Analytics

World market of bioethanol in 2007

Biofuel is a potential source of renewable energy and could facilitate the creation of new markets for agricultural producers. However, only a few of the current biofuel programs are economically viable, and in the most cases they are associated with such social and economic effects as stimulation of price growth on food products, enhanced competition for utilizing land and water resources, and potential forest devastation. National biofuel-related strategies should be based on a thorough assessment of the opportunities and costs. Globally, the reduced rates and subsidies in the industrially developed countries will be meaningful for ensuring effective distribution of resources required for biofuel production and guaranteeing social benefits to small-size agricultural businesses in the developing countries.

Biofuel might provide basis (although associated with risks) for large markets in the agricultural sector. In view of the record oil prices and a very limited choice of alternative transport fuels, Brazil, the EU member-states, the US and some other countries are supporting actively the production of liquid biofuel in agricultural industry: ethanol from corn or cane and biodiesel fuel from various oil crops. The key arguments in favor of the government support allocation to the boom in biofuel industry, include some potential social and ecological benefits (e.g. the alleviation of climate change consequences) and strengthening of energy security. Since economic, environmental and social effects of biofuel introduction are still a topic for extensive debates, it is necessary to make their thorough evaluation prior to the allocation of state support to large-scale programs in the biofuel area. Effects depend on the types of feedstock, production processes and land utilization changes.

Although the first evaluation of the global economic potential of biofuel has been initiated only recently, the current policy in biofuel area, according to some assessments, can cause a fivefold growth of the share of biofuel globally used in transport industry from todays 1% to 6% by 2020. Governments provide significant support to biofuel for making it competitive against gasoline and conventional diesel fuel. This support includes some incentives for consumers (reduction of fuel taxes) and producers (tax privileges, loan guarantees and payment of direct subsidies) and the requirements for obligatory biofuel use. In the U.S. there are 200 supporting actions undertaken at the total cost of around US$5.5-7.3 billion per year, which means that to bioethanol they would provide US$0.38-0.49 per liter of conditional fuel. Since lately, even in Brazil a consistent government support in the form of direct subsidies was needed to ensure competitiveness of this area. The EU and U.S. producers receive such additional support as high ethanol import tariffs.

Biofuel production resulted in the growth of feedstock prices. The most illustrative example is associated with corn which became at least 60% more expensive from 2005-2007, mainly due to the implementation of ethanol production program in the US along with the reduction of source material stock in the major countries-exporters. It is likely that in near-term future, interruptions in feedstock deliveries will persist. However, if the prices on utilities do not grow dramatically, it is unlikely that the feedstock costs will rise significantly in the long-term future. Farmers are responding to the price growth by the expansion of cultivated areas and increased feedstock supplies. At the same time, the price boost will reduce the demand for raw materials due to the drop of profitability of biofuel production from more expensive feedstock.

The rise in crop prices resulting from the increased demand for biofuel has become a top priority topic in the discussions of a potential conflict between food and fuel industries. The amount of grains to be processed for filling up a vehicle tank with ethanol is sufficient to feed a human for one year. This example illustrates competition between food and fuel industries. The dramatic growth of prices on key crops may affect the well-being of poor population groups most of whom buy these crops. However, for some poor population layers direct producers of these crops the price rise will be beneficial.

In future, special energetic crops and agricultural/wood waste may be used in the process of biofuel production, replacing the food grains. This approach could potentially reduce the pressure on food grain prices. However, technologies of the second generation (transformation of waste-contained cellulose into sucrose followed by distillation for ethanol production or biomass gasification) are not commercially viable yet, and will not gain commercial potential in the next several years. Also, it is very likely that some competition between food and energetic crops in the fight for land and water resources will persist.

One of the major arguments supporting the expansion of biofuel production is a possibility to reduce dependence on oil import and, thus, to enhance energy security. Potential environmental and social benefits from biofuel use are also mentioned frequently as arguments in support of the state funding and political privileges for the biofuel production programs. These benefits may depend significantly on the context.

