TOKYO (Reuters) -- Biofuel trading has a great potential to grow in the Asia Pacific region and the possible start of commercial imports by Japan will help the market to take off, a U.S. government official said on Friday.

Biofuels, such as ethanol made from agricultural products, can also compete with crude oil at $50 a barrel, said Jeffrey Skeer of the U.S. Department of Energy (DOE) and chair of the APEC Biofuels Task Force at an industry conference in Tokyo.

Biofuels are expected to be produced in larger volumes in several years from various crops, such as sugar cane and palm, in Asian countries like Malaysia and Indonesia at different harvest timings and costs, while corn is the main source of biofuel in the United States now.

"Cost differentials can mean big trade opportunities in the APEC region as biofuel markets grow over time," Skeer said.

Skeer pointed out that the start of the imports by Japan would provide a significant support for the biofuel trading market in Asia to take off.

"Japan is pretty big. Imports will go slow but there is a good potential there," Skeer said on the sidelines of the conference.

He did not say when Asian biofuel trading would become commercially active or the potential size of the market.

Biofuels are mostly made from agricultural products and used as ethanol in auto fuel or blended into gasoline.

Japan is seen as a potential big market of ethanol producers as it is the world's third-largest oil market and the only Asian country with a U.N carbon emission cap.

It also has ambitions to replace about a fifth of its auto fuels with biofuels or gas-to-liquid (GTL), but technically there is no commercial retail distribution of such fuel.

Japan's high dependence on imported food and the decline of its agricultural sector have also delayed the introduction of biofuel to its retail market.

The Japanese oil industry has this year opted to import ethyl tertiary butyl ether (ETBE) from France ahead of a test retail distribution of bio-gasoline starting in April, citing a lack of sufficient facilities for direct ethanol blending and issues related to petroleum product sales tax.

But the industry has said it would shift to imports of ethanol from such countries as key exporter Brazil, and refiners, led by top refiner Nippon Oil Corp. (5001.T), set up a joint venture to import ETBE and ethanol in January.

The global biofuel industry is quickly developing amid growing concerns over climate change as biofuels emit less greenhouse gases than conventional fossil fuels as well as because of high oil prices.

U.S. President George Bush's speech in January that the states would sharply boost use of biofuels to reduce its fossil fuel consumptions by the world's largest energy market might speed up the pace of the industry growth.

The Japanese oil industry has also said costs to produce and import ethanol or ETBE is more expensive now, but DOE's Skeer said biofuels can be competitive with current oil prices.

"At world crude oil prices above $50 per barrel, biofuels from a wide variety of crops are cost-competitive with petrol and diesel as fuels for transport," he said.

International benchmark U.S. crude prices have fallen sharply from a record above $78, but still holding around $50-55 levels.