ETHANOL production in WA, the largest grain production State, has received a setback after BP pulled out of an agreement with Primary Energy to build a $300 million ethanol plant at Kwinana.
The proposed plant, capable of annual production of up to 160 million litres of ethanol from grain, was to start production this year.
BP Australia media manager, Chandran Vigneswaran, would not say why BP pulled out of the 2006 memorandum of understanding with Primary Energy, except that the project was no longer seen as commercially viable.
"We have always said we will supply biofuels where we can do it in a way that is sustainable but if it is not, then it does not make sense to do it," Mr Vigneswaran said.
"We have to make a return on our investment."
BP's E10 fuel sold in eastern Australia uses ethanol sourced from Queensland and NSW ethanol plants.
Mr Vigneswaran said first generation biofuels had provided a good stepping stone to the next stage which was more efficient biofuel from industrial crops.
"We think it will be the second generation of biofuels that can be developed from non-edible resources which are more efficient and can be used across all ranges of very high blends," he said.
After the agreement was announced in 2006, Primary Energy chief executive officer, Matthew Kelley, said that without BP's support grain-to-ethanol production would not become a reality in Australia.
Last week WA Agriculture Minister, Kim Chance, said despite the companies' deal falling through he was not ready to "write off" Primary Energy.
"I am hopeful they will be able to find another `offtake' customer," Mr Chance said.
He said there was still a big future for biofuels in WA and questioned how high fuel prices would be if it wasn’t for their world production.
* From Farm Weekly, WA's leading weekly farm newspaper package.