Muswellbrook finished Australia’s first pilot 2G biorefinery. The market study commissioned for it says the fuel market is shrinking

What was built

Ethanol Technologies, trading as Ethtec, has been developing a process to make ethanol from lignocellulosic material, meaning woody and fibrous matter rather than food crops. The pilot facility is at Muswellbrook, in the middle of Upper Hunter coal country, and it is co-funded by the NSW government alongside ARENA's Advancing Renewables Program under project 2015/ARP017.

Lessons Learned Report No. 2, dated December 2025 and published to ARENA's Knowledge Bank in April 2026, records the construction outcome. Despite the pandemic and the supply chain disruption that followed, the build was successfully completed on budget and in accordance with contracted specifications, marking a significant achievement under difficult circumstances. On the science, Ethtec's own yeast strains demonstrated performance equal to or exceeding that of other third-party yeast strains in benchmarking against competitors.

Two things about the facility matter locally. It will operate as an open access research and development pilot plant, so it is infrastructure other people can use rather than a closed company asset. And the project's remaining phases are the ones that decide whether any of this scales: phases one and two, already complete, demonstrated feedstock handling, sugars production and acid recycling, while the ARENA-funded phases three and four cover fermentation to ethanol, ethanol recovery and waste treatment. Completing them, the report says, closes all the mass and heat loops and demonstrates the bankability of the process.

The market the output would go into

In March 2026 ARENA published a second document on the same project: a bioethanol market study prepared by Arup Australia, dated 10 October 2025 and commissioned by Ethtec with ARENA's support. Publishing an independent market assessment of your own product is not something every proponent does, and the picture it paints of domestic fuel demand is not flattering.

New South Wales has had an ethanol blending mandate since the Biofuels Act 2007, which the report describes as requiring that, after January 2011, the minimum ethanol percentage must be greater than 6%. Here is what has actually been sold.

The two mandate states both went backwards. Arup's reading is that the new fuel standard and state mandates are not providing enough demand side incentives. Nationally the number has not moved in three years.

The supply side is similarly slack. Domestic production runs at 175 ML per year, at 48% utilisation, so almost half the ethanol Australia can already make is not being made, because there is nobody to sell it to. The report puts national capacity at 360 ML a year.

So the plan is aviation, and aviation is in Queensland

The report does not dodge the consequence. It states that With fuel blending demand declining, the primary driver for 2G ethanol development in Australia is SAF, meaning sustainable aviation fuel made by converting ethanol to jet fuel through the alcohol-to-jet pathway. That is a coherent pivot: second-generation ethanol offers up to 85% carbon abatement against up to 40 per cent for the first-generation product, which is what makes it worth anything to an airline under a carbon mandate.

It also names the projects that would buy it.

Both are in north Queensland, roughly 2,000 kilometres from Muswellbrook. Between them they would need 396 ML of ethanol a year, which is more than the 360 ML the report gives as Australia's entire current production capacity. That arithmetic is ours, on the report's figures, and it cuts both ways: it is the clearest statement of how much new production the SAF pathway would need, and it is also a reminder that the demand is real but it is not local.

The report is explicit that where to build is unsettled. Among its key findings is that Further work is needed to better understand how site-specific factors such as feedstock logistics, infrastructure readiness, and regional co-product markets will influence the optimal location for ethanol production. A pilot plant is not a commercial plant, and nothing in these documents says the commercial one lands in the Hunter.

Our view

The plant is a genuine achievement and should be read as one. It was delivered on budget through a pandemic, the technology benchmarks against international competitors, it is open access rather than proprietary, and it is Australia's first pilot-scale project of its kind. For a shire whose economy is coal, hosting the country's first 2G biorefinery is a better outcome than most post-coal announcements ever reach.

What we would not do is assume the plant implies a plant. The commercial case now rests on aviation fuel, the two named buyers are in another state, and the domestic blending market that a Hunter producer could serve on a truck has been shrinking for three years against a mandate nobody enforces. The report's own recommendation on siting is unresolved, and it was written for the proponent, which makes its candour on demand more telling rather than less.

The thing worth watching is not the next funding announcement. It is whether phases three and four complete and close the loops, because the report ties that to the bankability of the process, and bankability is what turns a pilot in Muswellbrook into a decision about where the commercial plant goes. We will read those reports when ARENA publishes them.

Sources

1. Ethanol Technologies Pty Ltd, Ethtec Cellulosic Ethanol Pilot Plant: Lessons Learned Report No. 2 (PDF, dated December 2025, published to ARENA's Knowledge Bank 7 April 2026, downloaded and read in full 30 August 2026): that the report covers construction of the Hunter Pilot Biorefinery at Muswellbrook, yeast strain benchmarking and community engagement; the quoted statement that construction was completed on budget and in accordance with contracted specifications; the quoted benchmarking result on Ethtec's yeast strains; the NSW government co-funding and the open access research and development status of the facility; the four project phases, with phases 1 and 2 complete covering feedstock handling, sugars production and acid recycling, and ARENA-funded phases 3 and 4 covering fermentation, ethanol recovery and waste treatment; and the quoted reference to closing the mass and heat loops to demonstrate the bankability of the process. Project 2015/ARP017 under ARENA's Advancing Renewables Program.
2. Arup Australia Pty Ltd for Ethanol Technologies, Bioethanol Market for Australian Producers (PDF, dated 10 October 2025, published to ARENA's Knowledge Bank 13 March 2026, downloaded and read 30 August 2026): the commissioning by Ethtec with ARENA support; the quoted description of the NSW Biofuels Act 2007 minimum above 6 per cent after January 2011; Table 3-3 and every figure in our first table, drawn from the 2025 Australian Petroleum Statistics dataset; the quoted assessment that the fuel standard and state mandates are not providing enough demand side incentives; the quoted domestic production figure of 175 ML per year at 48 per cent utilisation and the 360 ML per year capacity figure; the quoted statement that SAF is the primary driver as fuel blending demand declines; the up to 85 per cent and up to 40 per cent carbon abatement comparison; Table 3-2 and both SAF projects with their locations, target outputs and ethanol requirements; the description of Muswellbrook as the first pilot-scale project of its kind in Australia; and the quoted finding that further work is needed on site-specific factors and the optimal location for ethanol production.
3. ARENA, Knowledge Bank entry for Lessons Learnt Report No 2 (read 30 August 2026): the publication date and ARENA's own summary of the report's scope.

Methodology. Both reports were downloaded as PDFs from ARENA's Knowledge Bank and read directly; every figure and quotation here is from those documents. The one calculation that is ours is stated in the text: adding the two SAF projects' ethanol requirements to 396 ML and comparing that with the 360 ML capacity figure the report gives. The reports were prepared for, and in one case by, the project's proponent, and we have said so where it bears on how to read them. We have not contacted Ethtec, Arup or ARENA.

Work at the Muswellbrook plant, or in the fuel supply chain, and read these documents differently? Tell us and we will check it against the reports and log the outcome here.