Thursday, October 11, 2007

Energy or Food? – Overcoming the Biofuels Dilemma

Mriganka Jaipuriyar, Platts News Editor

Biofuels offer new sources of energy but attention has increasingly focused on the threat of higher food prices. Some options may, however, avoid the problem.

IN ITS AGRICULTURE OUTLOOK 2007-2016, the Organization for Economic Cooperation and Development highlighted that growing demand for biofuels is fundamentally changing agricultural markets and driving world food prices up. Against this background, some biodiesel producers are turning to jatropha curcas as their preferred feedstock amid soaring prices of traditional feedstocks such as palm oil.

Jatropha curcas is an inedible shrub that can be grown on semi-arid land, and therefore does not compete for space with good agricultural land. Under optimum conditions jatropha seeds can yield up to 40% oil content. Seeds are crushed to produce oil for refining into biodiesel.
Moreover, jatropha-based biodiesel producers typically have control over the entire value chain from plantations to refining, and hence are better able to manage costs. By comparison "buying palm oil from the 'big boys' means that we will have to buy at international prices, dictated by others," according to Peter Cheng, CEO of Van Der Horst Holdings.

Cheng's company has embarked on a project to build a 200,000 mt/year biodiesel plant in Singapore. It will break away from conventional palm oil to use jatropha as feedstock, affording the company more control over its raw material costs.

"We intend to grow our own agricultural oil from japtropha curcas and marine algae," Cheng said. "By employing manpower to harvest our own jatropha from our own plantation means that we are in control of our own feedstock."

A similar story comes from the Philippines which currently produces some 115 million liters of biodiesel annually from coconut and palm oil. Planned jatropha projects are expected to significantly lower costs, Peter Anthony A. Abaya of state-owned Philippine National Oil Co-Alternative Fuels Corp. said. PNOC-AFC was set up in 2006 to lead the country's biofuels development.

"According to our calculations, we can sell jatropha-based biodiesel at Peso 35/liter and still make a profit," Abaya said.

PNOC-AFC has signed an agreement with South Korea's Samsung to set up an integrated jatropha plantation and biofuels plant project. Their preliminary plan is to develop a 120,000 hectare jatropha plantation and a 200,000 mt/year biofuels refinery.

However, not all biodiesel producers favor alternative crops such as jatropha. Andrew Goh, chief financial officer of Malaysia-based Carotech, said his company would not use jatropha. "We would not use such feedstock as it does not allow us to maximize our return. With palm oil, we are able to produce biodiesel, glycerin, palm vitamin E, beta carotene and sterols (steroid alcohols)."

"You will not be able to extract the vitamin E, beta carotene and sterols from jatropha," Goh said. "Therefore, assuming the cost of jatropha oil is the same as those of palm-a very optimistic assumption-we will lose 50% of our revenue by using jatropha."

But jatropha has powerful supporters. Oil major BP is setting up a joint venture with UK biodiesel producer D1 Oils that aims at becoming the world's biggest producer of jatropha oil. D1 Oil specializes in making biodiesel from jatropha with plantations in India, southern Africa and Southeast Asia.

The venture plans to invest $160 million over the next five years and produce up to 2 million mt of jatropha oil a year by 2011.

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