Biofuel production capacity is forecast to reach 365 ML in 2009/10, surpassing the Federal Government target of 350 ML. Improved feedstock supplies and lower costs are likely to offset lower retail fuel prices.
Required Report - public distribution
GAIN Report Number: AS9023
BIOFUELS ANNUAL 2009
Grant Pettrie, Agricultural Counselor
Mike Darby, Agricultural Specialist
Biofuel production capacity is forecast to reach 365 ML in 2009/10, surpassing the Federal
Government target of 350 ML. Improved feedstock supplies and lower costs are likely to offset
lower retail fuel prices. However, a shortage of credit due to the financial crisis and the lack of
new policies at the Federal government level are inhibiting further developments according to
P Commodities: ost:
1. Domestic Policy Environment
Australia?s energy production continues to exceed its energy consumption making Australia a
significant net energy exporter. For example, according to the Australian Bureau of Resource
Economics (ABARE), Australian resources of uranium account for 38 percent of the world?s
uranium resources and Australia?s brown coal resources represent around 24 percent of the
world?s brown coal resources.
In terms of energy sustainability, at current levels of production, Australia?s reserves of brown
coal, black coal and conventional gas are expected to last 500 years, 100 years and 60 years
Despite the energy surplus, Australia is a net importer of liquid hydrocarbons (including crude
oil, liquid petroleum gas (LPG) and other refined and semi-refined petroleum products).
Australian reserves of crude oil and condensate represent only a small proportion of total world
In 2009, Australia is forecast by ABARE to produce 27,906 ML (million liters) of crude oil and
condensate, export about 17,188 ML and import 30,214 ML. Long term projections have
production peaking at 29,011 ML in 2012, exports peaking at 17,987 ML in 2011 and imports
peaking at 32,896 in 2012.
Production of biofuels in Australia received much media attention in 2007 and 2008. The
primary driver in biofuel interest is energy prices. As energy prices have increased, so too has
pressure on governments to find alternate energy sources. More recently however, interest in
biofuels has subsided in line with reduced fuel prices.
A secondary driver for biofuels policy has been the debate over climate change. The
occurrence of a severe and prolonged drought, the worst in over 100 years, has bought the
climate change debate center stage. This, combined with a change of government at the
federal level, is likely to see continued pressure to provide environmentally friendly policy
Despite the media attention and the prominence of the climate change debate, the current
Government of Australia (GOA) has yet to send a clear signal regarding biofuel policy. At
present, the industry continues to operate under the arrangements made by the previous
At a regional level within Australia, many ventures into biofuel production, using locally
produced grain, have been proposed. However, extreme grain supply shortages together with
a shortage of venture capital, due to the global financial crisis, have seen many domestic
biofuel ventures either shelved or abandoned.
Despite the attention placed on biofuel production, the industry remains in its infancy. One
report put biofuel production at about 0.5 percent of petrol (gasoline) consumption and about
1.0 percent of diesel consumption, although industry sources suggest these figures are too
a. Policies Supporting the Production and/or Use of Biofuels
The GOA has a broad range of policy instruments that affect the production of biofuels. These
instruments include a production target, fuel taxes (excise), fuel quality standards, grants and
labeling as reported in GAIN Report AS 7032.
In 2007, Australia elected a new Federal government. The new Labor government has not yet
made any substantive policy changes in regards to biofuel. In a recent speech made to sugar
cane producers the Minister for Agriculture stated that ?how we deal with those policies is
something that is still being worked through?.
The GOA is due to release an ?energy white paper? at the end of 2009 and as part of this
process has released a ?strategic directions paper?. This paper makes no mention of biofuel,
however consultation with biofuel industry stakeholders revealed an intent to make
submissions to this process. Industry sources believe that any new biofuel policy
announcement will likely be made following the release of the white paper.
Both ethanol and biodiesel are currently free from excise taxes, currently applied to diesel and
petrol. This exemption is made in the form of ?production grants? which effectively provide a
subsidy at the same rate per liter of fuel as the excise that would be levied ? A$0.381 per
liter. This scheme is due to commence scaling down in 2011/12 when the effective assistance
rate will fall to A$0.234 and will continue to fall through 2015/16.
