Saskatchewan is once again postponing its plans to mandate ethanol use in the province, leading one fuel industry executive to speculate that the industry is fundamentally unsound.
Legislation requiring fuel suppliers to sell ethanol blends at the pumps was to be phased in effective May 1, 2005. The plan was to start with a two percent blend and ratchet it up to 7.5 percent by Nov. 1, 2005.
“Right now it would appear the dates we have set are not workable for the industry and we’ll be looking at changing those,” said Saskatchewan Industry and Resources spokesperson Bob Ellis.
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His department recently issued a letter to that effect to fuel retailers. It isn’t the first time the companies have received such notification.
The original date for implementation of the province’s ethanol mandate was July 1, 2004. That was moved forward to April 1, 2004 in anticipation of The Broe Companies Inc. constructing an 80-million-litre ethanol production facility in Belle Plaine, Sask.
But the Denver, Colorado, investment firm was unable to arrange financing to build the plant, forcing the province to move the deadline forward one year to May 1, 2005, when it was expected that two other production facilities would be up and running.
“Those projects aren’t coming along as quickly as projected,” said Ellis.
NorAmera BioEnergy Corp.’s conversion of a defunct distillery in Weyburn, Sask., into a $20 million, 25-million-L ethanol plant is months behind schedule with the new completion date expected to be this fall.
Husky Oil Operations Ltd.’s 130-million-L plant, to be built adjacent to its heavy oil upgrader in Lloydminster, Sask., won’t be ready until early 2006, said Ellis.
The series of delays is leaving fuel suppliers confused and anxious.
Scott Banda, Federated Co-operatives Ltd.’s vice-president of corporate and legal affairs, said he is uncertain of the province’s policy on ethanol and until there are more details the co-op won’t be investing in the infrastructure required to produce ethanol-blended fuels.
Ted Stoner, western vice-president of the Canadian Petroleum Products Institute, whose member companies include Shell Canada, Petro-Canada and Imperial Oil, echoed that sentiment.
“Right now we’re kind of in a wait-and-see or show-me type of mode.”
His members, who strongly oppose the ethanol mandate, are not going to invest shareholder capital in expensive blending facilities until they are absolutely convinced the ethanol supply is in place.
“Everybody was ready to fire the gun and start putting the facilities in a year ago and then everybody held off and said, ‘wait a minute, where are the sources of ethanol coming from?’ And of course it never panned out.”
Stoner said the province needs to give his member companies a grace period of nine to 12 months after an adequate supply of ethanol is secured to design, build and test the necessary blending equipment.
And they will only do so begrudgingly because they don’t like the heavy-handed approach of government, which as part of its mandate is stipulating a minimum 30 percent of the ethanol must come from small firms that produce less than 25 million L of the biofuel annually.
Stoner pointed out that despite the pending government mandate, ethanol plants are not “sprouting up all over the place,” which suggests something is flawed with the industry.
“The ethanol supply economics don’t seem to be there,” he said.
Ellis disputed that assertion.
While he acknowledged there have been problems arranging private sector financing for smaller ethanol projects, he said there are also plenty of encouraging signs for the industry.
Last February the federal government demonstrated its faith in the sector by contributing $3.5 million to the NorAmera project and $7.8 million to the Husky plant.
“If the economics aren’t there, you wouldn’t have a major company like Husky committing somewhere in the order of $90-$95 million toward an ethanol facility,” said Ellis.
The province hasn’t set a new implementation date for the mandate but it will likely be phased in gradually beginning sometime later this fall. If all of the parties are not ready to go at that time, it will be moved back again.
“The main message is flexibility. What we’re trying to do when all is said and done is grow a biofuels industry here in the province,” said Ellis.