Potential strengthening of energy security. With the use of current technologies, biofuel may only insignificantly strengthen the energy security of individual countries, since the volume of domestic production of feedstock crops covers only a small portion of the requirements in transport fuel. There are several exceptions, such as ethanol in Brazil. According to the latest forecasts, by 2010 in the U.S. it will be possible to use up to 30% of its domestic corn yield for bioethanol production. However, its amount will be less than 8% of the size of gasoline consumption in this country. The second generation technologies using agricultural biomass could make a more valuable contribution to the energy security.

Potential environmental benefits. Ecological benefits should be assessed on a case-by-case basis, as they correlate with greenhouse gas emissions from feedstock processing, biofuel production and its transportation to the markets. And such changes in the land utilization as deforestation or marshland reclamation for raising feedstock crops may bring to nothing the reduction of greenhouse gas emissions for dozens of years (according tofuel strategy endorsed in 2006).

Based on the assumption that the existing cultivation areas in Brazil are used and that no changes in land utilization occur, the estimated production of ethanol in Brazil would enable to reduce greenhouse gas emissions approximately by 90%. For biodiesel fuel it is also typical to gin relative effectiveness with a 50-60% reduction of greenhouse gas emissions. And vice versa, the reduced emission of greenhouse gases in the process of ethanol production from corn in the U.S. makes up no more than 10-30%. In such cases, actions for increasing effectiveness of fuel utilization in the transportation industry would be more economically beneficial for the reduction of gas emissions vs. biofuel production.

Benefits for small-size producers. Biofuel production could be beneficial for small farm households through the creation of new job places and the increase of income of the rural population. However, due to the availability of modern technologies these benefits would have only limited values. In view of the complicated nature of the production process used at distilleries, for bioethanol production it is necessary to have a large-size farm and vertical integration. Similarly, for biofuel production from cane, as a rule, a large-scale farm is required, though in Brazil some models involving outside suppliers have been operated successfully for ensuring participation of some small producers. The small-scale production of biodiesel fuel could satisfy local demand for energy resources (e.g. utilization of biodiesel fuel in stationary electric power generators). However, for larger markets it is necessary to comply consistently with the quality standards achievable only at the large-scale production facilities.

As of today, the production of biofuel in the industrially developed countries is facilitated by the high protective tariffs on biofuel along with the large subsidies paid to biofuel producers. This policy inflicts losses to the developing countries which are or could be effective producers in new profitable export markets. In addition, poor population groups pay higher prices for the staple foods as the grain prices are going up in the world markets mostly due to such unbalanced policy.

Favorable economic conditions or sound social/environmental benefits, justifying large-size subsidies, are not very typical for the first-generation technologies. In some cases (e.g. in the countries without access to the sea which import oil and could become effective cane producers), the high transportation costs could position biofuel manufacture as an economically beneficial process even with the use of present technologies.

A higher potential return from the second-generation technologies and small-scale technologies of biodiesel fuel production justify significant amounts of the state and private investments in research activities. Governments in the developing countries have to find out how to avoid the use of unbalanced incentives supporting biofuel which can displace alternative activities, possessing higher profitability, and to implement regulatory actions together with the development of certification systems capable to reduce potential negative effects of biofuel production on the environment and food safety.

The potential risk of negative effects arising from the large-scale biofuel production can be reduced through certification systems. As soon as these systems are introduced, the data on the environmental impact of biofuel will be evaluated and published (e.g. the green index of greenhouse gas reductions). But to make these systems effective it will be necessary to involve all the major producers and consumers as well as to launch a reliable monitoring system.


 

Global Bioethanol Market

Bioethanol means non-denaturated or denaturated (with addition of up to 5.0% gasoline) water-free ethanol produced through a short-cut distillation from plant (sugar- or starch-containing) feedstock to be used as an additive to engine fuel.

