IEA says biofuels will remain 'marginal' 

The global supply of biofuels will nearly double by 2011 on 2005 levels but rapid growth will tail off outside Brazil beyond 2008, the International Energy Agency forecast in a report on oil market trends on Wednesday.

Investment in biofuels, including ethanol derived from starch and biodiesel from oils, is booming on the back of high oil prices, energy security fears, limited spare refinery capacity and concerns about greenhouse gas emissions. Production could rise to 1.2 million barrels a day in 2011, almost double the 2005 production of 0.65 million barrels, the IEA said in its Medium-Term Oil Market Report.

But biofuels will remain a marginal energy source compared to conventional fuels like gasoline and diesel, the report said, for example comparing with total non-OPEC estimated world oil production of 56.7 million barrels per day in 2011.

Brazil and the United States already dominate ethanol production -- at 92 percent of supply in 2005 -- and would account for the largest share in ethanol increases, while the United States would surpass Brazil in 2007, the report said.

The European Union would dominate biodiesel increases.

The report saw rapid global production growth from 2006 to 2008, then tapering off except for in Brazil, and acknowledged its estimates could under-estimate supply growth given a current "slew of projects" under development.

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But the agency pointed to "significant uncertainties" in the outlook for biofuels, pointing to the problem of competion for land, and the fact the sector is heavily dependent on high oil prices and government subsidies.

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"Given the numerous uncertainties and unknowns, it is likely that should current price relationships change, biofuel supply could be the first market to suffer," it said.

So-called second generation fuels, which use agricultural and other waste and so not do not compete for land are only in the demonstration phase meaning substantial supply is unlikely by 2011, the report said.