PetroChina Plants Trees for Oil(1)

One month ago, the National Development and Reform Commission called for the halt of corn-to-ethanol processing, causing a temporary uproar as 'grain ethanol' became taboo in the energy industry.

Non-grain ethanol and tree-based bio-energy resources have become hot concepts. Oil tycoon Hu Lianglun, chairman of the board at Guangyuanfa Group, tells us that his company plans to process pig lard into diesel fuel-- they already have a production line in Qingdao capable of producing 100,000 tons of bio-diesel per year. They plan to use pig, cow, and lamb fat products along with vegetable oil to produce bio-diesel.

PetroChina recently announced its plans to cooperate closely with the Ministry of Forestry on the cultivation and development of plant-derived bio-fuels. This year they will construct the first batch of facilities in Yunnan and Sichuan.

PetroChina and the Ministry of Forests will cooperate in 2007 in Yunnan and Sichuan on an operation that will develop 20,000 to 30,000 tons of biodiesel based on jatropha curcas. Before, PetroChina had already invested RMB 5 million with the Ministry of Forests to set up four bio-diesel facilities working with plant products.

To Liu Taiyun, Yunnan's Finished Oil Product Circulation Association, the development of bio-fuel in Yunnan is a good thing. Yunnan has the capacity to use a lot of bio-fuel, but the province still lacks refineries, oil fields, and thus must rely on rail lines to import the oil. Transport costs are high, and long-term demand will not be met by supply.

One factor behind the decision to use bio-energy is the cost of the raw materials. Yunnan has large mountains with much low-yield farmland, but the planting costs of castor oil and hemp are low. In the long term, this project will populate the region and increase income there.

What vexes Liu is that Yunnan was originally Sinopec's domain, with a distribution network spread all over the province. If Sinopec undertook this project, its industrial chain would probably be much more efficient. But since PetroChina has been given the project, the moment the project starts they will expand operations in the region. According to Gu Zhibang, director of the Ministry of Forestry, developing plant-derived bio-energy will ultimately result in a structure that integrates cultivation, processing, and sales.

According to Yuannan media reports last November, Sinopec announced that it supported the planned expansion of ethanol and that it was looking forward to using Yunnan's resource superiority to develop this emerging industry. But looking at recently announced projects and plans, PetroChina, seems much more ambitious.