ABG chairman Dr John Keniry said the company expected total biodiesel sales for 2006 of around 17.5 million litres, a reduction on the previous forecast by 2.5 million litres.

The company was now moving to cut corporate overheads by one third by reducing operating overheads and personnel. The restructuring is expected to provide a total saving of around $5.5 million in 2007, as well as ongoing annual savings, he said.

Keniry attributed ABG’s hardships to the “difficult and evolving biodiesel market”.

“The revision to Federal fuel excise on July 1, 2006, which rendered biodiesel uncompetitive in several key markets, has severely impacted on ABG’s ability to accelerate sales at the rate anticipated,” he said.

Sales have also been adversely affected by the later than anticipated inclusion of biodiesel into the 8.4c per litre Queensland State Fuel Subsidy Scheme, finally introduced on December 1, and the declining oil price, which has fallen around 16% over the past four months, he added.

These factors, when combined with rising feedstock costs resulting from the drought, the negligible uptake of biodiesel by oil majors and delays in achieving production efficiencies, will result in an estimated loss for 2006 of $13.4 million, including around $500,000 in restructuring costs, he said.

ABG reports on a calendar-year basis.

ABG has secured a $5 million overdraft facility and is considering a rights issue and other initiatives to raise further capital funds in 2007.

“The additional funds will allow ABG to undertake a nameplate capacity trial at the Narangba [Queensland] facility, further progress North American development activities and provide working capital,” Keniry said.

ABG will continue to supply its existing New South Wales customers with biodiesel produced at the 160 million litre per annum Narangba plant.

The company said it was in the final stages of commissioning its Narangba biorefinery, with the site offering a lower cost of production compared to the smaller and older Berkeley Vale, NSW facility.

“The company does not expect total biodiesel sales to exceed the production capacity of Narangba during 2007,” Keniry said.

The Berkeley Vale plant will be mothballed under care and maintenance with a skeleton crew. Around 75% of the personnel at the site will be made redundant immediately. The mothballing of Berkeley Vale will continue for three months, then ABG will review the status of the site. The company will also mothball its vegetable oil crushing mill at Moree, NSW.

“Crushing for ABG and external customers has been very restricted this season, due to the worsening drought, with little change expected in the first half of 2007,” Keniry said.

“ABG has recently completed the trial crushing of mustard seed for biodiesel production at the mill, and the Moree facility will now be mothballed.”

North American developments

With the Australian biodiesel market under a cloud, ABG is keen to secure a foothold in the more lucrative North American market.

Worley Parsons engineers have completed the license material package for the ABG technology, which was delivered to Dominion Biodiesel (formerly Calgary Biodiesel Centre) during November.

Under the terms of the license agreement, Dominion has three months from the delivery of materials to assess the offering and receive cost estimates.

Having completed this development phase, ABG will close its development office in Canada and re-direct resources to a project in the US, the Tri-Cities development in St Louis. This project is expected to be ready for development assessment by the ABG board during the first quarter of 2007.

Outlook for 2007

During the second half of 2006, ABG has progressively transformed its customer base to a focus on sophisticated fuel wholesalers blending biodiesel with mineral diesel in proportions of about 20%, such that the resulting blend meets the Australian diesel standard, Keniry said.

“This market now represents 69% of the company’s sales,” he said.

“ABG has completed considerable groundwork to develop this market and the company expects significant sales growth from this customer base in 2007, provided the oil price stabilises at around current levels and the Australian Government makes no further adverse changes to the rules governing the use of biodiesel in Australia.”