[LatelineNews: 2005-2-25] SHANGHAI - Faced with too many crops and notenough oil, Asian governments are promoting biofuels as a way to cutcostly fuel imports.Ethanol and biodiesel can be more expensive than the oil they replace butthis is a price some governments are willing to bear to ensure an outletfor crop surpluses.

"Any time you have an ethanol programme, it's predominantly driven bydomestic interests," said Mark Hutchinson, head of research for investmentbank Mullis Capital, from Bangkok.

"It's easy to sell to voters. It helps support agricultural prices andpromotes self-sufficiency goals of reducing imports."

In East and Southeast Asia, only Malaysia, Vietnam and tiny Brunei are netoil exporters. Other countries, including OPEC member Indonesia, havestruggled with several years of high oil bills and volatile crop prices.

King Bhumibol Adulyadej -- who patented a palm oil-diesel blend -- has setthe tone for Thailand. It targets ethanol capacity of 4.11 million litresa day by 2006 -- up from 275,000 litres now -- and biodiesel output at 8.5million litres by 2012.

But Thailand, which imported 82 percent of its oil and gas in 2004, hasfound home-grown fuel isn't always cheap.

Two of three plants closed after rising molasses prices pushed productioncosts 30 percent over the maximum ethanol sale price. High tapioca pricescould delay the start of a fourth.

"It is not economically viable to produce ethanol, especially withoutsubsidies from the government," said Nattapon Nattasomboon of the industryministry's ethanol committee.

The government encourages small power plants to burn crop waste, butdoesn't require ethanol be mixed with gasoline.

CROP SUPPORT

China -- which imported nearly half its oil in 2004 -- sellsethanol-blended gasoline in its Northeast corn belt and in wheat-richHenan Province.

The government subsidises production at four plants with a combined annualcapacity of 1.02 million tonnes, or about 0.5 percent of projected cornand wheat output this year.

"It makes far more economic sense for China to use any surplus grain ithas to produce ethanol than to subsidise the export of that same grain toneighbouring countries," said agribusiness consultant Michael Goettl ofChina Food and Agricultural Services.

Power plants in Malaysia, the No. 1 palm oil producer, burn palm oil whenstocks are high. Indonesia's palm plantations have doubled in acreage inthe last six years, and the Agriculture Ministry is studying whetherbiodiesel can sop up the excess.

The Philippine government has pressed bagasse, or sugar cane pulp, intoservice to relieve the oil-poor archipelago's chronic power shortage.About 267,000 tonnes of raw sugar are slated to fire power plants by 2007.

Pending legislation would require ethanol use from 2007.

COST CONSIDERATIONS

Countries that don't need biofuels to support the agriculture sector keepa sharper eye on the cost.

Japan could consume 1.8 million kilolitres of ethanol by 2012, when thefuel will be sold nationwide to help meet Kyoto accord commitments, anEnvironment Ministry official said.

But it's cheaper to import ethanol from Brazil than refine it at home,leaving Japan's capacity to produce 6.5 million kilolitres a year fromwood products, rice straw, sugar cane and beet largely untapped, he said.

Biodiesel in Taiwan is 1.8 times the cost of petroleum diesel, which isentirely imported. A plant in southern Taiwan can recycle 1,460 tonnes ayear of used cooking oil.

Biodiesel incentives could force Taiwan to import more soybeans, asbiodiesel demand exceeds the supply of recycled cooking oil, the U.S.Department of Agriculture estimated.

Taiwan's government decided not to promote ethanol, since the island isalready a net corn importer.

Rising incomes and better returns on cash crops are eating into China'sgrain surplus, curbing widespread use of ethanol.

"Soon China will be at most at a balance 1/8in corn and wheat 3/8, butcertainly not a surplus," a grains trader in Shanghai said.

"There's no way they are going to import to produce ethanol." Reuters