Much of the attention on Australian bio-ethanol has been focused on Queensland, where the sugar industry has been lobbying for a regulatory framework that would help an ethanol industry find its feet.

The Dalby Biorefinery project in Queensland, under the leadership of former independent fuel retailer Chris Harrison, hopes to begin construction of its ethanol plant this year with production scheduled for 2007.

Harrison is a strong advocate for improvements to the regulatory framework governing emerging biofuels, saying Australia must work hard to create an independent fuel industry as soon as possible.

“Fossil fuels have been around for 150 or 200 years, and I’m sure that the tax breaks they were given when they started up are no different to what the renewable fuels industry requires now,” Harrison said.

“When you look at the benefits of renewable fuels, to expect the country to just wait until hydrocarbon fuels become too expensive and then give birth to the biofuels baby overnight is nonsense. It will require some nurturing until those things come into place.”

Other Australian companies have decided not to wait, taking their business to where the action is and acquiring active ethanol plants in other regions.

Australian Ethanol Limited (AAE) has turned its attention to the US to gain entry into the ethanol industry while continuing to develop several domestic projects it expects to reach production in the next few years.

AAE chairman and chief executive Peter Anderton told EMN that the relative success and consumer acceptance of ethanol as a biofuel in America had made it relatively easy for the Australian company to secure financing for US ethanol projects.

“But you can’t just transplant the American ethanol industry to Australia, it won’t work,” Anderton said.

AAE negotiated the purchase of US ethanol producer Denco, but recently sold the acquisition rights to Babcock & Brown Environmental Investments (BEI).

Anderton said the sale had generated additional capital that would let AAE pursue other existing US ethanol producers with less project-related debt.

Perhaps more importantly, the Denco acquisition process has given AAE a presence in a competitive biofuels market, which will help the Perth-based company prepare for future projects in Australia.

“We may be a small company in Perth, but we’re looking to start an oil company that can stand alongside the majors,” Anderton said. “That’s the vision.”

On the other side of the Denco acquisition, BEI is also more inclined toward international investment in ethanol.

Since the investment group listed on the Australian Stock Exchange last July, it has strong prospects for active biofuels projects on three continents.

As part of Babcock & Brown’s recent $A1.47 purchase of Portuguese energy company Enersis, the company acquired a wide range of renewable energy projects, including an ethanol plant.

The Portuguese ethanol pant could be transferred to the BEI portfolio following due diligence on the project, according to B&B executive Greg Haustorfer, who also works with BEI under the strategic management agreement between the two companies.

BEI also has biodiesel interests in Australia through its investment in Natural Fuels Australia, which is currently building a biodiesel plant in Darwin.

But Haustorfer has reservations about ethanol’s potential to succeed in Australia, citing both the supply and location of feedstock sources as potential barriers.

“I think the ability for Australia to utilise renewable fuels from home grown feedstocks is limited,” Haustorfer said.

However, neither AAE or the Dalby Biorefinery believe sourcing feedstock will be problematic for their operations.

The Dalby Biorefinery will initially produce its ethanol from locally produced sorghum, although Harrison said the plant will have the capacity to use other feedstocks depending on the availability and pricing of different crops.

“Sorghum is a very easy product to use, with technology that has been absolutely proven, but within the next couple of years we’ll see new technologies,” Harrison said.

“We’ll have no problem moving to wheat within 18 months if necessary. We can use corn, sorghum, wheat, barley… and as the technology progresses, it’ll probably become more interchangeable every day.”

Harrison also said that within 20 years time, biofuels production technology would further stabilise the cost and supply of ethanol feedstock.

“Competition will be a good thing, because it will force us to use a wider range of grains and I think it’ll push forward other technologies, like using the cellulose and other parts of the crop rather than the actual grain, using the waste material from the harvests,” he said.

AAE CEO Anderton strongly denies there will be any lack of feedstock for ethanol, claiming uptake contracts between farmers and ethanol producers would provide both the incentive and economic foundation to ensure stable feedstock supplies.

“Farmers would be much better off than they are now,” he said. “With uptake contracts in place, farmers would be able to invest in new capital for their businesses.”

According to Anderton, a strong ethanol industry would provide greater revenue certainty for farmers, encouraging investment in new technologies to increase production and make it possible to use land currently considered unviable for agriculture.

“The crops that will ultimately be used for ethanol feedstock haven’t even been planted yet,” he predicted.

But in terms of investment, ethanol does not appear to enjoy the same level of interest in Australia as biodiesel, with ASX newcomers Australian Biodiesel Group and Amadeus energy spin-off Australian Renewable Fuels both performing well since listing in 2005.

So why hasn’t ethanol received the same support from investors as biodiesel?

Anderton believes the problem lies in the difference in the distribution models for the two biofuels.

“With biodiesel, you can organise large offtake agreements with large fleet operators like bus or truck operators, which isn’t the case for petrol or ethanol,” he said.

Nevertheless, petrol remains the largest fuel market in Australia, and if Anderton’s claim that new vehicle technologies will make it possible for consumers to use ethanol blends of up to 85% is correct, the current perception of ethanol as a fuel additive rather than a cost-competitive fuel alternative will need to be re-examined.

With petrol prices on the rise, Anderton doesn’t believe consumer uptake will be a problem.

“If petrol prices are $A1.15 now, imagine what they’ll be in 5 years… with the lower cost of ethanol to the consumer, we’ll be able to sell whatever we produce.”

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