Biofuels hopes hit by high feedstock values and cheap US/Brazil imports

THE Renewable Transport Fuel Obligation comes into force from April 2008, but much of the UK’s fledgling biofuels industry is struggling to get started against a background of high domestic feedstock prices, a drying up of investment funds and a flood of subsidised cut price biofuel from abroad.

Credit: © FARMERS GUARDIAN please contact 01772 799445.

Harvesting oilseed rape. But how will the UK’s biofuel’s industry survive faced by cut-price imports from the USA and Brazil and high feedstock prices? And, could fuel from food crops could become a thing of the past?

The buoyant prices of feed wheat (used for bioethanol) and oilseed rape (for biodiesel) are over 50 per cent higher than the figures most biofuel projects budgeted for at the planning stages two or three years’ ago.

Today’s revised budgets just do not add up to profitable business proposition, with the consequence that some projects will never get off the ground while others are being put on hold.

One small piece of good news is that the rise in the price of crude oil towards $100/barrel has eased the cost differential between the mineral and biofuel feedstocks, and the biofuel investors with deep pockets are taking the long view that grain shortages will recover in a year or two and feedstock prices will fall as a result.

The continuing bad news is that the credit squeeze and downturn in the economy has reduced the availability and increased the cost of investment funds for start-up projects not backed by the multi-national big players.

The pioneering Wessex Grain spin-off Green Spirit Fuels is just one of the projects hit by the negative feedstock and funding environments.

Ambitious plans announced two years ago to build bioethanol plants in Somerset and Humberside to take one million tonnes of wheat between them (sourced from Wessex Grain and Gleadell from harvest 2007) have come to nothing so far. The company admits it is ‘treading water’.

Another company, Bioethanol, has gone very quiet – its website has been ‘under construction’ for a year, the address listed as its office was recently vacated and there is no response to e-mails.

This is the company that last year announced plans for a plant on Humberside requiring 325,000 tonnes of wheat from the 2007 harvest to be sourced on contract from Centaur Grain. The contract was conditional on the raising of finance for the project and expired in September due to lack of progress.

The troubled Biofuels Corporation biodiesel plant on Teesside had its trading facility on the AIM market of the London Stock Exchange cancelled in August after running up a loan facility of around £100million.

It is now effectively owned by Barclays Bank and is producing biodiesel at well below its 250,000 tonnes capacity due to operational problems and the uncompetitive cost of feedstock.

Waste-to-heat giant Losonoco planned a bioethanol plant on Teesside to come on stream in 2009 using 360,000 tonnes of wheat, but recently announced that it would no longer pursue projects that turn grain into ethanol ‘as we do not think that the economics of these projects are sufficiently attractive’.

The UK’s major biofuel player Greenergy has Farm to Forecourt contracts for 250,000 tonnes of rapeseed for 2008, mainly through Frontier and Grainfarmers. It recently started production from its second biodiesel plant at Immingham, to bring total biodiesel capacity to 200,000 tonnes a year, but it is understood that it has been running well below this level due to market conditions.

Credit: © FARMERS GUARDIAN please contact 01772 799445.

Other biofuel facilities planned or in production and which would use some domestic wheat or oilseed rape feedstock include:

Tees Valley Biofuels – it is over two years since plans were announced for a proposed oilseed crushing plant and refinery on Teesside to process up to 500,000 tonnes of rapeseed, sourced mainly from north east England by co-operative GrainCo. And eight months after Dublin-based energy company Bioverda purchased a majority shareholding it is still “carrying out a review” of the project.

BP and ABF (Vivergo Fuels) – building a massive £200m bioethanol plant near Hull with start-up due at the end of 2009 and requiring one million tonnes of wheat (sourced by Cargill) to produce 420million litres of ethanol and 330,000 tonnes of dried distillers dark grains.

Abengoa – leading bio-ethanol producer in Europe and not short of funds, now has plans for a bioethanol plant at Immingham capable of processing around one million tonnes of wheat and due to be operational in 2010.

Ensus – raised funding ahead of the credit crunch and is constructing a bioethanol plant on Teesside that will require up to one million tonnes of wheat supplied by Glencore, due for start-up in 2009.

Roquette – this international industrial company has just received outline planning approval for a 100,000-tonne bio-ethanol plant at Corby, but there are no firm plans to start construction.

Ineos – multi-national chemical giant has just been granted planning consent for a £90m biodiesel plant at Grangemouth on the Clyde, capable of producing 500,000 tonnes from UK oilseed rape from 2009.

Vireol – claims to be on course for production in 2009/10 with a bioethanol plant on the south bank of the River Humber with a capacity of 150,000 tonnes produced from local wheat.

Even if feedstock prices ease and investment funds return, these UK bio-ethanol and bio-diesel producers will still be faced with the challenge of cut price biofuel from the giant producers US and Brazil.

While the EC plans to reduce energy crop premium payments, the US will have spent $92billion on biofuel subsidies by 2012, according to the Swiss-based Global Subsidies Initiative, a significant proportion of which is in the form of tax credits for exports.

European biodiesel producers are outraged by a scheme whereby US producers can claim up to $300/tonne of fuel by adding 0.1 per cent of mineral diesel to biodiesel, which is then exported to Europe where it is eligible for EU biofuel subsidies.

This year the US used this ‘splash and dash’ loophole to export around 750,000 tonnes of its so-called ‘B99’ blend to Europe, where it sold at a discount of €120-180/tonne and was cheaper at times than the price of feedstock raw materials in the EU.

Unable to compete, biodiesel plants across Europe are being shut down or cutting back on production. Three weeks ago the European Biodiesel Board (the trade association of European biodiesel producers) took the unprecedented step of initiating legal action against what it claims is dumping of subsidised exports from the US.

The viability of bio-ethanol producers in Europe is also being threatened by supplies from Brazil and the US. Last year Brazil accounted for over 40 per cent of world ethanol production and exported over 3 billion litres made from sugar cane, which is a much more efficient feedstock than wheat.

Perhaps seeing the way the wind is blowing, Europe’s largest bioethanol producer, Abengoa, scaled back production in Spain and has bought stakes in the bioethanol industries of Brazil and the US.

Meanwhile, the really big players like ConocoPhillips, Shell and BP are investing heavily in second generation technologies to produce biofuels from non-food feedstock sources such as straw, wood and even algae and bacteria.

Fuel from food crops could become a thing of the past. The predicted timescale from now to start-up of second generation production – just 10-15 years.