World trends in bioethanol production in 2006-2007, mln. liters

Country

2007 vs. 2006, %

Share, %

USA

+33.9

49.6

Brazil

+9.1

38.3

EU27

+40.2

4.4

China

+14.5

3.7

Canada

+43.6

1.6

Thailand

+17.6

0.6

Columbia

New production capacity

0.6

India

+2.0

0.4

Central America

New production capacity

0.3

Australia

+63.9

0.2

Turkey

New production capacity

0.1

Pakistan

New production capacity

0.1

Peru

New production capacity

0.1

Argentina

New production capacity

0.0

Paraguay

New production capacity

0.0

Other

New production capacity

0.0

Total

25.1

100.0

Source: FO Litch

In 2007, the global output of bioethanol was 49.6 billion liters. The compound annual growth rate (CAGR) of bioethanol production volume from 2002 to 2007 reached 19.0%. The U.S. and Brazil are the world leaders in bioethanol production. Their share in the global output made up 87.9%. Also, bioethanol production is growing in the EU, China, Canada, Thailand, India, and Australia. First production capacities have been launched in Columbia, Central America, Turkey, Pakistan, Peru, Argentina and Paraguay.

USA

According to estimations of the US Department of Energy, the United States are consuming more power than any other country in the world. Half of the consumed power is used to cover transportation needs and, in turn, 98% of this energy is produced from oil.

Regardless of the debates about bioethanol benefits and disadvantages going on among experts and in the society, recently the U.S. have launched impressive bioethanol production capacities in order to achieve the output of 44.7 billion liters in the near future.

Currently, 134 bioethanol production facilities are operating in the U.S. Their production capacity enables to manufacture 27.4 billion liters of fuel ethanol per year. In addition 77 plants with the overall capacity of 23.5 billion liters are currently under construction (data of the American Coalition for Ethanol). Its worth noting that 27% of the facilities are owned by farmers, 30% of the market is controlled by Archer Daniels Midland (ADM), and 43% falls on the share of other players (among them there are such big companies as VeraSun, Aventine, Abengoa and Cargill). In the U.S., corn is the major feedstock for bioethanol production.

In 2007, the volume of bioethanol production in the U.S. reached its maximum level - 24.6 billion liters. The compound annual growth rate (CAGR) of bioethanol output in the U.S. from 2002 to 2007 made up 25.0%. In 2007, the US share in the global bioethanol output achieved 49.6%.

In addition, the volume of import of bioethanol in 2007 was 1.7 billion liters. Brazil used to be the leading supplier (44.3% of the overall import volume). A significant amount (54.1%) was imported from the Central American countries (Jamaica, Salvador, Trinidad and Tobago, Costa Rica).

In 2007, the size of the US bioethanol market achieved its maximum value - 26.3 billion liters. The compound annual growth rate (CAGR) of the market size from 2002 to 2007 made up 26.1%. In 2007, the share of imported bioethnal in the market volume was 6.5%.

Brazil

Brazil is a unique country capable to meet almost 50% of the domestic demand for fuel via bioethanol. Two thirds of the countrys motor transport can run using bioethanol.

The economic boom in Brazil started in 1970-s. At the edge of 1973-74, the country had to resolve urgently and in parallel the following two problems: a threefold rise of oil prices and significant reduction of sugar demand. In this situation, the country leader, Ernestor Geisel, made a breakthrough decision on starting a state project on the transition of vehicles to ethanol. In parallel, a consideration was given to another issue to provide incentives to the sugar suppliers who experienced crisis.

Since 1975, a law has been operating which obliges fuel stations to add at least 20% of ethanol to gasoline. Those companies which expressed their willingness to build ethanol production facilities received loans with a minimal interest rate. The state initiated wholesale purchases of ethanol from the producers and simultaneously increased gasoline prices, thus ensuring profitability of using ethanol as fuel. The success was very impressive: by 1979 a fivefold increase of the fuel ethanol output was reported.

By early 1980-s, all the largest automobile concerns, manufacturing and exporting vehicles to Brazil, had to produce automobiles capable to run on pure ethanol (E100). Those citizens, who wished to adjust their gasoline-run vehicles to a new fuel, received some privileges. All these events took place in parallel with the large-scale promotion campaign. In 1985, Brazil celebrated another victory according to statistics, a half of the countrys car fleet was running on ethanol.

