Outbacking Ethanol

In Australia, ethanol production has been around since the late 1920s. All gasoline sold in Queensland contained 10 percent ethanol from 1929 to 1959. Now, more than four decades after the renewable fuel exited the scene Down Under, there's growing public support to bring it back.
By Kory Wallen | February 01, 2006
Today, all of Australia has the capacity to produce just 26 million gallons of ethanol per year—considered small-scale for just one U.S. ethanol plant—but experts say being a late bloomer, and not necessarily last to the dance, can be advantageous. Why? Simply stated, Australia gets to learn from the successes and failures of other countries. That puts the country's embryonic ethanol industry in great spot.

By trailing other nations in the development of its "reborn" fuel ethanol industry, Australia has been able to study the successful industry models in Brazil and the United States, the world's top producers, and Australia isn't alone in this role. Canada and other nations are jumpstarting their nascent ethanol industries, too, putting plans in place for accelerating growth, in part by learning "what not to do" from nations treading before them. Even with a roadmap, though, the road to a successful ethanol industry is one filled with twists and turns and unpredictable potholes.

The truth is, Australia still has a long way to go before it has a sustainable ethanol industry in place. "At the moment, it's not a large [fuel] market in Australia, but we still have plenty of opportunities to grow our ethanol market," says Bill Elliott, project manager of the Dalby Bio-Refinery, a developing ethanol plant in Queensland. Elliot explains that the real impetus for ethanol in Australia came after Queensland Premier Peter Beattie visited Brazil in mid-2004 and embraced ethanol. Later that same year, Queensland developed what is called its "Ethanol Industry Blueprint." The blueprint, based on current industry developments and policies, outlines the benefits of having a sustainable ethanol industry in the agriculturally rich state.

In 2005, the Queensland government sponsored Australia's first international ethanol conference. "The government is very aware of what is going on in the U.S. and Brazil," Elliott says. "That's why it has been so supportive of the industry here." In fact, Queensland has put money into encouraging gas stations to change over to E10, and public education. The government has committed its support of E10 by running its entire fleet of 11,000 vehicles on the ethanol blend.

In a game of follow-the-leader, the Australian states of New South Wales and Victoria have also set in motion programs to run their government fleets on E10.

During the 2005 ethanol conference in Queensland, the state released The Queensland Ethanol Industry Action Plan: 2005-2007, a strategic document prescribing activities that will support the development of an ethanol industry within the state. This action plan has three major objectives: 1) to map out an ethanol plan for the future; 2) to integrate economic development efforts among government and industry; and 3) to propose a statewide E10 program. "We don't have any of the incentives for construction in the way [U.S.] state governments have provided," Elliott says, adding that he and others hope the action plan will help create more incentives for future plant construction projects.

A positive thing going for current and future Australian ethanol producers is an excise tax break that's approximately double that of the federal U.S. tax credit. "At the moment, there's a [US$1 equivalent] excise tax break [in Australia]," Elliott tells EPM. "That will be reduced by 2015 to about 78 cents, so considerably higher then the 51 cents in the U.S."

Government officials may see dollar signs in the possible prospect of exporting ethanol, but it's not likely that they'll see that revenue stream develop for years. "I don't know if exporting ethanol is going to be practical for some considerable amount of time," Elliott explains. "It could be a long-term goal." For the next five to 10 years, Australia's main focus will be on improving domestic production and consumption. In 2005, Australia burned 28 million liters (7 million gallons) of ethanol. If a mandate were set in place requiring E10 across the nation, it would take a minimum of 1.8 billion liters per year (470 MMgy) to meet the demand.

A federal action plan emerges
The Australian federal government has taken notice of Queensland's ethanol action plan and taken steps to implement a similar program nationally. The federal government has worked with major oil companies, members of the Independent Petroleum Group and the nation's major gasoline retailers for input on achievable annual volumetric milestones to fortify a national ethanol action plan. As a result, the Australian government announced its own nationwide ethanol strategy—a policy resembling the U.S. renewable fuels standard—which sets a target of 350 million liters (92 MMgy) of biofuels production by 2010. The national action plan does not contain any mandates, but puts faith in the oil companies and ethanol industry to expand production.

Currently there are only three operational ethanol plants in Australia. The largest plant produces 100 million liters (26 MMgy) of industrial-grade ethanol. There are a number of proposed plants in various stages, some that will be operational as soon as early 2007. "Particularly in the last six months, there has been a lot of activity around the industry," Elliott says.

Looking at Australia's ethanol industry is like gazing back in time to the U.S. ethanol industry 15 to 20 years ago. The average size of proposed plants in Australia is between 20 MMgy and 30 MMgy, compared to the U.S. average of 40 MMgy to 100 MMgy. "We're going for smaller plants because the banks are still feeling a bit of hesitation," Elliott says. "Banks haven't seen large successes in plants. I am sure that is going to change." Bigger and better is what Elliott predicts for the industry's future. "Once we establish the market, overcome financial limitations and create demand for ethanol, we will be bigger," he predicts.

