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Biofuel: Analysis of NZ's exporting potential

NEW ZEALAND IS VIEWED HOLISTICALLY AS A PURE, ECO-FRIENDLY NATION THAT PRODUCES AN ABUNDANCE OF HIGH-QUALITY NATURAL RESOURCES AS WELL AS ‘GREEN’ ENTREPRENEURIAL INNOVATIONS. THESE NATURAL RESOURCES CREATE JOBS FOR NEW ZEALANDERS, IN TURN BENEFITING SOCIETY AND THE LOCAL AND GLOBAL ECONOMIES.

New Zealand’s vast and diverse biogeography includes unique species of animals, fungi and plants. Because of the wet, fertile alpine terrain of New Zealand, these species have flourished for hundreds-of-millions of years. 

From agriculture to manufacturing, New Zealand and it’s inhabitants always invest time in exploring niche technologies. The production of Biofuel is a cutting-edge technology that global, as well as Kiwi scientists and engineers are working on. With New Zealand’s abundance of indigenous biodiversity, Kiwi scientists have the key to capitalisation of this rapid-growing niche technology.

By definition, a Biofuel is a fuel that contains the energy from a fresh conversion of inorganic carbon (carbon dioxide) to an organic compound, by a living organism. Simplified, a Biofuel is a collective term for liquid fuels derived from renewable sources, including ethanol, biodiesel, and other renewable liquid fuels. The Biofuel industry itself is worth close to $90 billion currently, with an expectation to more than double to $185.3 billion by 2021.  Close to 700 million (692,478,730) barrels of Biofuel were produced in 2011 alone, up from 400 million (402,707,055) in 2007. These are stark indicators for the colossal growth that is expected to come from renewable fuels. 

However, the price of crude oil has been fluctuating around $100 usd over the past few years, while a barrel of algae biofuel fluctuates between $250 usd and $350 usd, which indicates to me that consumption figures would greatly differ between the two commodities.

New Zealand is in the enviable position of potentially becoming the Saudi Arabia of biofuels in the South Pacific, without the ‘Food vs Energy’ debate over biofuels that has plagued other nations. New Zealand has the capacity to produce all its transport fuels from indigenous natural resources, which also broadens the potential to export part of production. Biofuel production in New Zealand is largely based from the conversion of natural waste and the flow-on resultants, for example; algae from forestry streams, food oils from food production, biomass, wood matter and organic waste. 

In 2007, the New Zealand Government - led by Labour - introduced a Biofuel bill, in which required petrol and diesel to have a percentage of biofuels added, with the amount increasing to 2.5% after five years. Unfortunately for NZ Biofuel producers, once the National Government gained power, it repealed the bill - under the Biofuel Obligation Repeal Act -, lifting the mandatory requirement. 

Although, in the 2009 Budget, $36 million was made available over a three-year period as grants for biofuel production. It was only available for producers who sell on the local market and were able to meet the quality specifications for engine fuels. More recently, the New Zealand Government announced further Biofuel production ‘Primary Growth Partnership’ funding of $6.75 million to investigate producing biofuels from forestry waste. The ‘Stump to Pump’ Primary Growth Partnership (PGP) programme partners are Norske Skog, Z Energy and the Government. The Government will match their funding of $6.75 million to bring the project’s total funding to $13.5 million.

Between the Government incentives and apt position for production, New Zealand certainly has the potential to be a play-maker in the Biofuel industry. Although one of the smallest producers currently, New Zealand has the sustainable framework and measures in order to stimulate and sustain growth in production.

One of the two prominent forms of Biofuel, is Biodiesel. Biodiesel, a light to dark yellow liquid, is biodegradable, non-toxic and has significantly fewer emissions than petroleum-based diesel. It is practically immiscible with water, has a high boiling point and low vapour pressure. Biodiesel is produced from a wide range of feedstock, including fresh soybean oil, mustard seed oil, waste vegetable oil, palm oil, rapeseed, sunflower, soybean and copra, palm, groundnut and cotton seed. With a viscosity similar to petro-diesel, it can be used in diesel engines (cars, trucks, buses, construction equipment), jet engines, and heating and electricity generating systems. It blends easily with petro-diesel and can be used as an additive to ultra-low sulphur diesel to increase lubricity. Nearly all diesel-powered equipment can use blends of up to 20 per cent biodiesel, and many engines can use higher-level blends or even pure biodiesel with little or no modification. Most storage and distribution equipment take lower-level blends, but need special handling for higher-level blends. Biodiesel use and production has been growing fast in the face of rising petroleum costs, and because of government tax subsidies. From a small base of 251 million gallons in 2000, production climbed to an estimated 790 million gallons in 2005.

The other Biofuel - also the largest produced Biofuel in the world - is Bioethanol. Commercially available bioethanol is mostly produced from sugarcane, sugar beet and corn. Other sources are sweet stem sorghum and cassava, and cellulosic material such as grasses, trees and various waste products from crops, wood processing and municipal solid wastes. Bioethanol can be blended with conventional fuels to at least 10 per cent (10 per cent ethanol: 90 per cent gasoline). Kenya used blends of 20 per cent alcohol in the 1990s without significant affecting engine performance. And if engines are modified, a much higher percentage of bioethanol can be used.

