Oil and Gas

Canadian biofuel seen rising 76 pct in two years

* Ottawa offering C$1.5 billion subsidies over 9 yrs

* Husky, Suncor among recent subsidy recipients

WINNIPEG, Manitoba, Sept 25 (Reuters) - Canadian biofuel production should rise 76 percent in two years, as government subsidies for production plants and renewable-fuel requirements take effect, a top industry official said on Friday.

Total biofuel production will reach 2.5 billion litres (660 million gallons) annually by 2011, including 2 billion litres of ethanol and 500 million litres of biodiesel, said Gordon Quaiattini, president of the Canadian Renewable Fuels Association.

“We’re certainly on track to build that production capacity, no question,” Quaiattini said.

Canada currently produces 1.3 billion litres of ethanol annually and 120 million litres of biodiesel, he said.

On Friday, the federal government gave operating subsidies of C$70 million ($64.2 million) annually to Husky Energy's HSE.TO Lloydminster, Saskatchewan, ethanol plant and C$5.4 million to Methes Energies Inc's biodiesel plant in Mississauga, Ontario.

The funding is for seven years, with the exact amount calculated on a per-litre basis, and designed to pay more in a weak market than when conditions are favorable.

Ottawa has now awarded funding to 23 biofuel plants under its program, distributing C$1.5 billion over nine years from 2008. Other recipients include Suncor Energy SU.TO and Rothsay Biodiesel, owned by Maple Leaf Foods MFI.TO.

The government considers biofuel attractive because it reduces greenhouse gas emissions.

Canadian plants make ethanol, for use in gasoline, from corn and wheat, and biodiesel from animal fat, soybeans and canola.

Ottawa’s subsidies come as California, the U.S. state with the most cars, drafted a low-carbon fuel standard in April that sets the bar higher for cleaner development of corn ethanol [ID:nN24479661].

U.S. authorities have not applied the California formula, pending further review, Quaiattini said.

Canada will require 5 percent renewable-fuel content in gasoline by 2010 and 2 percent renewable content in diesel and heating oil by 2011. The provinces of Manitoba, Alberta and British Columbia have all drafted biofuel mandates to take effect between November and early next year.

$1=$1.09 Canadian Editing by Rob Wilson