By 2007, the universal application of ethanol generated the following results: 4.3 million of vehicles were running completely on ethanol and the remaining 17 million used an ethanol and gasoline blend as fuel. Five of six Brazilian fuel stations are selling pure ethanol (E100). The Brazilian Program on Bioethanol has hired over 700,000 employees, and savings on oil products import for 1975-2007 exceeded US$ 65 billion.

In 2007, the volume of bioethanol production in Brazil reached a maximum value - 19.0 billion liters. The compound annual growth rate (CAGR) of bioethanol output in Brazil from 2002 to 2007 reached 8.6%. The share of Brazil in the global bioethnaol output in 2007 made up 38.3%. The share of bioethanol export in the production volume was 21.1%.The major importers of Brazil bioethanol include Japan, the U.S. and the EU member-states.

In 2007, the size of bioethanol market in Brazil was equal to 15.0 billion liters (92.5% of the maximum level in 1997). The compound annual growth rate (CAGR) of the market size from 2002 to 2007 made up 4.8%.

EU

In the EU, the biofuel issue, as a whole, and the bietahnol issue, in particular, is matching the key European strategy: preservation of the environment and control of the global warming. To a large extent, this strategy is based on the refusal from oil and gas and transition to alternative renewable fuels, including motor fuels. In this context, an emphasis is put on biodiesel.

In 2007, the volume of bioethanol production in the EU reached a maximum value 2.2 billion liters. The compound annual growth rate (CAGR) of bioethanol output in the EU from 2002 to 2007 reached 35.1%. The EU share in the global bioethnaol output in 2007 made up 4.4%.

In general, the EU is far behind the U.S. and Brazil in terms of bioethanol outputs. It should be noted that despite of the progress in the area of bioethanol production, its share in motor fuel is still very low, a bit less than 1%.

In 2007, there were 32 bioethanol producers in the EU member-states. The largest European bioethanol production capacities are located in Germany, Spain and France. The share of these three European countries-leaders made up 77.9% in the total output of bioethanol in the EU in 2007. In addition, substantial volumes of bioethanol were produced in 2007 in Poland, Sweden and Italy. The overall share of the above six countries-bioethanol producers reached 92.6%.

Along with production, the EU is an active importer of bioethanol. In 2007 the volume of import exceeded 900 million liters. Almost all the imported bioethanol has the Brazilian origin.

In 2007, the EU bioethanol market comprised of 3.0 billion liters. The compound annual growth rate (CAGR) of the market size from 2002 to 2007 made up 38.2%. The share of imported bioethanol in the market volume was 38.3%.

China

The first batches of bioethanol were produced in China at the end of 2003. During a three-year period, China was able to join the top four world producers of fuel ethanol.

In 2007, the volume of bioethanol production in China reached a maximum value 1.8 billion liters. The compound annual growth rate (CAGR) of bioethanol output in China from 2003 to 2007 made up 124.2%. The share of China in the global bioethanol output in 2007 was 3.7%. No foreign trade operations with bioethanol were reported.

In 2007, there were six bioethnaol producers in China. Company Jilin Fuel Ethanol Co. is the largest Chinese bioethanol manufacturer (with the capacity of 600 thousand tons). In China, bioethanol is made of wheat, rice, cassava and sugar sorgo.

China is planning to put emphasis on the development of renewable energy and reduce greenhouse gas emissions in order to support sustainable economic growth in the next few years. According to the Chinese National Development and Reform Commission (NDRC), it is necessary to invest over 2 trillion yuans or 10% of the gross national product (GNP) to achieve the assigned goal on renewable energy by 2020. The medium- and long-term goal of the country is to develop a renewable energy industry which will play an important role in the future economic development of the country.

The NDRC is planning to increase a renewable energy share in the total energy consumption and bring it to 10% by 2010 and to 15% by 2020 vs. 8% at the present time. Currently, coal makes up annually 70% of the overall energy consumption in China, leaving a huge potential for the development of hydropower, methane, solar, wind-power and other clean and renewable energy sources.

