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.
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)