Biofuels Excise Rates for Australia
Fuel Type Ethanol Biodiesel
Excise Effective Excise Effective
Applied Relief Applied Relief
2005/06 0 38.1 0 38.1
2006/07 0 38.1 0 38.1
2007/08 0 38.1 0 38.1
2008/09 0 38.1 0 38.1
2009/10 0 38.1 0 38.1
2010/11 0 38.1 0 38.1
2011/12 2.5 23.4 3.8 32.1
2012/13 5.0 20.9 7.6 28.3
2013/14 7.5 18.4 11.4 24.5
2014/15 10.0 15.9 15.3 20.6
2015/16 12.5 13.4 19.1 16.8
At a state level, New South Wales increased its volumetric mandatory inclusion policy for
ethanol to legislation. Under this legislation, by 2011, the inclusion level of ethanol in petrol
will be ten percent. Industry sources believe that this will equate to roughly 120 ML of ethanol
per year. This follows the volumetric mandated level of two percent implemented in 2007.
Under this mandate, ?each supplier of wholesale fuel for sale in NSW will be required to
provide evidence on a quarterly basis from September that ethanol makes up at least 2 per
cent of the total volume of petrol they sell in NSW?.
The state of Queensland has committed to a mandate of volumetric inclusion of five percent by
2011. Victoria and Western Australia have a biofuel ?target? of five percent by 2010. The
states of Tasmania, South Australia and the Northern Territory remain uncommitted.
b. Size of Total Motor Vehicles Petroleum Based Energy Market
According to ABARE, total consumption of petroleum products for 2009 is estimated at 58,119
ML (million liters) and is projected to increase steadily to 61,463 ML in 2014. Automotive
gasoline makes up about 55 percent of Australia?s transport fuel demand while diesel
represents about 45 percent. Liquid Petroleum Gas (LPG) is included in this petrol figure and
represents about 8.4 percent of ?non diesel? transport fuels.
Source: ABARE data
According to government reports, the demand for diesel has been growing at about three
percent faster than automotive gasoline which has been growing at a rate of about 1.2
percent. Despite the growth in diesel fuel consumption, the overwhelming majority of new
cars sold in Australia are run on automotive gasoline.
c. Biofuels Production Capacities, Current/Planned
Post estimates biofuels production capacity for 2008/09 at 255 ML, representing about 180 ML
of ethanol and 75 ML of biodiesel. According to post?s calculations, this would put biofuel
production at about 0.4 percent of total liquid fuel consumption.
Post anticipates continued increases in ethanol production capacity while biodiesel is likely to
remain unchanged in 2009/10, bringing total biofuel production to around 365 ML. If
achieved, this level will have exceeded the GOA target of 350 ML. Post advises that many
plants are currently operating below potential capacity making it difficult to forecast actual
production. Furthermore, some plants have closed.
Many proposed biofuel projects have either been shelved or abandoned and the recent global
financial crisis appears to have only exacerbated this situation. Industry sources currently
report that the lack of strategic policy direction at the Federal level is also currently inhibiting
investment in the biofuel industry.
Current ethanol production facilities
(Million Liters ? ML)
Production facility/location Principle feedstocks
Manildra Group ? Nowra NSW Waste wheat starch
CSR Distilleries ? Sarina Qld Molasses
Dalby Biorefinery Grain
Source: ABARE, 2008
Current and Proposed Biodiesel production capacity
(Million Liters ? ML)
Biodiesel Capacity Principle Feedstock
Biodiesel Ind ? Rutherford NSW Tallow and used cooking oil
Biodiesel Producers Barnawatha
Smorgan Fuels ? Laverton Vic Tallow and used cooking oil
Eco-tech Biodiesel ? Narangba Qld Tallow and used cooking oil
Source: Post Estimate
d. Feedstock Supply
Suitable feedstock supply for biofuel production, such as grain, reached historically low levels
during the prolonged and severe drought which began in 2002. Post forecasts have production
of winter cereals and sorghum returning to near average levels in 2009/10. Prices for these
commodities will also likely remain at levels closer to the long term average, down from the
record highs of 2007/08. Increased production of grains and reductions in grain prices will
likely benefit biofuel producers who rely on grain and grain derivatives for feedstock.
