Indian Biodiesel Firms Eye Local Sales

By GURDEEP SINGH

NEW DELHI -- Indian biodiesel producers are shedding their "only-for-export" status and looking to local sales, but even so are cutting output and shelving expansion projects due to caution about the market outlook.
Their prospects for foreign, and domestic, sales have been undermined by the collapse in the price of conventional diesel, which is now cheaper than crop-based diesel, by tough and sometimes subsidized competition, and by doubts about the ecological credentials of the fuel.
"We have a long-term goal to expand to 500,000 tons a year. But today there's no investor appetite. We'll have to wait for the market to stabilize," said C.S. Bhaskar, chief executive of Natural BioEnergy, who had to shut his 100,000-ton-a-year biodiesel plant in southern India in October after it could no longer export at a profit to the E.U.
He's been running the plant at 50% capacity since December and now plans to scrap its Indian government export-oriented-unit or EoU status, and focus on the domestic market.
"We will always have the option to export, whenever the market opens up," he said. Critical for future export sales is the price of conventional oil. Another factor is a probable E.U. ban on imports of U.S. biodiesel, which could make more room for other producers.
"Biodiesel prices revolve around fossil diesel. So if crude goes above $60 a barrel tomorrow, we'll again have a market," said Sanjiv Gupta, managing director of Universal Biofuels.
Universal's 150,000-ton-a-year biodiesel plant in southern India is also in the process of debonding from the export-oriented status, Mr. Gupta said.
"The export market is very weak now because of the sharp fall in diesel prices, this time the local market is significantly better," Mr. Gupta said.
The European Commission will decide by March 12 on whether to levy duties on U.S. biodiesel imports in retaliation for heavy subsidies Washington pays its biodiesel producers, according to Commission proposals seen by Dow Jones Newswires.
"It could be good news for us, at least it'll clear the pricing part," said Natural BioEnergy's Mr. Bhaskar.
Even if the EU imposes duties on imports from the U.S., Indian producers will have compete with other countries eyeing the growing biofuel energy market, said Mr. Gupta.
"Like Argentina, which has subsidies built in their tariff structure," he added.
Selling In India
India is advancing on several fronts to incorporate alternate energy into the mainstream to counter its rising emission levels, but hasn't made much progress with biofuels because of a lack of clear policy.
Its mandatory ethanol-gasoline blending program has been symbolic at best and the government currently doesn't mandate biodiesel blending with fossil diesel.
As a result, selling in India is not an easy job for now, even if the price is right.
"There's no awareness, concern for the environment or even any kind of guidance from the government," said Aditya Agrawal, a director at Emami Group, which is running its 100,000-ton-a-year biodiesel unit in eastern India at less than 10% of installed capacity.
The near-record crude oil prices last year forced India to set an "indicative" target to raise blending of biofuels with gasoline and diesel to 20% by 2017, said an official at the federal ministry of new and renewable energy.
"We were expecting that the biofuel policy will be cleared quickly but then crude fell and the focus went away," said the official, who did not wish to be named.
He said the government wants to ensure that biodiesel to be used in India comes from non-edible sources like jatropha -- a nonfood shrub that grows in arid regions and produces oil-rich seeds.
"India can't afford biodiesel made from edible resources, it's expensive and affects the food supply," he said.
However, jatropha availability is very low for now, so "we're building the plants in advance, to initially run on other feedstock and switch to jatropha when it's available," said Sandeep Chaturvedi, president of Biodiesel Association of India. "But we need a policy before investing millions of dollars."
The country has about 600,000 hectares of land planted with jatropha, which will start producing in about three years, Mr. Chaturvedi said. The seeds produced initially will be used to plant more jatropha, he said.
India has an installed capacity to produce about 1.2 million tons a year of biodiesel, a majority of which was earlier intended for exports, he said.
Indian manufactures, which had to use imported palm oil as a feedstock to export to the U.S. and E.U., are now switching to palm styrene -- a byproduct of the palm oil refining process that is available locally.
However, biodiesel made from palm styrene has a lower freezing point than the one made from palm oil, making it unsuitable for use in the big northern hemisphere markets.
Write to Gurdeep Singh at gurdeep.singh@dowjones.com