Biofuels falling off a cliff according to report


Annual review sees slump in demand and supply with bio-diesel hit badly

Biofuels falling off a cliff according to report
The bio-diesel industry has collapsed, the report says

 

Alternative transport fuels’ struggles in Australia continue with a new report showing fuel-grade ethanol use at a six year low and a collapse of the bio-diesel industry.

The report, Australian Biofuels 2017, by APAC Biofuel Consultants, a joint venture between EnergyQuest and Ecco Consulting allows only the merest sliver of a silver lining in non-food sourced feedstock projects.

But that is all but overwhelmed by a slump in demand and supply, according to the annual review of commercial, economic and policy developments currently affecting the Australian biofuel industry that confirms an accelerating trend the authors identified in December 2015.

The bad news in Australia comes as European truck manufacturers and some fleets have invested in the fuel and technology through the decade.

Demand for all biofuels also slumped in 2015-16 to 255 ML – down 63 per cent on the previous year driven primarily by the sharp decline in biodiesel consumption. 

Annual fuel-grade ethanol consumption in 2016 dropped more than 95 megalitres (ML), its lowest level from its peak of 319 ML in 2010-11.

"Australian motorists have been shunning ethanol blended fuel by switching to other grade fuels or seem unconvinced of the benefits of E10 [10 per cent ethanol blended with petrol]," Australian Biofuels 2017 co-author and APAC Biofuel Consultants joint CEO Mike Cochran says.

"But more startling, the report reveals the Australian biodiesel market is in freefall.

"Biodiesel supply in Australia fell by 92 per cent, from 442 ML in 2014-15 to about 35 ML in 2015-16. 

"For 2016, we estimate Australia’s biodiesel production/consumption to be around 15 ML – continuing the stunning decline of the industry."

by APAC’s estimates, biofuels  as part of Australia’s overall transport fuel mix slipped from 1.4 per cent by volume in 2014-15 to 0.5 per cent in 2016. 

Globally, Australia makes up around 0.2 per cent of world ethanol and biodiesel production.

Though

Perhaps the biggest hit to supply was the failure 18 months ago of Australian Renewable Fuels (ARF), with low conventional fuel prices taking some of the blame.

Ethanol’s stake in the Australia market is strongly government-dependent and therefore controversial.

There have been mixed performances to state-based mandated retail measures.

The report reveals "signs of increasing ethanol consumption" in Queensland following a state government 3 per cent ethanol mandate coming into effect from January this year.

"At the same time, to stem declining demand for ethanol blended fuels under its 2007 legislation, the NSW Government last year controversially amended its mandate, placing the responsibility on retailers (previously primary wholesalers) to meet its 6% ethanol mandate," Cochran says.

"It is still questionable whether the NSW mandate has generated new regional development or created additional regional jobs as was intended."

Meanwhile, a recent Australian Productivity Commission review into the Australian agriculture sector in 2016, saw it recommend the removal of ethanol mandates and excise arrangements as these policies "have negligible environmental benefits and come at a high cost".

There are mixed messages too.

While Canberra has made heavy investments in supporting its growth, it has also taxed imports at parity with other fuels in a move that coincided with local production declines.

The report notes that between 2006 and 2015, the Federal Government paid out $1.35 billion in grants to the ethanol and biodiesel/renewable diesel industries. 

"We would argue that the Australian industry currently has little to show for that expenditure," Cochran says. 

"The recent collapse of the Australian biodiesel industry is further evidence that the federal government’s biofuel support schemes need to be overhauled if they are to provide more effective and sustainable support to the industry."

The report advocates an urgent review of the application of excise on biofuels.

"In Australia, all fuels – except ethanol and biodiesel – are treated as ‘excise equivalent goods’… that is, the same Customs Duty/excise rate applies to both imports and domestic production," Cochran says.  

"However, domestically-produced ethanol and biodiesel receive concessional excise rates, whereas the full standard (petrol/diesel) excise rate is applicable to biodiesel and ethanol imports.  

"Imposing the full excise on biodiesel imports in mid-2015 was the largest single factor contributing to the recent decline of the Australian biodiesel market.  

"Making biofuel imports ‘excise equivalent’ would need to be part of any overhaul of support schemes."

The silver lining sliver relates to initiative last year including:

  • Southern Oil Refining’s (SOR's) construction of a $15 million bio-refinery facility in Gladstone with Australian Renewable Energy Agency (ARENA) support, following Queensland government’s launch of its Biofuels Acceleration Program for new bio-refineries in the state
  • Virgin Airlines and Air New Zealand called for expressions of interest to investigate options for locally produced, aviation bio-based, drop-in jet fuel as an opportunity to reduce emissions and build a long-term fuel security for the sector. 

Virgin has "confirmed strong interest in the concept and it is now a work in progress" the report says.

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