Meantime, China continues to develop a realizable biological fuel pursuant to the provisional condition on food safety assurance. China will not encourage the use of grain as a biofuel feedstock. It will consider such nonfood crops as yam and sorghum for making realizable biological fuel, including ethanol and biodiesel. Most of such nonfood crops are growing in the salt marsh and barrens unsuitable for raising grain.

Russia

As of January 01, 2008, no fuel ethanol production has been reported in Russia. Neither bioethanol import, nor export was reported, since the Currency Economic Department (CED) has not identified codes of products, corresponding to different biofuel types within its range of goods. According to the effective legislation, bioethanol and fuel blends with ethanol are excisable goods, and this factor effects significantly the domestic market development.

According to various sources, Russia has about ten projects focused on the construction of bioethanol making facilities. However, only one project (SC Titan, the Omsk Region) is now active. In addition, numerous experts believe that any Russian factory making food-grade ethanol can be easily remodeled to bioethanol production. In this case, the production costs (without excise duties) will make up 9-10 rubles per liter, which is even less than those in food ethanol production (as there is no need to use alcohol purification equipment). Other experts are more pragmatic and assume that only those factories whose capacity exceeds 140 thousand dal of alcohol can remodel easily their processing lines. The experts also note that the remodeling will require substantial investments in technologies.

A high excise tax on ethanol (RUR 23.5 per liter) is a limiting factor of bioethanol production for the domestic market. In Russia, bioethanol is assigned to a general category Ethanol from All Types of Feedstock (e.g. Crude-Ethanol from All Types of Feedstock), and is not considered by the legislation as a product for specific purposes. It is a striking contrast with other countries, where bioethanol is usually exempted from excise duties. Based on the current Russian legislation, there is only one option available for excise charge exemption: when ethanol-containing products are exported, the excise duties will be returned to their producers. In fact, bioethanol could be produced for foreign markets without excise duties or modification of the effective legislation.

A relatively high production cost and growing market value of grain also serve as restricting factors for bioethanol production in Russia. If the market price on grain continues to grow, its application as a feedstock for bioethanol production will not be cost effective. On the other hand, such feedstock sources as beet molasses-syrup can become a real alternative.

In short-term future, Russia expects some legislative modifications concerning biofuels. Currently, modifications of the Russian legislative framework have been initiated: a list of enactments is being approved on considering ethanol as an individual product, particularly, as a fuel component. Meantime, a new intention has emerged in Russia which was missing earlier: to utilize biofuel in the domestic market (currently standards for gasoline with bioethanol addition are developed in the RF at the state level).

Experts assume that bioethanol made in Russia has good prospects for the promotion in the EC and Japanese markets. According to experts, the estimated potential market of Russian bioehtanol is 850 million liters.

Forecast of the World Market Development through 2020

According to the forecast of the International Energy Agency published at the end of 2006, biofuel (e.g. ethanol) will make a considerable contribution to the satisfaction of the power requirements existing in automobile transport. In 2003, the share of biofuel will make up 7% of the automobile fuel consumption (now 1%).
 

Signatures in the diagram: green optimistic; yellow - pessimistic

Forecast of the global bioethanol consumption, mln. liters

It is expected that the major part of biofuel consumption growth in the world will fall on ethanol, because its production costs will be reducing faster than those of biodiesel fuel.

New technologies in the area of biofuel production, in particular, ethanol production from lignocellulose will enable to resolve this problem. Nevertheless, to make these technologies commercially viable, it is necessary to find solutions for some crucial technical challenges.

According to the optimistic forecast, the expected global bioethanol output in 2020 will reach 281.5 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 12.8%.

According to the pessimistic forecast, the expected global bioethanol output in 2020 will reach 187.5 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 10.0%.

In the both scenarios, in 2020 the world trade volume will make up a 10% value of the global production volume. As earlier, the U.S. and Brazil will run the first, and by 2020 their share in the global output will range between 55 and 65%.

