25 cents/gal.

"The production cost of our system is expected to be 50% of the cost of petrochemical-based processes even at modest oil prices like what we have now," says Gruber. "Our production processes are already proven at pilot scale. We have shown high-yield, high-purity isobutanol in a very low capital-cost system."

In November 2008, Gevo partnered with Kansas-based engineering and construction firm ICM to commercialize the technology. Gevo expects to begin operating a 1m gal/year plant in Missouri this summer by retrofitting an ethanol facility. The company aims to produce 20m to 50m gallons/year of isobutanol and other biobased hydrocarbons by 2011.

source: www.ICIS.com

Read more...