Biofuel futures contract a distant dream in Asia

By Jonathan Nonis and Felicia Loo

SINGAPORE (Reuters) - Asia is unlikely to have its own biodiesel futures contract anytime soon as falling margins undermine the biofuel business.

Government policies to encourage the use of biodiesel in the region are also in their infancy, senior industry figures told the Reuters Global Biofuel Summit in Singapore.

Asian countries are trying to encourage the use of biodiesel, to curb their dependence on mineral oil with tax rebates and incentives, but the task has been made difficult because current prices for feedstock are higher than the cost of crude oil.

"Different governments have different objectives to accomplish and it depends on what the government will do to realize that dream or goal," said Laren Tan, Head, OTC Clearing and Derivatives at Ginga Petroleum.

Although Malaysia has a handful of biodiesel plants in operation, the nation's consumption remains low.

Indonesia will see its biodiesel output rising by 180,000 tons to 750,000 tons this year as new refining capacity comes online this year, but the country has set no mandatory policies for its usage.

"Indonesia is still subsidizing diesel. You don't want to buy something that is more expensive than petroleum diesel and sell at cheaper prices, while the government forks out more money for it," said Ibnu Bramono, senior consultant from FACTS Global Energy.

But brokers remain optimistic that such futures contracts would eventually materialize, aided by European demand for biodiesel. The European Union has mandatory targets of 5.75 percent biodiesel consumption by 2010.  Continued...