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Home / Bioethanol / News Kazakhstan's biofuels industry gets ready to strike backALMATY, April 8 Asia Pulse - It almost looks like a post-mortem of the 1970s: oil and gas available in such quantities and at such low prices that incentives for energy saving and for alternative resources remain in the reclusive domain of ecology-driven idealists. There is one main difference between oversupply a quarter of a century ago and slackening demand today - it leaves those who have invested in biofuel, commodity supply of which could have changed the world map of energy providers, with low expectations concerning fuel market shares. Yet, producers are not giving up - including newcomers on the scene, one of whom is Kazakhstan. On September 15 back in 2006, Kazakhstan scored a primer in the former Soviet Union, by opening the first biofuel processing and production plant near the town of Taiynsha, in the extreme north of the country not far from the border with Russia. The enterprise, named Biohim, is a joint venture between two private companies - Russia's Titan holding and Basko of Kazakhstan. Titan also had its own plant under construction near Omsk, directly northeast of the border with Kazakhstan, with an output capacity of 150,000 tonnes. The plant's feed consists of wheat, less suitable for the production of biofuel than sugar, maize or soyabeans but amply available in Kazakhstan at low wholesale prices. But with an output capacity of 57,000 tonnes of ethanol per annum, the company only managed to sell 4,000 tonnes of ethanol in the course of the following year, and by the end of 2007 it had halted its output altogether. The overall lack of domestic retail facilities and disappointing demand in China were understood to be the immediate factors. Government subsidies for farmers to convert their coarse grain crop fields to oil seeds and canola, especially suitable to produce bio-diesel, seem to have been premature. Access to trade routes But neither Russians nor Kazakhs were ready to give up the idea. In fall of 2007, the construction of another biofuel plant in the southern town of Taraz started with the aim to start producing last winter, while a third one in the northwest of Kazakhstan was planned as well. According to state officials, this year Kazakhstan's output of ethanol could have totaled as much as 100,000 tonnes. But ever since energy resources started suffering from declining demand over the summer of 2008, little has been heard on the biofuel front in Kazakhstan. Even though the Kazakhs were the first to put an ethanol production line to work, competition from Russia lurked from the very beginning. Thus, Bashneft-Yug, a subsidiary of the domestic oil company of Bashkortostan on Kazakhstan's northwestern border, together with its partner, grain transport and trade firm Yugtranzitservis, announced the start of the construction of two ethanol combines in the area of Rostov, of 157,000 and 300,000 tonnes capacity respectively, on the banks of the Don river, close to the grain terminals of Azov and Taganrog with easy access to trade routes from the Black Sea. Its neighbouring Caspian federal state Tatarstan took little time before announcing the construction of a similar plant with similar output on the banks of the Volga. In a move to support the development, the Russian federal government exempted ethanol as well as other biofuels and their half-fabricates from exportation tax in early 2008. Soyabeans, maize through the roof But clouds over the sector date further back in time. The earliest setback for biofuel already came in 2007, when prices for oil and gas and their end products were still skyrocketing, tempting non-oil industries to fill the energy gap following the example of Brazil. But the main shortcoming was that the latter keeps price-settings under strict public control by subsidising farmers with the obligation to sell their sugar cane, the main component of bio-ethanol in tropical areas, only to domestic purchasers and putting up severe barriers for the latter to sell anything abroad except for surplus amounts of the end product. To impose similar restrictions on global markets, however, proved far more difficult. As a result, soaring demand by the fledgling biofuel industry sent prices for soyabeans and maize, cane's main substitutes, through the roof over the summer of 2007 and even wheat could not escape the upward spiral. This in turn led to fears of famine in regions such as southern Central Asia, North Africa and the Horn of Africa which remain largely dependent on imports for their populations' daily bread. A dangerous liability Since bread is a highly sensitive commodity, prices of which can easily lead to social uproar as they hit those who have the least to lose hardest, both individual states and international organisations such as the FAO sounded the alarm, followed by attempts to prevent things from getting out of hand. After all, empty stomachs are a dangerous liability, and the glorious principle of free trade is not worth the risk it bears. It has pushed state authorities to pursuing policies based on filling stomachs first and fuel tanks later where the use of agricultural resources is concerned. It was thus that even before oil prices started to sink to the order of one-third of their 2008 summer highs, measures taken by the governments of grain-producing countries, including those of the Russian Federation and Kazakhstan, took measures varying from export duties to all-out export bans, to protect their domestic markets from shortages due to tempting sales prices abroad. Moreover, criticism by environmental groups and scientific experts that biofuel is far less bio than the name suggests in terms of contribution to ecological improvement including high CO2 emissions and erosion in expanding crop areas, only added to investors' hesitation where it would come to giving financial support to producers' dreams. Stagnation in demand Steadily falling prices for commodities throughout 2008 have failed to offset a more or less equal drop in the price of ethanol. Prices for ethanol have dropped by around one-third from the beginning of 2008 to the end of the last full trading week of March this year on European spot markets - even though during the first quarter of 2009 the price remained by and large stable. Meanwhile, world benchmark prices for soyabeans on the futures market in Chicago have lost by the same proportion over the same period of time, while maize lost one-seventh of its early-2008 value. Maize and soyabeans, the most suitable components for ethanol, are amply available in industrialized countries. Producing companies' results over the year and its last quarter demonstrate the friction in the market due to overall stagnation in demand for energy resources - from oil to gas and from gas to coal. 'Obviously challenging times' Thus, a company called BioFuel Energy Corporation, based in Denver, Colorado, USA and quoted on the New York Stock Exchange, posted aggregate losses of US$84.1 million, against revenues of US$179.9 million - including US$89 million in revenue and US$6.9 million in losses over the last three months, the enterprise reported in late March. The results prompted the company's President and CEO Scott Pearce to state, as quoted in BioFuel's press release: "These are obviously challenging times in the ethanol industry. [...] If margins do not improve significantly we may have to restructure our debt or seek other accommodations from our lenders in the coming months." In December last year, BioFuel already had to borrow an extra US$7 million to finalize the construction of a new processing plant, thereby bringing the sum of its accumulated debt up to US$181.2 million as of December 31. The latest "challenge" imposed on producers of biofuels has come in late March this year, when the European Commission submitted a draft directive to the Council of Ministers, the EU's highest and only decisive authority, to freeze all support for imported B99 diesel. B99 consists of 99 per cent organic fuel and 1 per cent fossil fuel. The EU's response to CIS export tax exemptions and US income tax relief for producers of up to US$200 per tonne, if adopted, consists of import duties that in the severest case could amount to 250 euros (US$331) per tonne instead. The Council of Ministers has six months to choose whether to adopt or reject the draft. Protectionist measures by governmental and supra-governmental authorities have obviously helped investors, whether state or private. An overview made by Reuters early last year shows that the investment needed to build and equip an ethanol factory would require between 50 million and 150 million euros according to size, location and supply costs. But whereas at the time of reporting this came down to a pre-tax wholesale price of roughly 6 tonnes of bio-ethanol or about 4 tonnes of biodiesel, these amounts are now up to 9 and 6 tonnes respectively. It means that the margin between production costs and sales revenue is narrowing - which does not indicate losses but does require a more profound marketing strategy for those who venture into the sector. (TCA)
Date: 08.04.2009 Leave your comment
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