Biolux sees huge biodiesel potential in China

HONG KONG (Reuters) - Austria's Biolux plans to commission the biggest biodiesel plant in China late this year, after delays and record vegetable oils prices that have forced Beijing to wind down its ambitions for the alternative fuel.

Reinhard Gregor, managing director of Nantong Biolux Bioenergy Feed Co, said the company was also confident it would reap profits at the plant in Nantong, along the Yangze River, by 2010. It is investing some 80 million euros ($118.5 million).

The plant will process around 800,000 tonnes of rapeseed a year into 300,000 tonnes of biodiesel, 27,000 tonnes of glycerin and 450,000 tonnes of rapeseed meal for sales in China and other Asia Pacific countries, such as Japan or South Korea.

"2009 will be a start-up year. We expect to generate reasonable results already in 2010," Gregor in a telephone interview as part of the Reuters Global Agriculture and Biofuel Summit.

"There is no way out. This country cannot avoid mobility. Thus China requires fuel ... There is incredible pressure in making use of all possible resources. Cheap energy is gone."

With record grains and edible oils prices threatening food security, Beijing has slammed the brakes on biofuel projects, stopping approval of new projects using food crops and also restricting foreign investment in the sector.

There is no city or province at the moment with a mandate for biodiesel use in China, meaning the plant's biodiesel may be exported. The country, one of the world's top edible oil consumers with a huge deficit in the commodities, has 10 cities and provinces using fuel ethanol, made mostly from corn.

The Biolux project, launched late in 2006 before the clampdown, had been delayed in part by the policy changes.

Gregor said China's oil product demand is expected to reach 17 million barrels per day in the next 25 years after already rising to about 7 million a day in 2007 from 4.6 million in 2000.

HUGE POTENTIAL

Gregor said Biolux saw a large potential for China to raise its rapeseed output for food and fuel if Beijing introduced more incentives for farmers, who were increasingly leaving for cities to improve their income.

He calculated China could raise its rapeseed acreages to 20 million hectares from around 6 million at present by mainly utilizing land left behind unused by farmers moving into cities.

Modern rapeseed varieties could also raise the yields in China, which stood at about 1.8 tonnes of rapeseed per hectare, compared with averages of 3.0-3.7 tonnes in Europe, he said.

"There should be more incentive systems also in China for planting vegetable oil crops, in particular for rapeseed. There is a huge potential," he said.

Gregor added farmers in Germany for example received as much as 300 euro per hectare for planting any crop.

To raise the country's output for grains and oilseeds, Beijing is increasing financial support for farmers after scrapping a farm tax in 2006 to ease the burden on rural poor. So far it has focused on farmers growing grains, such as rice and wheat.

Biolux plans to cover 70-80 percent of its rapeseed demand through imports from Canada and Australia during the first few years, mainly due to better quality and high oil yields. It is to source the remaining 20-30 percent locally.

It is working with local farmers and governments to introduce modern seeds and technology.

Asked about diesel prices in China, kept well below international levels given inflation fears, Gregor said he expected Beijing to start introducing a mineral oil tax in the next one or two years.

"There is no way out for the Chinese government to shy away from the decision," he said, adding Beijing was also likely to introduce incentives to encourage consumers to shift towards more fuel-efficient cars.

(For summit blog: summitnotebook.reuters.com/)

($1=.6753 Euro)