19/1/07 (Reuters)  -  JAKARTA: Palm oil producer PT SMART Tbk yesterday announced a US$5.5bil biofuel deal with China oil major CNOOC and a Hong Kong energy firm, a major boost for both nations’ efforts to secure alternative fuel sources.

Thought to be one of the biggest single biofuel investments worldwide, the deal will see SMART, state-owned China National Offshore Oil Co and Hong Kong Energy Ltd spend US$5.5bil in three phases over eight years to develop crude palm oil-based biodiesel and sugarcane or cassava-based bioethanol.

“This project will be carried out in Papua and Kalimantan where the regional governments have reserves of (about) one million hectares of land,” said SMART, a subsidiary of Singapore’s Golden AgriResources Limited

The deal consolidates CNOOC’s position at the forefront of China’s efforts to ease its rapidly growing dependence on imported crude oil and offset use of dirty coal.

It will also help Indonesia, the world’s second largest palm oil producer, tap more of its own crop resources to offset declining production from the Opec member’s oil fields, easing its hefty oil subsidy bill in the process.

The investment is on a par with the roughly US$5bil Tangguh LNG project being developed by BP in Papua, and supercedes China’s biggest overseas oil acquisition, the US$4.2bil purchase of PetroKazakhstan last year.

Global growth in the biofuel industry has boomed as oil prices trebled over the last four years, but so far most projects in the sector remain on a smaller scale amid uncertainties over crop availability, government policies and a lack of investment from oil companies who fear it may undercut their core business. – Reuters