June 26, 2006

British chemical and petroleum companies to invest in biofuels

A joint biofuels project announced by some of the bigwig chemical and petroleum companies last week are expected to give a further push to rising wheat prices.

Petrochemical giant BP, science and chemical firm DuPont and Associated British Foods are part of a joint venture who would be developing and producing biobutanol,

This marks the first time all the main players in the biofuels industry have come together in a formal partnership.

Biobutanol can be used at higher concentrations in unmodified engines and produces more energy than bioethanol.

A new GBP100 million (US$289.9 million) wheat-fuelled plant would be built if initial tests are successful, said Frontier's managing director Mark Aitchison. Frontier is half-owned by Associated British Foods. Aitchison estimated that up to 1 million tonnes of wheat would be used. 

Frontier, which already buys about 4m tonnes of wheat a year, would source the grain, he said.

Julian Bell, a consultant at the SAC, said wheat prices could improve if the increased demand from biofuel plants could chip away at the UK's exportable surplus, currently at about 2m tonnes.

However, farmers would need to be alert to the best prices.

Bell said although better prices exist on the spot market, the real opportunities would lie in the forward market as these companies often secure supplies months ahead. Then again, getting many farmers to sell far ahead was difficult, he warned.