Ethanol production in Canada's largest grain-growing province will double in 2007, a spokesman for Terra Grain Fuels Inc. said on Monday.

Terra Grain Fuels' plant, valued at more than C$100 million ($90 million), is now under construction in Belle Plaine, Saskatchewan, and is expected to be operational by the fourth quarter of 2007, said President Tim LaFrance.

The plant will use 400,000 tonnes of feed wheat and produce 150 million litres (40 million U.S. gallons) of ethanol annually, creating about 40 jobs, LaFrance said.

Ethanol, also known as ethyl alcohol, is fuel produced from renewable crops such as wheat, sugar and corn. It can be blended with gasoline to ease demand on fossil fuels.

Ethanol demand is set to increase as the Canadian government wants 5 percent of transport fuel in the country to be from renewable sources by 2010, which is expected to require 3 billion litres of biofuel.

LaFrance's privately held Vertex Energy Limited of Calgary, Alberta, and the Drummond Group of Regina, Saskatchewan, are behind the development of Terra Grain Fuels.

The ethanol will be sold in both Canadian and U.S. markets.

Construction of the Terra Grain Fuels plant come as Husky Energy Inc. (HSE.TO: Quote, Profile, Research) prepares to bring its Lloydminster, Saskatchewan, ethanol plant on stream.

That operation will produce 130 million litres of ethanol from 350,000 tonnes of feed wheat annually. The plant, previously expected to have been operational this month, is set to start producing by the fourth quarter of 2006, said Dennis Floate, of Husky Energy.

Calgary, Alberta-based Husky is also expanding its Minnedosa, Manitoba, plant to 130 million litres of ethanol annually from 10 million litres currently produced. The plant is expected to be operational by mid-2007.