Feeding production
Many future ethanol plants in Australia will use sugarcane as a production feedstock. The vast majority of sugarcane is grown in Queensland; only a small portion of grain is grown in the state. Plus, over 80 percent of all sugarcane grown there is currently exported. However, with the expected rise in ethanol production, that trend may drastically shift. "The more we can use domestically, the less we are at the mercy of the export market," Elliott says. The majority of ethanol produced in Queensland will undoubtedly come from sugarcane, but on a national level, the top feedstock of choice will be wheat, according to Elliott.

The sugarcane-based ethanol plants in Australia are only operational a few months out of the year. However, to support ethanol production, plants are considering changing feedstocks when sugarcane is out of season. "It is very possible that these plants may switch over to grains to produce ethanol during down times," Elliott says. "Grains are a good sequential feedstock with sugarcane; you may see a lot of plants doing that."

The nation's ethanol action plan has clearly set out volumetric goals and business plans, including marketing and retail strategies, for both ethanol- and biodiesel-blended fuels. "Based on the plans submitted, the 350 million-liter target is achievable by 2010," Australian Prime Minister John Howard said in a written statement. The government's optimism is based on continued improvements in consumer confidence, reliable and multi-source supplies of biofuels at competitive prices, and the removal of market barriers. The Australian government will monitor and review progress toward these targets on a six-month basis. The industry players must commit to updating their company action plans on an annual basis and regularly assess progress against the targets set out in their own action plans.

There are now 400 service stations across Australia selling ethanol and biodiesel blends. BP recently opened three sites in Canberra, primarily to provide E10 to various government fleets. Likewise, Shell recently launched Shell Optimax Extreme, a super-high-octane fuel formulated with 5 percent ethanol. The Optimax Extreme fuel was recently announced to be the official fuel of the V8 Supercars Championship for 2006. The Australian independent fuel companies have continued to be big contributors in promoting ethanol use. United sells ethanol blends at over 90 locations across Australia. "I'm very pleased with the progress that's being made—it's more than I expected," Howard said in a release. "We have, I believe, restored a lot of confidence in the use of biofuels, particularly ethanol."

While consumer confidence in ethanol appears to be on the rise in Australia, the use—and reputation—of biofuels have been on a roller coaster ride of public acceptance and political favor for years. Elliott credits the lack of widespread consumer support for biofuels to misinformation and a lack of concerted public, education campaigns. Recently, consumers fears of ethanol started to fade as gasoline prices jumped to record levels. Now, in addition to federal and state plans to boost ethanol production and use, ethanol stakeholders hope a well-timed conference will strengthen the growing trend toward supporting the fuel. Ethanol 2006 Australia, a conference being organized by BBI International, will be held May 8-11, in Brisbane, Queensland.

A conference that could jumpstart an industry
Ethanol 2006 Australia will provide an invaluable and timely opportunity for stakeholders and advocates of ethanol to discuss how Australia will meet the ethanol production and usage targets recently set by state and federal governments. Conference organizers are expecting over 400 attendees and have added a trade show that will include more than 35 exhibitors from all over the world.

When a number of Queensland agriculture groups returned from the 2005 International Fuel Ethanol Workshop & Expo in Kansas City, Mo., they brought back with them enthusiasm and a unified vision to spark interest in Australia's ethanol industry. "It has been such a turnaround in their views on ethanol and how it can contribute to their overall energy demands and provide opportunities to add value to agriculture," says Angela Damman, vice president for BBI International Conference and Event Planning. "This conference will be a continuation of what the Queensland government started last year with its first major ethanol conference." Teamed with BBI International and the Queensland government, the Queensland agriculture groups hope to make this Australian conference an annual event.

This year's conference has its sight set on creating ideas for building a successful industry. Before the conference gets underway, there will be an Ethanol 101: Basics of Ethanol Production and Project Development session offered. The pre-conference session will be an intensive introduction to the ethanol industry in general. "Ethanol 101 is for anyone who wants to get involved or learn more about the ethanol industry worldwide," says Elliott, who is helping to organize the conference. Showing a strong commitment to the industry, the Queensland government has announced a major sponsorship of the Ethanol 101 session. "This is very significant to the conference because they are backing the industry at a higher level," Damman says.

Among other breakout sessions proposed is a distillers grains workshop to educate current and future ethanol producers, livestock industries and commodity groups on the value, handling and marketing of distillers grains. There will also be an Investors and Lenders seminar involving different financial options and strategies for current and future ethanol producers.

At press time, keynote speakers were not finalized, but Elliott promises to bring in the best. "We will try to have the best speakers from around the world to speak on ethanol projects and the ethanol industry in general," Elliott says. EP

For more information on the conference or to register, visit www.ethanol2006.com

Kory Wallen is an Ethanol Producer Magazine staff writer. Reach him at kwallen@bbibiofuels.com or (701) 746-8385.