21/11/06 (AP)  - Biofuel production in Australia is booming but the fuel will require further government support to become a viable alternative to conventional fuels in the future, according to a study.

The 200-page report says Australia should easily reach the federal government's production target of 350 million litres of ethanol and biodiesel by 2010, but faces rising costs and limited supplies of major feedstocks.
 
Report co-author and EnergyQuest chief executive Graeme Bethune said biofuel production capacity is likely to exceed 640 million litres a year by the end of 2007 and could reach 2,400 million litres by 2010.

However, Dr Bethune said that without government support the cost of producing biofuels was higher than conventional fuels.

"With high oil prices, there is a clear market opportunity for transport fuel alternative - biofuels, LPG, compressed natural gas, gas to liquids, coal to liquids, LNG and shale to liquids," Dr Bethune told a biofuels conference in Sydney on Tuesday.

Fellow author and Ecco Consulting chief executive Mike Cochran said the biggest challenge would be the rising cost and limited supply of major feedstocks like sorghum.

"While oil prices are still high, the cost of some key feedstocks has also risen considerably over recent months," Mr Cochran said.

"Furthermore, if production continues to grow over two billion litres a year, Australia will need to revert to other grains otherwise destined for exports, such as wheat, for ethanol production, and, to importing feedstocks such as additional palm oil for biodiesel."

Mr Cochran said there was potential in the long term to reduce feedstock costs and increase availability through new technologies.

Biofuels are renewable fuels made from plant or animal matter.