Soaring crude prices seen stimulating biofuel use

The United States, Japan and China are the world\'s biggest crude oil importers. Biofuel producers, like leader Brazil, are turning abundant biological feedstock into green fuels, but they remain some 50 percent more expensive than petrol.

\"Fossil fuels are still cheaper than biofuels in general,\" said Peter Clery, chairman of the British Association for Biofuels and Oils, a lobby group. \"As long as petrol is cheaper, bioethanol will not be used unless there is a government incentive or legislative requirement to use it.\"

U.S. light crude futures have jumped more than 40 percent this year to a peak of $49.40 a barrel last Friday, driven up by violence in Iraq and signs that demand growth remains strong.

If oil prices remain high for long, interest in ethanol as a fuel alternative will rise, and governments will be more likely to expand their ethanol incentive programmes, said Sergey Gudoshnikov, economist at the International Sugar Organization.

Andrew Owens, CEO of UK-based green fuel company Greenergy, said: \"Globally, demand for biodiesel is growing substantially.\"

But more needs to be done. A senior London sugar analyst said: \"It is up to politicians in various countries to accelerate consumption of biofuels. I think it will happen slowly, even though the jump in oil prices will put biofuels higher on the political agenda.\"

GREEN FUELS DRIVEN BY SUPPLY, NOT DEMAND

So far, however, production appears driven by biomass supply rather than consumer demand.

A new Illinois law will encourage use of corn-based ethanol by promoting \"flexible fuel\" vehicles and building of service stations supplying the mostly ethanol E-85 fuel in the state. The Philippines is promoting use of a coconut-based additive and ethanol, derived from the country\'s projected sugar surplus.

In Thailand, ethanol has become more popular with motorists this year. Bangkok service stations often showed \"empty\" signs at containers of so-called gasohol, which comprises a mix of 10 percent ethanol and 90 percent petrol. But there is some resistance from major oil companies.

In Britain, supermarket chain Tesco (TSCO.L: Quote, Profile, Research) said in April it planned to make biodiesel made with rapeseed available at more than 20 of its forecourts in the southeast of England.

PRODUCTION EXPANSION TAKES TIME

But green fuel investments will take years to take off given the time needed to expand production capacity.

Greenergy and its European partner Novaol have unveiled plans to build Britain\'s first biodiesel plant to process up to 100,000 tonnes of home-grown virgin rapeseed oil a year.

Greenergy\'s Owens said he expected the plant to come on stream in the spring of 2006.

In Germany, Oelmuehle Hamburg, a unit of U.S. agribusiness giant Archer Daniels Midland Co. (ADM.N: Quote, Profile, Research) , said last month it planned to double output of biodiesel at its mill in Hamburg.

Work should be completed in early 2006.

Brazil has sufficient supplies to meet surging demand for the green fuel as oil prices go from strength to strength, producers and analysts said.

\"There\'s no domestic supply risk unless record oil prices persist and result in an increase in Brazilian gasoline prices and extra demand for ethanol,\" said Nilton de Souza Vieira of the agriculture ministry\'s sugar and ethanol department.