Oil giant PetroChina finds biodiesel a difficult proposition

Source:     Time:28 Jun 2007

ChinaOilWeb--A shortage of natural feeds for PetroChina's flagship biodiesel plant is causing headaches for the Chinese state-run oil giant. Like many oil companies moving into renewable transportation fuels, the company is finding the move into the unfamiliar territory of agricultural commodities a struggle,officials working on the project told Platts.

PetroChina Southwest Oil and Gas Field Co., the PetroChina subsidiary that is building the company's first 10,000 mt/year (196 b/d) biodiesel plant, hopes to have it running by the end of the year--if it can find fuel.

"We have finished designing the plant, and we have decided to adopt technology from Sichuan University. Currently our challenge would be how to ensure stable feedstock supply for our plant," an official with PetroChina Southwest said. The plant is being set up in central Sichuan province's Nanchong city.

PetroChina signed a broader cooperation deal with China's State Forestry Administration in January. Under the terms of the deal, a new plantation will be seeded in Sichuan and Yunnan provinces as a production base for biodiesel plants.

This new plantation is expected to generate up to 60,000 mt/year of jatropha oil when it is mature.

The PetroChina Southwest official said the plantation would in the long term ensure enough supply for the Nanchong plant. "However, it takes time for the trees to mature," he said. "During the scheduled trial run by the end of 2007, which is expected to last one to three months, and probably even in the early stages after it is put into full operation in early 2008, we will have to use wide jatropha circas from the neighboring Yunnan province as feedstock
The fact that the Nanchong plant can't find local feedstocks to start
with means it will not be a profitable plant when it starts up. The economics of buying vegetable oil from other provinces are bruising.

"We estimate the production cost for jatropha circas to be around Yuan 6,000-7,000/mt ($787.40-918.64/mt), as it has to be handpicked and transported from Yunnan to Sichuan, before it can be used to produce biodiesel," said the official with the plant.

"It brings a negative margin against the current trading price for
biodiesel at around Yuan 5,500-6,000/mt level," he said.

Meanwhile, independent biodiesel plants in east China's Jiangxi Province are also facing difficulties in securing feedstock supplies, local newspaper Jiangxi News reported early this week.

More than 10 independent biodiesel plants in Jiangxi province are
fighting for hogwash oil, a kind of waste oil collected and reprocessed from hotels and restaurants.

Hogwash is a popular feedstock choice in China. Most of the biodiesel plants in Jiangxi, for instance, are relying on it, the newspaper said.

With demand soaring, typical local hogwash prices have surged to Yuan 3,800/mt ($493.50/mt) in 2007, compared with around Yuan 2,800/mt in 2005,squeezing profit margins for biodiesel.

Some independent biodiesel plants have been forced to suspend operations,and biodiesel producers--big and small--have now started to push hard for government support.

"With limited feedstock to produce biodiesel, which leads to high cost and low profit margin, it would be helpful for the central government to provide subsidies to encourage the newly developed biodiesel industry," the source with PetroChina Southwest said.

China's economic policy planner National Development and Reform Commission currently is believed to be working on plans for subsidizing biodiesel feedstock planters, state news agency Xinhua reported in June.

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