United States of America

Based on the optimistic forecast, ethanol production in the U.S. will increase by twice during the reviewed period. Meanwhile, in 2008 an increment vs. previous year will achieve 40%, but later on the growth rate will slow down. These predicted indicators are exceeding significantly the requirements envisaged in the U.S. Renewable Fuel Standard (RFS). The pessimistic forecast is more consistent with the requirements set out in the US RFS.

According to the optimistic forecast, in 2020 the expected bioethanol consumption volume in the U.S. will reach 111.4 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 9.7%.

According to the pessimistic forecast, in 2020 the expected bioethanol consumption volume in the U.S. will reach 90.1 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 8.4%.

In the both scenarios, the domestic consumption of bioethanol will be almost completely covered by the domestic production.

Brazil

The optimistic version of the development of domestic bioethanol market in Brazil is based on the assumption that the country would transition gradually to the consumption of gasoline and ethanol blend, containing at least 85% of the latter.

The pessimistic version: bioethanol content ranges from 25 to 85%. In the both scenarios, the calculation of bioethanol consumption takes into consideration the existing growth rates of gasoline consumption in the country.

According to the optimistic forecast, in 2020 the expected bioethanol consumption volume in Brazil will reach 54.0 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 9.6%.

According to the pessimistic forecast, in 2020 the expected bioethanol consumption volume in Brazil will reach 30.6 billion liters. The compound annual growth rate (CAGR) of bioethanol market size from 2008-2020 will make up 5.4%.

In the both scenarios, the domestic consumption of bioethanol will be almost completely covered by the domestic production. It is also expected that substantial volumes (up to 15% of the output) of bioethanol will be exported.

European Union

The EU has adopted a directive, establishing objectives of liquid fuel replacement with biofuel (bioethanol, biodiesel): 2% by 2005, 5.75% by 2010 and 10% by 2020. The EU is ready to replace 10% of the motor transport fuel market with biofuel by 2020. However, it is noted that for the effective development of this market it will be necessary to arrange feedstock imports from the third world countries.

Currently, the operating bioethanol production capacities in the EU are exceeding 3.5 billion liters per year. In the next 3 years, the size of production capacities could be expanded up to 6.5 billion liters per year.

According to the optimistic forecast, in 2020 the expected bioethanol consumption volume in the EU will reach 10.0 billion liters. The compound annual growth rate (CAGR) of bioethanol market size in the EU from 2008-2020 will make up 8.7%. According to the pessimistic forecast, in 2020 the expected bioethanol consumption volume in the EU will reach 7 billion liters. The compound annual growth rate (CAGR) of bioethanol market size in the EU from 2008-2020 will make up 5.6%. In the both scenarios, the EC bioethanol requirements will be partly compensated by import supplies in the volume of 10-25% of the market capacity.

China

In 2006, the Chinese National Development and Reform Commission (NDRC) published a 5-year plan outlining the following goal: to increase annual ethanol production to 6 billion liters by 2010. The Chinese Government did not approve this plan because of the concerns about price rises for grain crops.

Analysts predict that the ethanol production (mostly from corn) in China will grow by 2016 up to 3.5 billion liters. This value corresponds to a 2.5-fold rise vs. 2008. In the same period of time, the consumption of corn by ethanol industry will increase by 2.6 times and reach 9 million tons.

Besides, China may expand ethanol production volume by 1.5-2.0 billion liters, using cassava, sorghum, rice and other feedstock types.

According to the optimistic forecast, in 2020 the expected bioethanol consumption volume in China will reach 7.4 billion liters. The compound annual growth rate (CAGR) of bioethanol market size in China from 2008-2020 will make up 10.6%.

According to the pessimistic forecast, in 2020 the expected bioethanol consumption volume in China will reach 5.6 billion liters. The compound annual growth rate (CAGR) of bioethanol market size in China from 2008-2020 will make up 8.5%.

In the both scenarios, the domestic consumption of bioethanol will be completely covered by the domestic production.

Russia

For the evolution of domestic consumption of bioethanol and its export it is necessary to ensure government support to the development of bioethanol production in Russia, primarily in the area of legislative and regulatory framework. The latter should include the endorsement of regulatory documents, in particular, a national standard for denatured fuel ethanol and modifications in the taxation of biofuel products.

