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SASKATOON, Saskatchewan (Reuters) - Biodiesel supplier Canadian Bioenergy and crop-processing giant Archer Daniels Midland Co are carrying out a joint feasibility study that could see Canada's largest canola biodiesel plant built in Alberta.
If the project proceeds, the companies will build the plant on the site of ADM's canola-crushing plant in Lloydminster, Alberta, and produce 265 million liters (70 million gallons) a year, Canadian Bioenergy said on Tuesday.
The plant would need an annual supply of 240,000 tonnes of canola oil, crushed from about 600,000 tonnes of seed. Canada produced a record 12.6 million tonnes of the yellow-flowering crop last year.
"Anything that creates value-added processing in-market helps strengthen the canola industry," said Doug Hooper, chief executive of Canadian Bioenergy. "It's going to be good for farmers and crushers (and create) less reliance on the vagaries of export markets coming and going every year."
The Canadian canola industry has set a target of producing 15 million tonnes by 2015, with half of that crushed domestically.
The announcement of the possible new canola biodiesel plant is "fantastic news," said JoAnne Buth, president of the Canola Council of Canada by email.
"We have been waiting for this type of announcement that shows that the canola biodiesel industry in Canada is ready to move ahead."
Canadian Bioenergy has been planning a 225 million liter per year (59 million gallons) canola biodiesel plant near Edmonton, Alberta, next to Bunge Canada's oilseed-crushing plant. The company will reevaluate that project once the feasibility study is completed on the Lloydminster project with ADM, Hooper said.
The Lloydminster plant would be integrated into the ADM crushing facility, in contrast to the Edmonton project which would see canola oil piped to a nearby stand-alone biodiesel plant owned solely by Canadian Bioenergy, Hooper said. ADM and Canadian Bioenergy would jointly own and operate the Lloydminster facility.
The feasibility study will estimate costs of building the Lloydminster plant and ways to raise capital through a mixture of equity and possibly debt and government programs, Hooper said.
If the project proceeds, construction could start in the fourth quarter of this year and finish by the first quarter of 2011.
The Canadian dollar's weakness against the greenback has brightened export prospects for the plant but increased costs for construction, Hooper said. The recession may affect how many other biofuel plants are built, he added.
Customers for the new plant would be oil companies themselves, rather than end users such as bus companies or industrial fuel users, Hooper said.
Canada's biofuel mandate takes effect in 2010 and requires oil companies to market fuel that contains 5 percent renewable content. The mandate, aimed at cutting greenhouse gas emissions, is based on a volume of renewable content equal to 5 percent of the total gasoline pool, not of every liter, and can include renewable content in diesel. The provinces of British Columbia and Alberta put their own mandates into effect next year.
"This is what we wanted-- a product grown in Canada, processed in Canada and used in Canada to tackle climate change," said Buth of the canola council.
Canola has two major advantages over other biofuel sources. It's abundant in Western Canada and the low saturation of its oil allows biofuel to perform well in cold weather, when regular diesel can thicken, Hooper said.
Editing by Peter Galloway