When The Needle Points To Empty
Sydney Morning Herald
Saturday June 14, 2003
With Australia running out of oil, the Government thinks ethanol may just be the thing to top up the tank and its rural vote. Brian Robins reports.
FOR Gunnedah, in the rolling plains of the NSW grain belt, a $90 million ethanol plant is a dream come true as the town seeks to put behind it decades of economic and social malaise. The plant would be the biggest project Gunnedah has seen, and the biggest private employer for hundreds of kilometres.
But what if the project doesn't get off the ground? ``I'm not even thinking about that," says the Mayor of Gunnedah, Gae Swain . ``I'm determined it will go ahead. For the community, it has to go ahead."
This is the other side of the ethanol debate, as rural communities from Dalby to Coleambally look hopefully for a big injection of new spending and jobs from ethanol plants.
Plans for the Primary Energy ethanol plant in Gunnedah are slowly taking shape, pushed by a Tamworth engineer, Matthew Kelley , with a big US ethanol plant builder, Delta-T , and the Sydney bankers and advisers Babcock & Brown and CIBC in tow.
This proposal is doubly ambitious, since it also involves a $120 million gas pipeline from Dubbo to Tamworth, which has been on the drawing boards for years. Tenders for this open soon, but its go-ahead depends on approval for the ethanol project.
Country communities, local promoters and fast money from the city are all running the numbers on turning a profit from the big government subsidy for ethanol producers.
With the consortium at Gunnedah, the other determined player is John Roberts of Multiplex , who has been working through prospective sites for ethanol plants, from Mossman and Dalby in Queensland, to Coleambally and Forbes in NSW, and now Swan Hill in Victoria.
Also in the game is CSR , which produces a small volume of ethanol, mostly for export, and is looking hard at expanding its presence.
The stakes are big. There are hefty dollops of Government money on offer as much as $195 million from fuel excise exemptions and $10 million per project in capital cost subsidies. But none of these plans will bear fruit unless consumption is boosted.
Earlier concerns about the effect of ethanol on car engines derailed hopes by ethanol's supporters that a petrol-ethanol mix of as much as 20 per cent could win popular support. That controversy resulted in the ethanol mix being capped at 10 per cent. Still, the lack of clear benefits from using ethanol is holding back community support.
THE National Party, especially its leader, John Anderson, has a huge exposure to the future of the ethanol industry. Gunnedah is Anderson's home town, and success with the Primary Energy ethanol project and the associated pipeline will shore up his party's sagging fortunes in the region.
His party has lost two adjacent federal seats to independents Calare, held by Peter Andren since 1996, and New England, won in 2001 by Tony Windsor. The backlash if the Gunnedah project doesn't proceed could be fierce.
For backers of the ethanol projects who are looking for investors, the main hurdle is forcing the oil companies to support ethanol blends. ``The oil industry has been told there will be [voluntary] ethanol [blends], otherwise it will be mandated," says Peter Anderton , who is handling Multiplex's ambitions in the ethanol field.
``The issue . . . is to deal with the national anti-ethanol signage campaign, being run by the oil companies," says Bob Gordon , the Australian Biofuels Association's executive director. Signs such as ``no ethanol in our fuel", ``our fuel is ethanol-free", even far from where ethanol blends are available, are part of the campaign by oil companies opposing ethanol, even though their parents offshore are supportive, he says. ``No oil company has given up market share voluntarily in the past. The only way is mandates."
GETTING a new fuel supply running is not just about helping the environment or our farmers Australia's oil supplies are running out. For the Federal Government, continuing growth in petrol demand as domestic oil supply begins to decline points to acute problems over the next few years.
Australia is unable to export enough goods and services to pay for its imports. To import more crude oil will exacerbate these pressures.
The Gippsland oilfield in the Bass Strait, first developed in the 1960s, is in decline. At the same time, there is doubt over the outlook for production off Western Australia, leaving an emerging crisis as Australia is forced to rely increasingly on imports.
So important is the looming impact on the economy, that the Prime Minister, John Howard, has taken direct control of energy policy. A major statement which had been expected next month has been delayed until much later in the year as a clutch of multibillion-dollar projects planned to turn gas into liquid fuels such as petrol and diesel oil have evaporated over the past few months.
These projects, such as Chevron's planned joint venture with South Africa's Sasol for a gas-to-liquids plant on the North-West Shelf , along with Syntroleum and Methanex , have been shelved or abandoned.
The sole remaining policy initiative is to push for increased ethanol use to top up the petrol supply. Supporters argue it is an environmentally friendly petrol extender which helps improve the fuel burn and cuts emissions, though it may hurt fuel efficiency.
``All alternative fuels have a drop in fuel efficiency. With ethanol, it is due to the high oxygen content," Australian Biofuels' Gordon says.
The Government has been seeking to raise ethanol output for years, first through a $40 million fund, with up to $10 million available for four projects.
That still wasn't sufficient to make it attractive enough for backers of new projects so, in last month's federal budget, it gave a five-year exemption from excise duty (38.143 cents a litre) for the domestic ethanol output, with a further five years when the excise duty will be restored gradually.
``Liquid fuel is a 32 billion-litre industry, of which 18 billion is petrol," says Multiplex's Anderton.
Ten per cent of this is 1.8 billion litres, which is what the ethanol backers are hoping to supply, with the Government-mandated 10 per cent cap. Equally, this is the volume oil companies stand to lose if ethanol wins market support.
After an extended trial in southern Queensland last year, BP found support for a 10 per cent blend, although community concern over engine damage has eroded that. Caltex has launched a similar trial in northern Queensland.
But the key to any of the new projects going ahead is the oil price. ``With oil at $US25-$US28 a barrel, ethanol stands up very well. At $US21-$US22 a barrel, that's where it gets difficult," says Anderton.
But the caution of prospective investors comes as little surprise.
``Australia is littered with large, exciting projects that never get off the ground, and half-built projects like the Ord River project," says Peter Pulley, the head of the group pushing for the Dubbo-Tamworth gas pipeline, which will feed about half its supply to the Gunnedah ethanol plant.
THE FUEL STORY
•-What is it? An alcohol-based alternative fuel produced by fermenting and distilling starch crops that have been converted into simple sugars. Feedstocks include molasses, sorghum, barley and wheat.
•-Why use it? Increases octane and improves the emission quality of petrol. A 10 per cent ethanol-petrol mix cuts carbon dioxide emission by 32 per cent and toxic exhaust emissions up to 30 per cent, but increases fuel consumption by almost 3 per cent.
•-In the United States, ethanol blends have been used since 1970 and more than 3.7 billion litres of ethanol is blended with petrol (10 per cent ethanol and 90 per cent petrol) each year.
•-The US Department of Energy maintains that biofuels such as ethanol are the only energy technologies that can both remove atmospheric carbon dioxide and reduce the amount of fossil fuels burned.
•-The push for ethanol in Australia was set back by reports last year that Sydney service stations were selling fuel with levels of ethanol that could damage car engines. But there is no suggestion that a 10 per cent blend will do any damage.
Source: Australian Biofuels Association
© 2003 Sydney Morning Herald