As of today, bioethanol is considered in the RF taxation system not as a motor fuel component, but rather as an alcohol-containing product subject to an extremely high excise. The first step required for the development of fuel bioethanol production in Russia is to cancel the excise on bioethanol. As the next step within the state support, some incentives could be introduced for producing gasoline with improved characteristics, since the addition of bioethnaol to conventional fuel already improves environmental properties of the latter.

The main hurdle on the way to fuel bioethanol introduction in Russia is a high excise on any alcohol-containing products. This leads to significant cost increases and makes the fuel production non-profitable for its consumption in the domestic market. It is possible to use bioethanol as an additive, upgrading gasoline octane number and its environmental characteristics, or as a source product for ETBE. However, there are numerous challenges in this area:

First, the need to fit fuel stations with the units for blending gasoline and bioethanol. It is difficult to perform this operation at the refinery facilities in view of the strict requirements for avoiding water admixture to the blend of gasoline and ethanol, since even low water contents may cause settling of the obtained gasoline-ethanol blend.

Second, the application of bioethanol additives in Russia is limited by a low demand for fuels with improved characteristics, because the Russian automobile industry is not prepared for their introduction.

According to experts, the main channel for Russian bioethanol sales should be based on its exports to the EU member-states and Japan, which currently have privileges for imported bioethanol. Thus, the manufacture of this product may become cost effective.

The first Russian bioethanol production plant is expected to be put into operation in the near future (its construction was started in November 2006 in the Omsk Region). The production capacity of this biocomplex is 190 million liters of bioethanol per year. At the first stage, it is planned to export bioethanol and ETBE produced at the facility. There is a high demand for these products in the EU member-states and South Asian countries.

The need of using bioethanol in Russia is in many ways associated with the requirements of the Russian manufacturers of gasoline and diesel fuel. At present, only LUKOIL and Gazpromneft have expressed their interests in bioethanol purchases.

In addition to the initiated construction of the bioethanol producing plant in the Omsk Region, various Russian companies give consideration to at least five other designed plants with the overall capacity exceeding 900 million liters of bioethanol per year.

Unfortunately, it is rather difficult to determine now an extent of state support for the Russian bioethanol market in the future. Company Abercade Consulting has prepared the following two scenarios of the Russian bioethanol market development:

Optimistic forecast: a high extent of state support provided to the market, e.g.:

o To include bioethanol producing plants in the Priority National Project APC Development and to compensate interests on credit from the federal budget in a value of maximum up to 100%. The same measures are to apply to the facilities connected via the same process flow (co-products) with the primary production facility, and to establish and maintain an infrastructure;

o To adopt a law On the Reduction of Air Pollution in Mega-Cities, establishing, as a mandatory requirement, at least 5% bioethanol content in automobile fuel;

o To provide subsidies to the manufacturers of agricultural feedstock used for bioethanol production;

o To provide tax and duty exemptions in compliance with the regional legislation;

Pessimistic forecast: a low extent of state support provided to the market.

However, it is most likely that the period of 2010-2011 will become a crucial stage for the Russian bioethanol market.

In the last several years, the Russian vehicle fleet is characterized by a high growth rate. According to estimations of the Moscow State Automobile and Road Institute (MADI), the consumption of gasoline in Russia will increase from 27 million tons (with the production surplus of 4 million tons) in 2006 to approximately 38 million tons (with the production deficit of 6 million tons) in 2015.

Experts note that gasoline deficit may occur as early as in 2010, when the demand and production of fuel will become almost equal. It is the same time when Russia will experience a drastic price explosion due to the excess of demand over supply and the need of importing fuel or introducing restricted sales of gasoline which, in turn, will lead to the development of shaded market.

Besides, a new demand will cover mainly good-quality automobiles using gasoline with the octane number of no less than 95. The structure of automobile sales in Russia has already experienced a turning point in 2005 the share of products of the domestic automobile industry fell down to less than 50%, though its share in the automobile fleet still makes up 75-80%. So, it is likely that by 2010-2012 a qualitative change will occur in the structure of demand for fuel toward the gasoline grades with high octane numbers. The use of bioethanol and ETBE as gasoline additives may, to a certain extent, reduce the emerged problems in the Russian gasoline market: it will slightly reduce gasoline deficiency and enable to improve the quality of the gasoline grades with low octane numbers.

