It has been a perilous journey for biodiesel producers in Australia during the past four years – slipping from darlings of the new investment fraternity to pariahs after Federal Government changes to fuel excise in mid-2006 threatened the growth of biodiesel usage. But two new contracts for Perth and Adelaide-based Australian Renewable Fuels signal a new era of acceptance for biodiesel fuel in this country.
In its efforts to turn more Australian companies onto the benefits of biodiesel as a viable alternative to diesel petrol, ARF Limited has secured two key contacts to provide 18 million litres of biodiesel to leading Australian businesses. Significantly, these orders will boost production at AR Fuels’ Adelaide plant at Largs Bay – and subsequently help bolster the significance and consumer appeal of this alternative fuel source. Caltex Australia, the fuel refiner and distributor, is ensuring it has biodiesel as part of its fuel inventory for sale to its customers by ordering up to five million litres of biodiesel a year from each of ARF’s plants in Adelaide and Picton in Western Australia. It is a move that has triggered negotiations between several other major oil companies and ARF, with further contract announcements tipped this year.
The other big contract for AR Fuels is with Bunbury-based mining and earth moving contractor Piacentini & Son, which has ordered eight million litres of biodiesel over the next 12 months. This could be the crucial contract that builds wider confidence within the mining sector for biodiesel use in major mining vehicle fleets, and with SA poised on the edge of a new mining boom, AR Fuels believes its Adelaide plant will be perfectly placed to meet such demand.
“It takes a leader for others to follow, especially with something like alternative fuels, and we have seen that Piacentini’s acceptance of biodiesel has prompted other mining and cartage contractor companies in Western Australia to start trialing biodiesel in their vehicles,” says ARF’s finance director Max Ger. “In South Australia, interest is also growing. We’ve had some very promising enquiries.”
These contracts have been the fillip the biodiesel producer needed to improve confidence in the alternative fuel source – a non-toxic and biodegradable fuel produced from either tallow or vegetable oils that emits 70 per cent less greenhouse gases. Biodiesel supporters have had a tough time convincing fuel consumers of its viability in Australia – from the Federal Government down. In mid-2006, the company even declared that it didn’t feel confident expanding its operations in Australia, and thought it more beneficial to aim$60 million in planned investment towards countries where biodiesel consumption and production was being readily encouraged, such as the United States.
Now the situation has changed for the better in Australia, and the company is confident that it has made the right sourcing decisions – using the cheaper tallow as its primary fuel over more expensive vegetable oils – to ensure the economic viability of biodiesel production. “The change in thought about biodiesel was probably triggered by the prolonged drought, and the public’s changing attitudes to global warming,” says Ger. “At first people were excited about biodiesel because of tax incentives; now the interest is based upon fundamental environmental reasons that are stronger than fiscal market fluctuations.”
The consequences of drought have caused a rise the price of tallow (rendered animal fat), although canola oil is prohibitively high; almost 50 per cent above tallow’s current price of $840 a tonne in Australia. “If we had focused on vegetable oils as our main production feedstock, it would have been prohibitively expensive,” says Ger. “If the fuel market was to suddenly change – if the price of crude oil was to drop, say from its current rate of about $65 a barrel to $55 or less – I believe the vegetable oil-based biodiesel processors would be pushed to the wall. As it is, I think we could weather such a storm.”
Plant improvements are currently underway at Largs Bay to heighten purity specifications in accordance with international oil company stipulations, and when work is completed in late August, the company will have significant room to grow. ARF’s two plants have a combined annual fuel production capacity of 90 million litres, and the two new contracts take its current Australian annual sales volumes to 33 million litres.
Max Ger says daily production is geared to rise quickly, but not until new customers have been confirmed. “It’s not possible for the Largs Bay plant to work at capacity until we have the customers to deliver the fuel to. We don’t have the storage capacity to hold great amounts; it’s about 3.5 million litres, which can be filled in a few days. If we get the green light on the contracts we are negotiating, we could have the plant running to 80 per cent of capacity almost immediately.”
Significantly, the biodiesel industry is not standing still. In its bid to find more cheap source materials, AR Fuels is committed to investing more than $1 million over three years with the South Australian Research and Development Institute to help develop a new oil-bearing seed that doesn’t enter the human food chain, and therefore won’t be influenced by competitive purchasers escalating the price. “Many products can be used to make biodiesel, but because they can also be sold in the human food chain, their price can be volatile,” says Ger. “This is the way forward, to develop a plant that can be grown in drought areas and is only going to meet biodiesel’s needs. That will guarantee our cost efficiency and profitability.
“We’re well placed for the future,” adds Ger, “and having weathered all the storms, I believe the future looks good.”
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