Biofuel seen too costly to replace fuel oil

The use of biofuel to replace fuel oil in power generation is too costly despite oil's rally over US$70 (RM257) a barrel, though it has potential to replace diesel in some parts of Asia, an industry executive said on Aug 16.

Roy Adair, CEO of Singapore's largest power generator Senoko Power, said his firm had reduced its oil-fired generation to marginal levels with such capacity mainly used as back-up, and it is not looking to replace that further with biofuels.

"The economics are such that it's not likely to use biofuels for generation," Adair told Reuters on the sidelines of a lecture at the Institute of Southeast Asian Studies in Singapore. "However, there's strong potential for diesel replacement."

Asia-Pacific utilities are set to burn nearly a million barrels per day of fuel oil this year, but generators are limiting its use as they face soaring oil import bills, with fuel oil prices up 15% this year.

Industry experts say utilities could turn to biofuels for power generation if efforts to use sulphur-free palm oil to yield cleaner fuel could be used efficiently.

But crude palm oil prices have climbed to US$444 a tonne, even more expensive than products normally used to cut sulphur in fuel oil that now are around US$390 a tonne.

Taiwan's Chinese Petroleum Corp (CPC) is said to have bought a low-sulphur fuel oil cargo blended with crude palm oil in the second quarter and tested the product, but no further such purchases have been heard.

Indonesia still uses significant volumes of diesel for electricity while small-scale private diesel generators are common across the region, hurting rural communities as diesel prices have soared 31% this year to over US$640 a tonne.

"You could grow your own fuel," said Adair.

Indonesia has a target for 10% biofuel use by 2009 and hopes to use it in power plants as well. - Reuters