According to optimistic and pessimistic forecasts, the expected volume of bioethanol consumption in Russia in 2020 will be 3.3 and 1.0 billion liters, respectively. In the both scenarios the consumption will be covered completely by the domestic production. According to optimistic and pessimistic forecasts, the compound annual growth rate (CAGR) of bioethanol market size in Russia from 2009-2020 will make up 47.5 and 33.4%, respectively. In the both scenarios the domestic consumption of bioethanol will be covered completely by the domestic production. In addition, it is expected that considerable amounts of bioethanol will be exported to the European and Asian countries.

Global Biofuel Industry Issues

Fuel ethanol industry experiences a threat posed by the first structural crisis. Experts dispute ecological benefits arising from the ethanol production and economic effectiveness of the industry, and some of them blame it for increasing prices on agricultural products. According to observers, in order to avoid a serious crisis of overproduction, environmental challenges and price rise for food products, the players in fuel ethanol industry should undertake immediate actions.

The first and the key argument of fuel ethanol opponents is based on the statement that for its production it is necessary to use wheat, corn and other agricultural crops, while millions of people on the Earth suffer from starvation. Besides, experts believe that the activation of biofuel production has caused the price rise for food and that the only way out from this situation is to give up its production. By no means all experts agree with such radical approach. The amount of grains utilized for biological fuel production is significantly less than the overall yield values and it just cannot cause a food crisis. Biofuel production is not developed that much as to impact the global food market. At the present time, its production can be characterized as experimental.

In turn, the FAS USDA Chairman, Chuck Conner, noted that the role of biofuel industry in the price rise for food is not that critical. For example, in Brazil the inflation reduced due to the record production of fuel ethanol. Inexpensive ethanol leads to price declines in all sectors of the Brazilian industry. However, the production of ethanol from corn is less effective than from cane. But even in this case, ethanol production has a lower influence on corn price vs. oil prices.

The share of corn or grain in the final product cost is insignificant, while a large amount of energy is consumed for planting, raising, harvesting, shipment, processing, packing and delivery of final products to consumers. For example, in the EU member-states the share of grain in ready-made bread makes up only 1-5%. Thus, the rise of oil prices leads to the increase of costs throughout the entire chain: raising, production, and delivery. In the U.S., the cost of food demonstrated an average growth of 2.7% annually in the last three years. According to the USDA, high oil prices are the main reason underlying this situation.

The second argument presented by the biofuel opponents is a lack of ecological effect. Multiple experts assume that the rapid re-orientation of the world energy market to biological types of fuel may disrupt z the ecological balance of our planet. In many regions, faulty technologies are used in biofuel production. They are more dangerous than the emissions from modern refineries. Right now in the Central American countries, rapidly increasing the scale of raising agricultural crops for biofuel production, some negative trends have occurred. The Central American forests are devastated for creating plantations of energetic feedstock. Rushing for profits, the farmers sell more and more agricultural products to energy businesses. In some regions it has caused the deficiency of food grain. Referring to the non-food applications of agricultural crops, the agrarians use hazardous chemical fertilizers in large quantities. Without the development of uniform international regulations, limiting negative impact on the Earths ecosystems, many regions of the world may find themselves at the edge of environmental and food catastrophe.

In this context, observers note more and more frequently that the companies involved in ethanol production and governments should seek for immediate actions in order to find a way out of the current situation and to prevent a potential crisis the first structural crisis of fuel ethanol industry. The companies, involved in bioethanol production, need to consolidate their activities as it had happened earlier to the producers of other utilities oil and gas. Experts believe that it will enable large manufacturers to identify more appropriate locations for their feedstock production facilities in the regions matching this purpose and to handle effectively the issues arising in the process of ethanol production.

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Developed by - Astronim*
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Astronim*