A fuel company's view

The Ministry of Economic Development (MED) was responsible for implementing the Biofuel Sales Obligation, during its short stint as law, estimated that, in the first year, the total obligation would have amounted to around 35 million litres of ethanol, or 24 million litres of biodiesel (which has a higher energy content). As both fuels would likely be involved in yearly sales, the ministry estimated the total litres of biofuel needed to meet the obligation in the first year would have been something between these figures – sourced from New Zealand or from overseas.

In its submission on the bill, BP Oil NZ, pointed out that although the target didn’t sound high, the way it was calculated and implemented, made it one of the highest in the world. BP calculated that to meet an obligation of 3.4 percent on an energy content basis, almost 90 percent of all 91 unleaded sold would have needed to contain a bio ethanol content of 10 percent, and 30 percent of all diesel sold would need to contain a five percent biofuel content. It claimed that biodiesel quality issues (and it is very difficult to make top grade product) meant oil companies would have had little choice but to make selected unleaded grades a nominal 10 percent ethanol blend.

Experience overseas, says BP, shows it could not run an ethanol blend below seven percent because of its affinity with water and separation issues when water is present in fuel tanks (storage or vehicle), which can lead to serious engine damage. And because ethanol absorbs water easily, it has to be transported separately as a fuel and blended close to the pump, pushing up distribution costs.

Nor are ethanol blends suited to the country’s car fleet age (one of the world’s oldest), it argued. And that did not take into account the machinery and generators used in the likes of the agricutlural and construction industries that are not suited to bioblend fuels.

Then there’s any new infrastructure at various levels in the supply chain to support biofuels. BP estsimated that it would have cost in excess of $20 million for investment in existing infrastructure.

“Oil companies will have little choice but to pass incremental costs onto the consumer, which BP estimates to be between two and five cents per litre for the additional cost of product and an additional five to 10 cents per litre for the infrastructure costs,” the company said in its submission when the bill was being pushed through last year.