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Politics : Sioux Nation -- Ignore unavailable to you. Want to Upgrade?

To: Wharf Rat who wrote (100569)	2/25/2007 11:37:23 AM
From: Wharf Rat	Respond to of 362363

Grain pain harms the biofuel industry Recent falls in oil prices aren't helping either, Fiona Harvey, Kevin Morrison and Mark Mulligan report -------------------------------------------------------------------------------- February 24, 2007 HIGH grain prices are threatening the nascent biofuels industry, raising input costs and making the fuel less economic compared with oil. Agricultural commodity prices have reached long-term highs in recent days, based on forecasts of hot and dry weather conditions this year in the US, which could result in lower grain yields. This comes after oil prices have fallen by a quarter from their record peaks last year. Corn prices reached another 10-year high for the second successive day, touching $US4.31 a bushel, up US5c on the day. Corn is the main feedstock for US ethanol producers. But its doubling over the past year at a time when oil prices are at the same level they were 12 months ago has raised questions over the viability of the biofuel industry, without heavy government support. High grain prices create problems for biofuel companies which produce ethanol from wheat and barley. Other biofuel companies make biodiesel from oil-bearing crops such as soya, peanuts, palm oil and rapeseed. The prices for most of these commodities have also risen strongly, reflecting strong demand for these crops as food, and additional demand from the biofuels industry. Christian Langaard, chairman of Euro-Latin Capital, which invests in biofuel projects, said: "This is causing problems for certain producers." Earlier this week, production problems were reported at a biofuel plant in Spain jointly owned by Abengoa and Ebro Puleva. The plant was reported to be running below capacity and a halt in production was under consideration. But Ebro Puleva said the plant was guaranteed feedstock into March, although it admitted that the high cereal prices were squeezing operating margins. Sophie Justice, director and head of renewables at RBC Capital Markets, says rising grain prices are one of the biggest issues for biofuel companies. She says: "There is a real risk (to these companies from the higher prices). The more uncertainty in the feedstock prices, the more the economics (of biofuels) are challenged." She says it shows that the biofuels industry is still heavily dependent on government subsidies in most countries. The biofuel industries in the US and Europe are cushioned against market prices by heavy government subsidies, which lessen the impact of higher grain prices. Justice also says investors in the biofuel market are unlikely to be deterred by the rise in prices. "There is a genuine sense that the ultimate economics will work and there will be a way to make them work, for instance by an increased demand for biofuels." Langaard agrees that investors are still "very interested" in the biofuel market, which has been spurred by the increasing emphasis on energy security in the US, Europe and east Asia. President George W. Bush announced plans earlier this year to reduce petrol usage by 20 per cent within a decade, largely by the increased use of biofuels. He said in his State of the Union speech last month that US ethanol and alternative fuel output was due to reach 160 billion litres a year by 2017. In Europe, the European Commission set a target of 10 per cent of road transport fuels to come from biofuels by 2020, because of concerns over climate change. Merlin Hyman, director of the UK's Environmental Industries Commission, a trade organisation for environmental companies, says concerns over higher food prices caused by farmers switching to biofuel production are being overdone. He says that if biofuels made up 10 per cent of transport fuels, there should be little problem in producing enough. He says: "I hope there will be enough feedstock to ensure that there is not too much conflict between food and fuel." Brazil is the world's biggest producer of ethanol and its industry will be unaffected by high grain prices, because its producers use sugar cane rather than wheat. Converting sugar to ethanol is more efficient than using wheat, and Brazilian companies are widely acknowledged to be the world leaders in efficient techniques to convert sugar cane to fuel. Concerns over biofuel supply have prompted the US to start discussions with Brazil over ways to create a global market for biofuels by promoting common standards, according to reports. Bush will meet Brazil's Luiz Inacio Lula da Silva in March. But the US has so far refused to budge from its tariff of US54c a gallon imposed on ethanol imports into the US. Although biofuels have been presented as a way of reducing greenhouse gas emissions, because the plants from which they are derived absorb carbon dioxide from the air as they grow, many environmental groups have begun questioning policies to increase biofuel usage. This is because some of the countries planning to produce more biofuels are destroying rainforest to make room for plantations to grow palm oil, sugarcane or other biofuel crops. Other experts have questioned the energy savings produced by using biofuels, which require energy input to convert them from plants to fuels, and in the form of fertiliser to grow the crops. theaustralian.news.com.au