Frost: Asia-Pacific Biodiesel Sector Back on Track

January 4, 2008 // Published as a news service by IHS

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The strong degree of support given to the biofuels sector by many governments across the Asia-Pacific region is creating significant domestic markets, according to Frost & Sullivan.

Recent analysis of the biodiesel industry found that total biodiesel consumption in the Asia-Pacific region was 415,000 tons in 2006, with estimates to reach almost 8 million tons in 2013.

While the initial focus of the biofuels industry was on export opportunities, especially to the European Union (EU), domestic demand is emerging as an important driver for the industry in the Asia-Pacific region.

Analysts said many governments in the region have set formal targets for biofuels usage, imposed mandates on oil companies to blend biofuels, given taxation benefits to biofuels or introduced other measures to stimulate the industry.

"Governments throughout the Asia-Pacific region have made significant progress in introducing legislative or fiscal measures to support the industry and boost demand," said Mark Dougan, managing director at Frost & Sullivan Australia.

"These measures are creating an increasingly viable domestic market within the region."

While the high feedstock costs have damaged the commercial viability of biodiesel production, the long-term fundamentals remain unchanged. As a result, analysts said the industry will continue to grow in the region.

The rapid increase in the costs of feedstocks, and particularly of palm oil, since third quarter 2006 have provided a major challenge to the commercial viability of the industry, analysts said, as this has not been accompanied by an increase in biodiesel selling prices. Consequently, alternative feedstocks, such as waste cooking oil and jatropha, are being actively explored by producers in the region.

"Alternative feedstocks which are available at a lower cost than the main vegetable oils will enable the biodiesel sector to regain commercial viability," said Dougan. "However, the potential volumes of these feedstocks that is likely to be available remains unclear at this stage."

Analysts said Asia-Pacific biodiesel producers need to address the likelihood of continued pressure on feedstock costs and ensure that they can produce as cost-effectively as possible, while still exploring alternative, lower-cost feedstock supplies.

Source: Frost & Sullivan.