|August 18, 2006|
Big Energy Invests in Ethanol
|Loydminster, Canada (GLOBE-Net) -- Husky Energy Inc. will begin operations at its second ethanol production facility in Western Canada in several weeks and plans to open another plant in 2007. This is the latest in a series of moves that have seen energy companies investing in biofuels production facilities, spurred in part by domestic policy announcements and growing international interest. |
Husky's new plant in Lloydminster, Saskatchewan will have a production capacity of 130 million litres of ethanol, using 350,000 tonnes of high quality wheat annually. The company also plans to construct a new plant at its existing site in Minnedosa, Manitoba, that will use grain from local producers. Combined, these two plants will produce 260 million litres of ethanol per year, significantly increasing the country's output.
Canada currently ranks 14th in world biofuels production, well behind global leaders Brazil, the United States and China. Government regulations to be implemented by 2010 could boost biofuel consumption to at least four times current production however, so energy companies are responding. Ethanol from the Husky plants will be used to supply markets in Saskatchewan and Manitoba, as well as Ontario and Quebec.
Manitoba will require a 10-percent ethanol blend in eighty-five percent of all gasoline sold in the province by late 2007. Saskatchewan announced similar plans in its Greenprint for Ethanol Production in Saskatchewan, which outlines plans to provide tax incentives for ethanol production and mandate a required blend level once the industry is capable of supporting it.
Not only will Ontario require a 5-percent ethanol blend by January 2007, a $520-million Ontario Ethanol Growth Fund will distribute capital and operating grants over twelve years to support industry growth in the province.
The federal government is also encouraging ethanol production to support its commitment for a 5-percent renewable fuels standard in all gasoline and diesel sold in Canada by 2010. So far, Natural Resources Canada's Ethanol Expansion Program has distributed over $100 million in grants for plant development and construction since 2003.
Tax incentives will also play a role in helping the industry to develop. The federal excise tax of 10 cents per litre of gasoline does not apply to ethanol-blended fuel. Ontario and Alberta do not levy road taxes on ethanol, and Saskatchewan and Manitoba charge no road tax provided the ethanol is produced within the respective province.
British Columbia and Quebec have also pledged to exempt road taxes on ethanol in "low-level" ethanol blends made in-province. B.C offers road tax exemptions on ethanol in E85 ethanol, a blended fuel containing 85% ethanol.
Other recent biofuels investments in Canada include:
With ethanol in particular attracting large capital investments, Canada's production of biofuels is set to increase substantially in the next few years. However, it is not yet known if Canada will be able to increase its domestic production enough to meet the 5-percent federal standard by 2010.
Some experts have suggested that both Canada and the United States will be unable to produce enough corn or wheat to meet demands for both biofuels and food. Much of Canada's ethanol is currently produced from imported corn, though the country does produce 372 million bushels of corn each year.
The US Department of Agriculture says that between the food, livestock and ethanol industries, corn demand in the United States will exceed supply and will deplete stockpiles by 2008 unless planting rates increase. "In only very few countries is the required feedstock available at prices that would presently allow ethanol and biodiesel production to be competitive with transport fuels from crude oil without government support," says the OECD-FAO Agricultural Outlook: 2006-2015 (PDF).
Others suggest that Canada will be able to satisfy both food and ethanol markets. While filling the 5 percent ethanol requirement would take more than half of Canada's corn crop, ethanol can also be produced from other sources, such as wheat and barley.
Eventually, cellulose ethanol technology could resolve the feedstock problem by allowing production from virtually any agricultural waste, such as corn husks or straw.
The European Union estimates it has available feedstock to meet only 50 percent of its biofuels demand under its proposed strategy through to 2015. Should Canada expand its ethanol producing capacity there is ample potential for export sales, though competition from Brazil and the United States will be stiff.
What do biofuels offer?
Advocates say that biofuels provide solutions to climate change, energy security, and agricultural subsidies. Ethanol, say supporters, is renewable, greenhouse gas neutral, and provides valuable economic stimulus to rural communities. Farmers in the prairies are pleased to have another outlet for their crops.
Biofuels do offer tremendous potential for both Canada and the world. Brazil has successfully leveraged its ability to produce ethanol from sugar cane into a booming domestic and export industry that supplies much of its transportation fuel needs. Alexander Müller, Assistant Director-General for the Sustainable Development Department at the United Nations Food and Agriculture Organization, predicts that in the next 15-20 years, biofuels could provide a full 25 percent of the world's energy needs. There remain issues with the production of biofuels, however, particularly grain and corn-based ethanol, which may temper investor enthusiasm for funding the development of this market.
However, there are issues with the production of biofuels, particularly grain and corn-based ethanol, which may temper investor enthusiasm for funding the development of this market.
First, ethanol produced from corn requires heavy energy inputs for growing, transporting and refining. A recent report published by the U.S. National Academy of Sciences identified only a small energy gain from corn-based ethanol. The report from researchers at the University of Minnesota concluded that corn-based ethanol nets only 23 percent more energy than is required to produce it, while soybean biodiesel nets 93 percent more energy.
Previous studies have identified a negative overall energy balance from corn-based ethanol, due to the large energy inputs required. Growing crops for ethanol also requires large areas of land, huge quantities of water, and application of pesticides.
Cellulose ethanol and more efficient agricultural and refining practices may improve the net energy balance, but there is no question that an expanded ethanol industry will require increasing natural resource inputs.
Many of these same issues make ethanol expensive to produce under current conditions, requiring government subsidies to keep the industry afloat. An argument often cited by ethanol detractors is that without such support, the industry would collapse.
Others point out that the oil and gas industries have received tax breaks and exploration and production incentives for years, and that many industries have required such supports during their initial growth stages. Funding for biofuels could be viewed as similar to public investments in wind and solar power, which is justified by the environmental and rural development benefits they deliver, as well as the long-term economic prospects.
The Canadian Renewable Fuels Association (CRFA) says that to meet the federal 5 percent renewable fuels standard, initial investments to construct ethanol and biodiesel production facilities could total $1.5 billion and could create over 14,000 new jobs. Once such facilities are in place, they would contribute an additional 10,000 direct and indirect jobs and add $600 million of annual economic activity.
The 5 percent standard would also reduce greenhouse gas emissions from the transportation sector by 4.2 Megatonnes per year, or around 2 percent of Canada's 'Kyoto Gap', says the Association.
The industry group is calling for tax credits for ethanol and biodiesel production to replace existing excise tax exemptions, as well as programs to develop emerging technologies, and clear standards for renewable fuels to ensure quality and safety. The Canadian Association of Petroleum Producers, representing the oil and gas industry, supports the development of ethanol and biodiesel programs, says the CRFA.
See article:A Canadian Renewable Fuels Strategy.
Increased Canadian biofuel exports such as cellulose ethanol may provide a valuable incentive for the further growth of this sector. With continued support of the federal government and major players in the petroleum industry such as Husky and Suncor, the biofuels industry in Canada is sure to grow sharply in the next few years, and Canada could take a leadership role in developing these alternative fuel technologies and infrastructure.
How well the environmental and economic issues associated with increased ethanol production are resolved will dictate how sustainable the industry will be in the long term. But it is clear that biofuels will indeed take a more prominent place in our national energy mix.
Further information on ethanol can be found at the following websites:
A Canadian Renewable Fuels Strategy
NRCan Office of Energy Efficiency - Vehicle Fuels Page
US Department of Agriculture Energy Page
US Department of Energy Alternative Fuels Data Center