Venture eyes diesel from woody biomass

OSLO (Reuters) - Europe's top newsprint maker Norske Skog and Norwegian forestry companies have set up a venture to produce diesel from woody biomass.

Norske Skog said on Thursday such diesel would be "virtually CO2 neutral" and, unlike bio-petrol made from crops such as maize, would not compete with food production.

The venture called Xynergo aims to build a prototype plant near Norske Skog's Follum plant in 2010. A full-scale facility could be on stream in 2015, producing enough fuel to meet about 15 percent of Norway's annual road transport diesel needs.

"We are now entering an exciting and demanding phase for production of second-generation biofuels," Xynergo managing director Klaus Schoffel said in a statement.

The investment budget of Xynergo, about 70 percent owned by Norske Skog, will be decided later this year and depends on which technical options for the plant are chosen, Norske Skog's Vice President Tom Bratlie told Reuters.

Xynergo -- also owned by Viken Skog, Allskog, Mjoesen Skog and Statskog -- said it seeks dialogue with the authorities to "discuss necessary framework conditions for the development of technology and for the start of a new and sustainable industry".

(Reporting by Wojciech Moskwa; Editing by David Holmes)