In 2003, global production was double the level of a decade earlier, and from 2000 to 2005, production increased from 4.6 billion to 12.2 billion gallons. Brazil and the United States are world leaders in using ethanol. More recent Bioethanol statistics proved hard to pinpoint, as numerous sources quote different production numbers and statistics.

There are numerous risks and obstacles that occur along the production of Biofuel, as well as forming a Biofuel production company. Operating a successful Biofuel operation on a large scale certainly takes a considerably large amount of capital. Large-scale Biofuel projects demand a huge amount of financial resources. Worldwide, interest in biofuels is certainly growing, which will hopefully spur investments. Additionally, government incentives through subsidies and funding programs also take financial pressure of of Biofuel operators. Upon analysis of exactly how much it takes to fund a Biofuel production operation I found a local operation, named NXT Fuels (formerly Aquaflow Bionomic Corporation). In an investor prospectus it was noted that to fund the operation, a capital injection of $45 million was needed.

Summarised, the four main obstacles of production and exporting Biofuels are identifying suitable feedstocks, evaluation of environmental impacts, potential land use conflict with food crops, and establishment of international trade.

The first of the export and production issues is the procurement of sufficient Biofuel feedstocks. Biofuels feedstock refers to those starting materials that are used to make biofuels. Some examples of feedstock are corn, sugarcane (for Bioethanol), algae, and palm oils (for Biodiesel). Current worldwide production of vegetable oil and animal fat is not sufficient to replace liquid fossil fuel use. If 7.5 times the land area of New Zealand (268,021 km²) - totalling 2 million km² was devoted to biodiesel production from soy, this would just about provide the 160 million tonnes required (assuming 98 US gal/acre of biodiesel) to replace current liquid fossil fuels. This land area could in principle be reduced significantly using algae, if the obstacles can be overcome, but it gives an idea of the size of feedstock needed.

Next, there are significant environmental impacts that need to be considered when producing Biofuels. Biodiesel and ethanol plants are relatively clean industries compared to oil refineries. Biofuel refineries are closely regulated, and in most countries they must install the best available control technologies so that air and water emissions meet stringent standards. Primarily, the environmental impacts of Biofuel production stem from the feedstock itself. The pesticides and fertilisers used for corn feedstock production raise serious environmental concerns, as well as the fact that corn requires intense irrigation. Thus it’s important to move quickly toward ethanol production from cellulose feedstocks. It is also important to note that different feedstocks grown for biofuels have different environmental effects. Essentially, if the feedstock that you are producing from is relatively clean or natural (i.e. Naturally occurring Algae from wastewater), then your Biofuel production process doesn’t have to worry about negative environmental impacts.

A third issue that arrises with Biofuel production is land use conflict. This issue is actually classified with a pneumonic; ILUC. The indirect land use change impacts of biofuels - ILUC - relates to the unintended consequence of releasing more carbon emissions due to land-use changes around the world induced by the expansion of croplands for ethanol or biodiesel production in response to the increased global demand for biofuels. It is also known that indirect land use changes produce other significant social and environmental impacts, affecting biodiversity, water quality, food prices and supply, land tenure, worker migration, and community and cultural stability. Although, you do have to take into consideration the issues that traditional liquid-fossil fuel production incurs, and I believe that the impact of fossil fuels far outweighs biofuels impact on land use.

The fourth and perhaps the biggest issue with exporting is the establishment of international trade. Ethanol has been traded for decades and has developed into a global market involving large volumes. In contrast, biodiesel trade is less established and has been encouraged by increases in policies and incentives that promote biofuels, particularly in the European Union (EU). The current major participants in the liquid biofuels trade are the United States, the EU, Brazil, and Argentina. The volume and direction of biofuel trade depend on many factors, including policies, tariffs, and crop yields. New Zealand already has favourable trade agreements with numerous countries, which allows smoother trade.

In review of these issues and the prospects described earlier, I believe that the benefits of exporting New Zealand-made Biofuels far outweigh the risks. Such as the issues, there are also beneficial factors to exporting from New Zealand; Renewability, compatibility with existing infrastructure and increased economic growth.

Unlike fossil fuels, Biofuels are a renewable energy source. Because they are derived from crops that can be harvested annually, or in the case of algae monthly, Biofuels are theoretically unlimited. Since most of the sources like manure, corn, switchgrass, soybeans, waste from crops and plants are renewable and are not likely to run out any time soon, making the use of biofuels efficient in nature. These crops can be replanted again and again. 

Biofuels are liquid at standard temperature and pressure, have reasonably high energy densities, and can be distributed with only minor modifications to existing infrastructure. Additionally, Biofuels have the advantage that they can be burned in standard internal combustion engines with only minor modifications to the rubber in fuel lines and gaskets. This is in stark contrast to fuels like hydrogen or electricity, which requires complete redesign of everything from the engine to the transmission. 

Not every country has large reserves of crude oil. For them, having to import the oil puts a huge dent in the economy. If more people start shifting towards Biofuels, then the dependence on the imports will decrease - in turn demand for NZ exports. More jobs will be created with a growing Biofuel industry, which keeps the New Zealand economy secure and encourages further growth.

EssaysRees Vinsen