Biofuels Growth to Be Limited by Cost, Technology (Update1)

By Angela Macdonald-Smith
April 18 (Bloomberg) -- Biofuels supply and demand growth will be limited more by economic and technological obstacles than by global land availability, said Wood Mackenzie Consultants Ltd., an Edinburgh-based energy consulting firm.
High production costs caused by the price of feedstocks is ``a significant constraining factor on demand,'' Alan Gelder, Wood Mackenzie vice president for downstream oil, said in an e- mailed statement. There are few commercially viable technologies available to meet the demand for biofuels made from non-food materials, he said.
Biofuels include ethanol, typically made from agricultural crops such as sugar or grains, and biodiesel, made from vegetable oils or animal fats. They are blended with gasoline and diesel to reduce pollution from vehicle engines. The European Union intends to boost the share of biofuels in transport fuel to 10 percent by 2020.
``In order for the EU to meet its renewable transport fuels targets, it will need to include higher quantities of ethanol in its transport fuels pool,'' Gelder said in the statement, released late yesterday after a study carried out jointly by Wood Mackenzie and Celeres, a Brazil-based agribusiness consulting firm.
The limited availability of economically priced biodiesel raw materials such as soybean oil could have an adverse impact on the refining industry, Gelder said.
Shell, Choren
Royal Dutch Shell Plc, Europe's largest oil company by market value, and Chevron Corp. have invested in technologies that will allow them to develop biofuels that aren't made of food crops, Sanford C. Bernstein & Co. said in December.
The Hague-based Shell said yesterday construction of the world's first commercial production plant to turn biomass into synthetic diesel fuel has been completed. The plant, built in Freiburg, Germany, by Choren Industries GmbH, will start producing fuel from wood waste in the next eight to 12 months, Shell said. It will have a capacity of 18 million liters a year of fuel. Shell has a stake in Choren.
In Asia, biofuels use will remain ``relatively low'' though the region will expand as an exporter of biodiesel and palm oil, the study shows. Brazil, where the production and use of biofuels is the most advanced in the world, is ``on its way to becoming the Saudi Arabia of ethanol,'' it said.