| BUENOS AIRES
BUENOS AIRES Argentina's government is negotiating a plan to reduce diesel imports by making energy companies blend more of the fuel with soy-based biodiesel within the next year, industry sources said on Wednesday.
A new law requiring all diesel to be mixed with 5 percent of the plant-based fuel came into force earlier this year in the South American country, the fourth-biggest global biodiesel producer and top supplier of soybean oil.
Government officials are considering a proposal to increase the compulsory mix requirement to 10 percent, in an effort to reduce rising diesel imports.
"The government is convinced of the benefits of producing and using biodiesel, because it's better for the environment, helps diversify energy sources and reduces diesel imports," said Claudio Molina, executive director of the Argentine Association of Biofuels and Hydrogen.
"The political decision to increase the biodiesel mix percentage has already been made," he added.
The government is in talks with the ADEFA association of carmakers, Molina said. He expects auto producers to agree to a 7 percent biodiesel mix, later to be increased to 10 percent.
"(The timetable) hasn't been set. I'd say that from January 2011, the 7 percent blend will come into effect and it would be compulsory," he said.
An automobile industry source confirmed that talks were taking place, but declined to give further details. No government officials were available to comment.
Argentina's biodiesel production capacity stands at 2.5 million tonnes per year. The current 5 percent blend law represents production of 800,000 tonnes, according to the Carbio industry group, which groups larger producers.
Carbio Executive Director Victor Castro said 2010 exports could exceed the 1.15 million tonnes shipped last year.
"They're going to be similar to 2009 or even a bit bigger," he said.
Molina said the industry will still be able to maintain current export levels even if biodiesel use doubled in the South American country as the sector continues to attract new investment to boost capacity.
Some industry analysts said the 5 percent blend law would reduce exports, but Hamburg-based oilseeds analysts Oil World estimated earlier this month that shipments hit a new record in the first four months of the year.
It said exports rose to an estimated 430,000 tonnes between January and April, up from 200,000 tonnes during the same period in 2009.
Argentina is keen to reduce imports to protect its trade surplus, which shrank 77 percent in March.
The country imported 1.8 million tonnes of diesel worth $1.9 billion in 2008, up from less than 500,000 tonnes two years earlier, according to official data.
(Editing by David Gregorio)