Kiwi biofuel production

During the progress of the government’s Biofuel Sales Obligation last year, the Ministry of Economic Development said the ‘obligation’ targets had been set at ‘practical’ levels that reflected the quantity of feedstock currently available for local biofuel production.

However, finding enough feedstock for large-scale domestic biofuel production was always going to be a tough call for the handful of Kiwi companies investing in this sector, and who were also worried that the Biofuel Sales Obligation, as it stood, would have only encouraged oil companies to import subsidized ethanol.

In 2006 the local market produced around five million litres of biofuel per year, or less than one fuel company’s obligation of six million litres under the now canned obligation.

Cost effective production of ethanol, made from starchy materials such as plants or diary processing waste, and biodiesel, produced from vegetable oils or animal fats, is dependant on the lowest value/cost materials sourced.

The big ethanol producing countries such as the United States have access to vast crops of yellow corn and soybean, while Brazil converts half its sugarcane crop into biofuel. In Northern Europe they use rape or canola oil; sunflower oil in Southern Europe, and palm or palm kernel oil in Asia.

In New Zealand ethanol is already produced in quantity by Anchor Ethanol, a Fonterra subsidiary, with distilleries at Reporoa, Edgecumbe and Tirau producing around five million litres of different grades of ethanol a year from fermenting the lactose in whey, a waste product from cheese and casein manufacturing.

Most of Fonterra’s ethanol is sold for use in a diverse array of products from potable spirits to printing inks, cosmetics and wine vinegar. A small amount is sold to Gull for in its Force 10 petrol blend, however, Fonterra made it clear to Energy NZ that it will not be increasing its ethanol production. It is more profitable to produce lactose from whey and sell it on the world market.

There are announced plans to produce ethanol in

New Zealand from other feedstock by other companies, but hemically altering plant oils and animals fats to make biodiesel takes less energy than distilling plant material into ethanol. However, making biodiesel to high standards is not easy and requires heavy investment in plant.

The Ministry of Economic Development reckoned there’s enough tallow from the meat processing industry to make between five and six petajoules of biodiesel. This presumes tallow producers are inclined to sell big volumes to the domestic market. Most of our tallow (85 percent of an annual production of 150,000 tonnes) currently goes overseas, particularly to Asia, where it is converted to feedstock, hard soaps and other chemical products. As our tallow is BSE (mad cow disease) free, demand from overseas is high.

The original Government analysis on the economics of biodiesel was made when export tallow attracted $625 a tonne. Last year it was selling overseas for $1000 a tonne, and why would Kiwi tallow producers sell on the domestic market for any less than export price?

Someone who still has great faith in the country’s tallow reserves as the best feedstock for biodiesel is Argent Energy (UK) director Dickon Prosnett.

Argent Energy’s plant in Scotland has been supplying major oil companies in Britain and Europe for more than two years, with trucks, buses and cars running on European standard biodiesel blends.

Prosnett arrived here in 2006 to work on a feasibility study for the construction and operation of a plant that would use tallow and used cooking oil to produce biodiesel. After almost two years battling with the Labour-led Government over its bio-fuels policy, he packed his bags in August last year and returned to the UK; very despondent over what he still views as a massive wasted opportunity for the country to develop a domestic bio-diesel industry.

Tallow is “consistently” cheaper as a feedstock than cooking oil, palm oil, soybean oil, and almost any other plant oil, he told Energy NZ from his UK office.

“New Zealand tallow did touch $1000 a tonne but at the same time, palm was holding the differential at between $1200 – $1300 a tonne, and oil was US$140 a barrel. 

“Tallow was still the cheapest feedstock, including imported yellow grease from Australia and was considerably less than diesel at the time.”

 Prosnett says he demonstrated to the Government last year that the introduction of biodiesel into the country’s fuel supply in the quantities outlined in the Biofuel Bill would have only a “tiny impact” on fuel even if tallow was at $1500/tonne.

 Argent Energy was prepared to pay the going price to tallow here and “probably a little more”, says Posnett.  However, he was less happy about other aspects of the Biofuel Sales Obligation.

While in New Zealand, Prosnett was the spokesperson for the NZ Biofuel Manufacturers Association (NZBMA), who members also included Biodiesel New Zealand and Aquaflow Bionomic Corporation. The association was hopping mad over the Government’s decision to waiver excise on ethanol until 2012, while biodiesel would attract a fuel duty through the road user charge.

Argent Energy says its decision to shelve plans to invest more than $100 million in a New Zealand biodiesel plant was largely based on this “uneven playing field” and called it a “government backed subsidy on ethanol” that amounted to $0.42 cents a litre.

Oil companies are encouraged to import sugar cane ethanol from Brazil for the economic advantage, at taxpayers’ expense, claim NZBMA members.

“Oil companies are being incentivised to import ethanol. That makes it utterly uneconomic to invest in the domestic biodiesel plant we were proposing to build,  Prosnett told the press last year.”

Posnett claimed the subsidised American “splash and dash B99” fuels (biodiesel with one percent or less fossil diesel added before exported) had already decimated the European biodiesel industry and is the focus of an international trade complaint

In the US, B99 attracts a tax credit of nearly US 30 cents a litre that puts its price on arrival in the EU below that of local raw materials, says Posnett.

Argent’s proposed plant in New Zealand would have produced 80 million litres of bio-diesel a year from tallow as well as waste cooking oil. Posnett says while the plant has now been shelved, Argent is not shutting the door on NZ completely. It will “keep a close eye on the situation” over the next few years, particularly under a National-led Government. 

Energy minister Gerry Brownlee says the Government is taking a keen look at incentives around biofuels and in particular the disparity with bio-ethanol being exempt from road user charges while biodiesel is not.

 “At this stage we have asked officials from various government departments to look at this issue and report back to us with recommendations.  I haven’t received those reports yet.”