Friday, July 15, 2005
Bio-diesel cheaper than diesel
Indic View informs us that the cost of Jatropha-based bio-diesel has now gone below the cost of regular diesel. The Indian Railways have been experimenting with bio-diesel on several trains, including the Shatabdi Express, with surprisingly good results.
What is the potential for this sunrise industry?
I don't know the economics of the industry well enough. However, if it does become popular and demand increases, can supply keep up quickly enough to keep the prices down? After all, even assuming that they grow fast, Jatropha still takes time to grow to a stage where they can harvested. So, effectively, a supply response to today's demand will still take time to get to market, by which time demand may have gone further up. Or down. Does anyone deal in Jatropha futures yet?
In the past Indian Railways would pay as much as Rs 70-80 for a litre of bio-diesel to meet its trial requirements. For a pilot in 2003, BEST and HPCL paid as much as Rs 78 per litre to Lubzoil India Ltd for 20,000 litres. Now with the price of jatropha seeds down to Rs 5 a kilo, from Rs 30 a kilo earlier, bio-diesel cost has come down to just Rs 24 a litre.
What is the potential for this sunrise industry?
India uses about 45 million tonnes of diesel every year. So with 20% bio-diesel, which the government will likely mandate as a target under the National Biodiesel Policy in August, about 9 million tonnes of bio-diesel produced within India will mean an India bio-diesel industry as big as Rs 250 billion, or $6 billion. That is only about 7 years away. But is that just another number for the future that is thrown at us?
There are already indications of huge commitments from corporates in India. For example a single Mohan Breweries-D1 Oils JV in Tamil Nadu is into contracting farmers for Jatropha production, and is already working on an immediate aim of 120,000 tonnes of jatropha oil annually. This could go up to 300,000 tonnes based on the plantations targets for this year alone. In Mysore, Labland Biotech is in a deal with D1 Oils to procure upto 50,000 tonnes of jatropha oil a year, from contract manufacturing farmers.
I don't know the economics of the industry well enough. However, if it does become popular and demand increases, can supply keep up quickly enough to keep the prices down? After all, even assuming that they grow fast, Jatropha still takes time to grow to a stage where they can harvested. So, effectively, a supply response to today's demand will still take time to get to market, by which time demand may have gone further up. Or down. Does anyone deal in Jatropha futures yet?
