8/30/2004 (THE BIRMINGHAM POST) - Sustained high crude oil prices willlead to greater use of more expensive biofuels, but consumers will needyet more incentives for demand to really take off, producers and analystssay.

Biodiesel from vegetable oils and ethanol made from sugar or grain havethe best prospects in economies most reliant on imports of crude oil.

The US, Japan and China are the world's biggest crude oil importers.Biofuel producers, like leader Brazil, are turning abundant biologicalfeedstock into green fuels, but they remain some 50 per cent moreexpensive than petrol.

'Fossil fuels are still cheaper than biofuels in general,' said PeterClery, chairman of the British Association for Biofuels and Oils, a lobbygroup. 'As long as petrol is cheaper, bioethanol will not be used unlessthere is a government incentive or legislative requirement to use it.'

US light crude futures have jumped more than 40 per cent this year to apeak of $49.40 a barrel, driven up by violence in Iraq and signs thatdemand growth remains strong.

If oil prices remain high for long, interest in ethanol as a fuelalternative will rise, and governments will be more likely to expand theirethanol incentive programmes, said Sergey Gudoshnikov, economist at theInternational Sugar Organisation.

Andrew Owens, chief executive 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 upto politicians in various countries to accelerate consumption of biofuels.

'I think it will happen slowly, even though the jump in oil prices willput biofuels higher on the political agenda.'

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

A new law in the US state of Illinois will encourage use of corn-basedethanol by promoting 'flexible fuel' vehicles and building of servicestations supplying the mostly ethanol E-85 fuel.

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 ofso-called gasohol, which comprises a mix of ten per cent ethanol and 90per cent petrol.

But there is some resistance from major oil companies.

In Britain, supermarket chain Tesco said in April it planned to makebiodiesel made with rapeseed available at more than 20 of its forecourtsin the South-east.

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

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

Mr Owens said he expected the plant to come on stream in the spring of2006.

In Germany, Oelmuehle Hamburg, a unit of US agribusiness giant ArcherDaniels Midland, said last month it planned to double output of biodieselat its mill in Hamburg.