Analysts See Dismal Biofuel Future In Ukraine

KIEV, Ukraine -- Ukraine, rich in the various raw commodities needed to produce biofuel but short of cash to support its own production, is likely to remain solely a supplier of raw material to Europe, analysts and producers said.

Rapeseed field in bloom
The government last year adopted measures to boost biofuel production with the objective of reaching 623,000 tons annually by 2010 and increase the rapeseed harvest at the same time to 7.5 million tons.

It said Ukraine, which harvested 654,000 tons of rapeseed in 2006 and plans to increase output to 1.7 million in 2007, should build at least 20 plants to process the crop.

But producers say the high pace of rapeseed exports, caused by increased foreign demands, will leave future producers without sufficient raw material.

"We harvested about 650,000 tons of rapeseed in 2006 and have already exported about 480,000 so far this season," said Stepan Kapshuk from the Ukrainian vegetable oil producers' association Ukroliyaprom.

"Biodiesel production is not profitable for Ukraine at the present time. We are producing some rapeoil for exports to Europe. There is no reason to talk about biodiesel production in Ukraine without export restrictions for rapeseed."

Analysts and producers say local firms already operate dozens of small biodiesel plants but all of the produced fuel is uncertified and used strictly for their own needs.

"It looks like an amateurish industry -- the fuel is produced from its own raw materials at their own facilities and for their own needs," said Yelizaveta Malyshko from UkrAgroConsult agriculture consultancy.

The consultancy said biodiesel production in Ukraine's 40 plants could total up to 32,000 tons in the 2006/07 season. Ukraine consumes 15 million tons of diesel fuel annually.

ETHANOL

Ukrainian and foreign firms have announced several projects to build bioethanol plants, which could produce 800,000 tons of fuel per year, but analysts say a lack of demand and government support have delayed their implementation.

The government has said Ukraine will build 23 bioethanol plants by 2010 which could cost about $1.4 billion, but does not plan to invest budget funds into the projects.

Analysts have said Ukraine could produce bioethanol from grains and sugar beet, but they noted that even the current high cost of the fuel was likely to rise due to a future increase in demand for either commodity.

"The energetic value of bioethanol is 30 percent lower than the energy used to produce this biofuel. The increase in grain area to cover biothanol needs will boost energy supply to the grain planting and could boost grain prices," ProAgro consultancy said in statement.

The consultancy said Ukraine, which consumes 27 million tons of petrol and diesel per year, could compensate with bioethanol, but only for up to 5-10 percent of needs.

Analysts from the Biomassa research center said liquid biofuel could cover no more than 1 percent of total energy needs.

"There is a powerful oil lobby in Ukraine which makes it best to avoid using alternative fuels. We can see a developing conflict between Ukraine's fuel and agriculture ministries," said Serhiy Sapehin from Psikheya research company.

Ukrainian legislation, unlike most European countries, does not oblige oil refineries to use ethanol as an additive in fuel further diminishing prospects for the biofuel industry.

Source: Reuters