Biofuel needed to prevent greater oil price rises, say producers

Crude oil prices could move even higher if biofuel subsidies were to be scrapped, biofuel proponents told Platts in the week ended June 27 in response to recent criticism that biofuels is responsible for around one-third of recent food price increases.

The biofuel going into diesel blending would have to be replaced by conventional fossil fuel, pushing oil prices even higher, Henri Bardon, Singapore-based managing director of Vertical Asia, said.

Vertical is 50% owned by COSAN group, an ethanol and sugar producer in Brazil.

The OECD forecasts that food prices, in particular the cost of cereals, will remain high and that development of biofuels is responsible for about a third of recent rises.

The European Union is by far the largest consumer of biodiesel, accounting for over two-thirds of the total world's consumption.

Bardon noted that the correlation of food price hikes is more closely tied to that of crude oil than biofuels.

"If crude falls below $100/barrel, you would see a similar decrease in the price of most commodities," he said.

The biofuels industry is looking at all alternative feedstock options as the use of food products is neither economically nor socially prudent in the long run, Mike Thorley, chief operating officer of Malaysia-based SPC Biodiesel noted.

SPC Biodiesel is a unit of Australian Stock Exchange listed-Sterling Biofuels Group.

"Obviously this is just another platform for the food versus fuel debate, one of which we are very aware and naturally very sympathetic. However, there is a need to look at some facts and more importantly consider the alternatives," Thorley said.

"If we convert all vegetable oils into biodiesel this would represent about 3% of the world's annual fuel requirements. The biofuels industry, in its current state is really supplying an 'additive,' but one that can deliver cleaner fuel consumption and thereby prove beneficial to the greenhouse gas impact we are currently facing," he added.

The use of farmland for biofuels has become a controversial topic stoked by rising food prices. The issue was debated recently by the United Nations food summit in Rome.

An OECD agriculture official had urged that biofuel subsidies be scrapped, saying this was the quickest way to fight rising food prices, according to a media report.

Peter Brabeck-Letmathe, chairman of Swiss-based multi-national food company Nestle, had also said at the recent World Economic Forum on East Asia that a third of the food price increases is due to governments promoting increased biofuel production.

But the European Commission supports expanding biofuel agriculture and wants to see 10% of all transport to be powered by such fuels by 2020, it said.

That goal is "imperative," Klaus-Dieter Borchardt, an EU agriculture official, was quoted as saying in the report and warning against making biofuels "the whipping boy" of soaring food prices.

Borchardt pointed out that "the first generation of biofuels is in a necessary transition phase" and crops would eventually be replaced by waste products and wood as sources of energy, the report said.

Created: July 3, 2008

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Petrochemical Report covers developing market stories, tracking the trends and changes in prices that affect the industry, including trade, environmental, and regulatory issues. It also provides weekly tables detailing industry projects, operations, and trade statistics, plus the monthly Platts Pricescore, offering global monthly price averages for more than 100 Platts assessments.