A PRODUCER of environmentally-friendly fuel has announced that its first biodiesel refinery is under construction and destined for Teesside.

D1 Oils said several of its factory-built refineries were being made. The first will go to Teesside.

The second is being built in the North-East and shipped to South Africa as part of a deal with Rolls-Royce.

D1 said in April that it was planning to move its test refinery from Preston to Billingham, Teesside.

Yesterday, it announced that a refinery was being manufactured as a showcase near its headquarters, in Stockton to attract potential customers.

The company, upbeat about its future following a surge in oil prices, said its plantations of jatropha trees were like "oil fields above the ground" and that profits were expected following a harvest in 2007 or 2008.

The jatropha plantations, and mobile biodiesel refineries are the two main strands of D1's business.

Once the jatropha is harvested, the company expects to attract customers for its refineries, and for the crop, from all over the world.

D1's half-year losses have widened to £3.1m, but the company expects to be in profit soon.

The company already has 10,000 hectares of jatropha in India. Its target of 267,000 hectares by the end of next year "remains on track", it said.

Chief executive Philip Wood said its future looked very good after the recent rise in the cost of crude oil above $70 a barrel led to a new urgency in the search for alternative fuel sources.

Mr Wood said: "Alternative energy sources are a global imperative.

"Our business addresses the growing worldwide demand for cleaner, lower-carbon fuel.

"We are building a global supply chain to harvest jatropha oil from D1 plantations across the developing world and to refine jatropha into biodiesel."

The company, which was formed in 2002 and floated on the stock market in October, yesterday said its financial position "reflects the fact that we are building our business and investing for future growth".

Initial yields from jatropha are low, but D1 is working with expert plant breeders and tissue culture specialists to improve them.

Simple techniques, such as pruning, can double the yield.

The company has also secured a £45m loan to help Indian farmers plant the crop, and has successfully tested its refineries on other crops, such as rapeseed oil.

D1 said that business in India was "moving ahead strongly", while Indonesia, Malaysia, the Philippines and Thailand showed potential for future plantations of jatropha.

China, it said, was a very promising market because of the demand for biodiesel, the good growing conditions, and the need to create jobs in rural areas.