Production of other agricultural commodities such as sugar and molasses remain at around
average levels; however competition and prices of these commodities have increased
significantly ? partly due to drought and partly due to increased demand. Supplies of by-
products for biofuel such as tallow and other vegetable oils have reached record or near record
Post advises that feedstock supply, particularly in terms of winter cereal grain and sorghum, is
forecast to return to levels more reflective of the long term average in 2009/10. Due to
severe and persistent drought conditions which began in 2002/03, grain inventories remain at
levels well below the historical average. Inventories are expected to improve in 2009/10
although they will not likely exceed the long term average.
Source: ABARE data
The reduction in feedstock supply since 2002/03 and associated high feed grain prices has also
constrained the production of other commodities. The Australian cattle lot feeding sector has
also been greatly constrained by the lack of feed grain. Numbers of cattle on feed have
declined sharply as feed grain inventories have dwindled. Biofuel manufacturers who rely on
grain as feedstock experienced the same downward pressure.
The Australian lot feeding sector has made repeated statements regarding their opposition to
the policy arrangements for producing biofuel in Australia. The core of their opposition relates
to the perception that the ?playing field just isn?t level?. Provision of capital grants, relief from
fuel excise taxes and government ethanol mandates are believed to assist in distorting prices
for feed grains, a vital input for Australian feedlots. The lot feeding sector has however,
supported second generation research into producing biofuel from feedstocks other than
2. Import Regimes for Biofuels
Australia has placed tariffs on imported ethanol, which can be imported below the cost of local
production. The tariff rate, $A 0.38143 cents per liter is expected to reduce the
competitiveness of imported fuel ethanol, particularly from Brazil. The production cost of
Brazilian ethanol is reported to be well below the cost of production for Australian ethanol.
However, according to industry sources a tariff on imported biodiesel has not been applied.
3. Australian Energy Situation and Outlook
a. Liquid Energy Outlook
According to ABARE, demand for petroleum products is projected to increase at around 1.5
percent per year out to 2014. This figure has been revised downwards from two percent
previously projected by ABARE. This revision takes into consideration the recent global
financial crisis and its impact on economic growth over the period.
However, production of liquid energy (as crude oil and condensate) is forecast to peak by the
end of 2012 and any increase in consumption from this point in time will likely need to be met
by increased imports.
Post anticipates that as the local production shortfall begins to accelerate post 2012, domestic
production of biofuel as an ?import replacement? will begin to grow in significance.
b. Fuel Prices
Prices for transport fuel (both petrol and diesel) have decreased significantly since the peak of
2008. Furthermore, in 2009 the price of diesel fell below the price of petrol for the first time
since the beginning of 2007.
Post anticipates that the recent fall in the retail price of transport fuel will likely offset, at least
partially, the benefit gained from the fall in cost of feedstocks such as grain.
Recent Reports from FAS/Canberra
The reports listed below can all be downloaded from the FAS website at:
Number Title of Report Date
AS9020 Dairy & Products Semi-Annual 05/15/09
AS9018 Cotton Annual 04/28/09
AS9016 Sugar Annual 04/02/09
AS9015 Grain and Feed Annual 2009 03/20/09
AS9014 Stone Fruit Annual 2009 03/13/09
AS9012 Agricultural Economy and Policy Report 03/12/09
AS9010 Livestock Semi-Annual 03/06/09
AS9009 Government Announces A$32m Research into Soil Carbon & Emissions 03/06/09
AS9008 Wine Annual 2009 03/05/09
AS9007 New Import Conditions for Chicken Meat Finalized 03/05/09