Green Biofuel Seen Competitive in a Decade
Author: Emma Ross-Thomas
Biofuels, made from products such as wheat and barley, are more expensive to produce and in some European countries including Spain the government offers tax relief on green fuels to offset the extra cost.
But Javier Salgado, CEO of Abengoa Bioenergy , says the company moved into the market convinced it could be profitable without government subsidies once the right technological advances have been made.
"I think we will reduce costs bit by bit and we will see a scenario where it will compete with gasoline very probably in 10 years," Salgado told Reuters in an interview.
Soaring crude prices have boosted biofuels' profile, but Salgado said his company was not banking on prices like Thursday's $49 a barrel continuing. They budget on $28 a barrel crude.
At the moment he reckons crude would have to cost $70 a barrel for bioethanol to compete in Europe although in the United States, where raw materials are cheaper, he said it already began to make sense at $45 to $50 a barrel.
"This year ethanol has helped gasoline prices fall," Salgado said, referring to the United States, where the unit of Abengoa is based.
The European Union, in an attempt to reduce greenhouse gases in line with its Kyoto Protocol obligations, last year set a non-binding target that fuels should contain 2 percent of biofuels in 2005 and 5.75 percent in 2010.
Britain has said it will not comply with the target while Spain's government said this month it would review its national energy plan, including the bioenergy component, with a view to complying with Kyoto.
Whatever happens to crude prices, Salgado expects the market to increase four-fold in the next five years.
EXPANSION EYED, FLOTATION NOT RULED OUT
Abengoa's information technology division Telvent listed on Nasdaq last year and Salgado said he did not rule out floating the bioenergy division.
"There's no concrete plan to, but I can't say we're going to rule out that option," he said.
The bioenergy unit of Abengoa, which last year produced 260 million litres of ethanol in Spain and about 400 million litres in the United States, is due to open a 200 million litre plant in northern Spain at the end of this year.
It wants to start up another two in Europe in the next five years, and is most interested in Germany and Britain although a perceived lack of political will in the UK puts them off for now. It is also bidding for a project in France.
Unlike Spain, where a grain deficit pushes up production costs, Germany, France and Britain all have excess grain.
Salgado said he expected in the future limits on biofuel content in gasoline -- currently five percent in Europe and 10 percent in the United States -- would be raised, opening the way for a boom.
Europe has a long way to go to catch up with Brazil, where gasoline is blended with 25 percent ethanol -- made from cheap local sugar.
"There will be a boom, an important boom, and there will be no ceiling," Salgado said.