Argent Energy Will Not Restart Biodiesel Project in New Zealand

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Researched by Industrial Info Resources (Sugar Land, Texas)--Despite a new subsidy offered by the government of New Zealand, biofuel producer Argent Energy plc (London, United Kingdom) has decided to not restart the biodiesel project that the company abandoned last year. According to Dickon Posnett, Argent Energy's Director for Development and European Union Affairs, investing in a biodiesel project in New Zealand would not be a prudent decision at this time. Any project would take at least two years for completion, during which time the government's announced grant system would expire.

In Posnett's opinion, this was reason enough for any sensible investor to avoid investing in the sector in New Zealand. Posnett said that in the absence of a sales obligation by the government on the country's four major fuel suppliers and the smaller Gull Petroleum (Auckland, New Zealand) to sell biodiesel, investors were unlikely to invest in biodiesel projects. The recently announced grant system does not take into account the cost of feedstock, which could make the fuel economically unviable for fuel suppliers.

The new subsidy system announced by Gerry Brownlee, New Zealand's Minister of Energy, aims to improve the competitiveness of biodiesel and attract investments in the sector. The government has announced plans to spend up to $22 million in subsidies over the next three years. Grants of up to $5.6 million would be extended in the first year, followed by grants of up to $7.4 million in the following year, and of up to $9 million in the third year. According to the grant, biodiesel would cost a maximum of $0.263 per liter. The grant would be effective from July 1 this year and would be extended only to domestic biodiesel manufacturers who intend to sell the fuel to domestic consumers. In order to qualify for the grant, the product must satisfy the government's fuel quality specifications that are applicable to all engine fuels. According to Brownlee, the grants would help the biodiesel industry establish itself and in the process, transport emissions would be reduced.

In August 2008, Argent Energy abandoned a $61 million, 60 million-liter-per-year biodiesel project in New Zealand for economic reasons. The company had finalized plans to develop the project after a two-year feasibility study. The biodiesel plant would have used tallow and cooking oil as feedstock. However, the company said that continuing the project was "utterly uneconomic." According to Argent Energy, while the government of New Zealand had repeatedly pointed to tallow as a readily available biofuel resource, it placed domestic producers at a serious disadvantage when it came to getting legislation passed in the parliament. Posnett said that the government's moves would result in the country's abundantly available tallow being exported and converted to biodiesel overseas. The fuel would then be sold back to the country at much higher costs.

The government's Biofuels Bill extended relief from excise duty to rival biofuel ethanol. The exemption amounts to about $0.26 per liter. The excise relief would be extended to 2012. Oil companies were also offered incentives to import ethanol. Such a move posed a major barrier for biodiesel's entry into the biofuel market. Further, the government repealed legislation that would have compelled petrol and diesel suppliers to source a small portion of fuel from biodiesel. This policy change was another reason for Argent Energy to abandon the project. The government has also offered tax credit for biodiesel imported from American nations, making New Zealand an unattractive destination for biodiesel investors.

In February 2009, state-owned Biodiesel New Zealand Limited (Christchurch, New Zealand) postponed the development of its 15 million-liter-per-year biodiesel plant because of the tax issue and low prices. The company has not commented on the new grant system to date. Biodiesel New Zealand produces biodiesel from used vegetable oil and locally available oilseed rape crops. The fuel is used in fishing boats, by fleet operators, and in other tourism ventures. The company plans to increase its biodiesel production capacity to 70 million liters per year by 2011.

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