Z Energy and Norske Skog seek govt support for sawdust-to-crude plant

Z Energy and Norske Skog, which operates a paper mill at Kawerau, are seeking majority government funding for a proposed $50 million demonstration plant to turn wood waste into transport fuels.

Z chief executive Mike Bennetts announced the plan at a conference in Wellington, at the same time as revealing the 100 percent New Zealand-owned fuel retailer is close to committing around $15 million on a project to blend bio-diesel made from tallow into its conventionally sourced diesel supplies.

Mr Bennetts told BusinessDesk that Z and Norske, which halved newsprint production at its Kawerau plant last year, will seek government support under the four-year-old Primary Growth Partnership scheme, which sets aside $70 million a year for partnerships with industry to generate economic growth from the country's primary sector.

More than $650 million has been jointly invested in such projects since the PGP fund was established in 2009.

Mr Bennetts says the two firms' "stump-to-pump" strategy aimed to make use of the fact that sawdust and forest residues could generate "about 10 percent of our crude oil requirements", although that would require investment of perhaps $1 billion over several years for 10 such industrial plants.

If the proposed demonstration model proved the potential for a commercially viable industry, that would add value to 1.6 million tonnes of underused wood residues annually.

"The benefit may be as high as $460 million per annum by 2030," said Mr Bennetts in his speech, and could help New Zealand's chronic balance of payments gap while creating jobs.

Norwegian industrial giant Norske Skog is seeking to diversify out of traditional paper products as the digital revolution eats into its historic sources of revenue.

A "green chemicals" industry opportunity could also be created.

The project would seek to take wood waste from the so-called "wall of wood" that will start coming to market from about 2019 onwards, as forests planted in the 1990s come to harvest.

Mr Bennetts told BusinessDesk that Z has, for now, abandoned plans to add ethanol to its 91-octane petrol because of signals from the government that a big shift towards ethanol blends could see an end to the current subsidised rate of excise on ethanol.

The subsidy allows competitor Gull Petroleum to retail petrol more cheaply than other fuel providers, although the ethanol blend is less powerful and gives motorists lower mileages per litre.

In a letter from the then Energy Minister Phil Heatley on December 5, Z was warned that "any significant increase in the consumption of ethanol, with the commensurate reduction in revenue to the Crown, would likely result in the existing position being revisited".

Z says this unfairly entrenches Gull's competitive advantage, but that it may look at the option again if customers continue to choose the lower-priced ethanol blend because of its attractive pricing.

The bio-diesel project is in the final stages of evaluation, and would go ahead despite the government axing a subsidy.

It would produce 20 million litres annually, would require additional storage tanks and mixing equipment, and was likely to be green-lit as long as the total cost was in the region of $15 million to $16 million, using inedible animal fats that would otherwise be exported for use in soap and candles.

Even then, Mr Bennetts warns that financial modelling suggested the project had a 42 percent chance of losing money, Z would still consider the opportunity for brand positioning, first-mover advantage, and because of the potential for change in the regulatory environment.

"Z is sending a clear message ... we are open for business on alternative fuels, even when that threatens what we already sell," says Mr Bennetts, who also suggested no country outside Brazil has created a successful bio-fuels business without government incentives or mandates.

Because of its local ownership, he says Z had a particular responsibility to pursue initiatives that reduces reliance on fossil fuels and acknowledges the growing contribution of carbon emitting transport fuels to global climate change.

(BusinessDesk)

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8 Comments & Questions

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Nup, no more govt. subsidies for green boon-doggles.

I'm looking forward to the "wall-of-wood" for my wood-pellet burner and gonna post 'n rail the whole damned countryside too.

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Get a life - no more Gov't handouts
If the investment stacks up lads, then pay for it yourself!!
Or if you are all friends of the government, good national party donors and former SCF investors, then maybe DonKey can find the dough

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Hey Rob, nice to hear from you. At least you learnt that government subsidised think big projects are a waste of taxpayer money.

But your second paragraph has me thinking you are more in the mould of Phil Goof and the sheep shearer.

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There was nothing wrong with Muldoon's think big projects. Most are still operating, providing valuable infrastructure to the operation of this country.

What was wrong is them being sold off, when NZ Inc were only in debt to the tune of $600 million; chicken feed in today's money.

Most were sold to overseas interests at firesale prices. And you ask who organised this you might ask? The money men; and guess who's running the country now!

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About time!
Anything that trades imported oil for a local substitute helps the NZ economy due to local jobs paying local taxes, etc. The trickle-down effect in action. Even if the substitute costs more than oil there is likely more benefits to NZ so a subsidy (or preferably a loan but this govt doesn't do that unless it involves Auckland Council) is not unwarranted.

BTW, because Muldoon's building of the Marsden oil refinery NZ continues to enjoy one of the cheapest refined oil prices in the world (before taxes, obviously). And continues to perform a strategic role, too (we're less beholden to countries which sell refined oil).

Time for government to think big again and start investing in ways to reduce our oil imports, which are this nation's single biggest import. I'm not saying we will eliminate oil imports but any reduction makes economic sense.

Think of it this way: every less dollar being spent on imported goods is the same as increasing our exports by a dollar. Don't just increase our exports, let's work on reducing our imports, too.

Our second biggest 'import' is actually profit from Australian-owned backs operating in NZ going back to Aus. At least the Labour govt thought big about that and created Kiwibank. And no I'm not a Labour shill. :)

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Agree that reducing imports (oil is just one such product) and encouraging local manufactured substitution is great for the economy in general. But picking which fuel type is the winner and the government borrowing funds to invest in them is fraught with risk.

If you want people to use less of expensive fuels and use smaller cars (perhaps diesel) then alter the tax regime accordingly. Europe, as a rule, uses smaller more economic vehicles than NZ and that is the result of pain at the pump. This pain led to development of highly efficient small diesel cars and dual petrol-electric powered cars.

If our govt invests billions in a particlar power / fuel source and a new form of fuel is invented, we as taxpayers will carry the can. It's all very good cherry picking the Think Big projects, but you can't forget the losers such as steel and methanol.

Sorry to be negative, but I'm not one who believes governments can pick and build winners - they can pick a horse, create a playing field that suits the horse, and if in the progress of time the horse becomes a dog the govt changes tax or business policy. Investors take the risk, the govt collects more taxes when the economy flourishes. Government's job is to set policy and framework.

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It's called the free market. Taxpayers take the risk, and if it works 'they' are free to take the money and run.
And for pseudo-green junk. These are no different to the Gorons which turned food into unwanted petrol....and then thought we should tax motorists more to help the new poor and starving around the world aka the ETS.

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Hope they make a better (and more urgent) job of it than Solid Energy did with the Southland lignite proposal for fuel

However....

I predict that the 'wall of wood' will be all very well for this project. Where are they going to get their raw product from ten years later when (1) the wall of wood is no longer and (2) the owners of the 'wall of wood' have realised that they have a valuable by product and want the earth for it

Suspect it will be another put in the 'too hard' basket

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