July 26th 2003

  Buy Issue 2662

Articles from this issue:

COVER STORY: Universities: battleground for next election?

EDITORIAL: Helping the disabled

SPECIAL REPORT: Ethanol: the untold story

STRAWS IN THE WIND: Star Wars / Provocative

AGRICULTURE: Murray River debate hotting up

QUEENSLAND: Values make a comeback

Will Saddam win Phase II of the war? (letter)

Anti-Western animus (letter)

Deflation causes (letter)

Australia's population challenge? (letter)

Christian victims ignored (letter)

COMMENT: Abstinence: the new trend in sex education

GOVERNMENT: Democracy needs a professional public service

COMMENT: Iraq and future US foreign policy

HONG KONG: Mass rally forces back-flip on national security law


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Ethanol: the untold story

by Patrick J. Byrne

News Weekly, July 26, 2003
In contrast to Australia, where a campaign of fear has discouraged the use of ethanol in fuel, other countries are switching to ethanol as more environmentally and people friendly than current fuel additives. In the last Federal budget, the Government put an excise on ethanol (it was previously exempt) to be paid to the ethanol industry as an incentive. However, this assistance phases out over such a short period of time that it gives little real incentive for the industry to develop.

Kingsman Ethanol Weekly, edited by John Kingsman, well-known American international sugar consultant now based in France, recently outlined how ethanol is being taken up by other countries. This is an edited version from the Kingsman report.


is the world's largest ethanol producer, making ethanol from home-grown sugar cane using an efficient process that makes it cheaper than gasoline.

The country is expected to produce 12.6 billion litres from the 2003/04 cane harvest, most of which will be consumed on the domestic market. Brazil has a mandatory 25 per cent ethanol content in gasoline and 40 per cent of cars run on pure ethanol, so domestic demand is high.

The country's aim is to boost production with a view to exporting, primarily to the USA, the EU and Japan, but protective tariffs in these countries will be the main stumbling block in the way of its plans.

The USA had 67 ethanol plants online in the USA, producing 7 billion litres of corn ethanol annually, at the end of 2002. A number of states are studying blending 10 per cent ethanol in gasoline and already E85 (85 per cent ethanol) can be purchased for use in hybrid vehicles.

Under the Clean Air Act of 1990, ten of the largest US cities are required to use Reformulated Gasoline (RFG) due to pollution problems and oxygenated fuel is required in areas that have high levels of carbon monoxide pollution during winter.

This program has helped reduce pollution, but it has been California's decision to phase out the fuel additive, MTBE that has given a real boost to the ethanol industry. Following reports of underground water contamination due to leaks from storage facilities, California began making the switch from MTBE to ethanol in January 2003 and other states are waiting to see how the Californian experiment goes.

However, there is currently an oversupply situation in the USA that has resulted in weak ethanol prices, mainly due to the switch to ethanol in California. Midwest suppliers boosted ethanol output by 40 per during 2002 in anticipation of demand from California. Stockpiles in the Midwest at the end of December 2002 had increased by more than a million gallons over a year earlier.

Nevertheless, demand for ethanol will hit 2.7 billion gallons in 2003 and prices are expected to rise. ADM, which has about 45 per cent of the current ethanol market in the USA, says ChevronTexaco Corporation's decision to phase out MTBE in California by May 2003 should help equalise supply and demand and support higher prices. Demand for ethanol from Chevron is estimated at around 84 million gallons.

As well as ChevronTexaco, three other companies in California, Exxon Mobil, Royal Dutch/Shell and BP, have committed to making the switch to ethanol a year ahead of the 2004 deadline. ConocoPhillips has already made the switch. As a result, 80 per cent of the state's one-million-barrel-per-day gasoline market will contain ethanol by spring.

According to the Oil Daily, the Renewable Fuels Association pegs ethanol production capacity in the USA at 3.13 billion gallons per year. California's ethanol needs are estimated to be between 660 million and 950 million gallons annually.

US ethanol demand in 2002 was about 2 billion gallons and so far, 16 states have banned the use of MTBE, but the bans are not synchronised. This has led some to question whether there will be enough ethanol to go around as more bans are in place.

Meanwhile, hopes are that Congress will pass a long-awaited energy bill in 2003 that will include a Renewable Fuels Standard (RFS). An RFS would see ethanol-blended gasoline use triple to five billion gallons per year by 2012, as well as the phasing out of MTBE.


is to begin trialing a 10 per cent ethanol blend in gasoline this year and plans to introduce a mandatory 10 per cent mix in petrol and a 15 per cent blend in diesel by 2008. The market consumes between 55 and 60 billion litres of gasoline annually.

Brazil is hoping to supply most of that volume, which is expected to rise to 3 billion litres a year within the next couple of years, before eventually reaching six billion litres annually.

Japanese trading companies and machinery manufacturers are rushing to develop technologies and facilities that turn waste products and grains into automotive fuels.


The Canadian Government intends to blend ethanol in gasoline as a way of implementing its commitments under the Kyoto Protocol. The plan is to have 35 per cent of gasoline contain 10 per cent ethanol by 2010. That would increase ethanol production from 240 million litres a year to one billion a year by 2010.

Currently, five plants produce about 235 million litres of ethanol annually from grain and import another 100 million litres annually from the USA. Meanwhile, Iogen Corp. has pioneered ethanol production from straw, using a genetically-modified enzyme that can yield enough sugar for fermentation. The company hopes to find a site for its planned 220-million litre ethanol plant by the end of 2003.


is currently the third largest ethanol producer in the world, with an annual production of around three billion litres.

There are some 14 million cars on China's roads and the number is increasing by 8 to 10 per cent annually.

The main automotive fuel is diesel and pollution is a problem that the Government is keen to address. Consequently, it is running a number of pilot projects in selected provinces which involve a trial blend of 10 per cent ethanol mixed with gasoline.

Corn is the feedstock of choice, but distilleries are also experimenting with cassava, sweet potato, corn and sugar cane.

Brazil is keen to export its cane-based ethanol to China and is hoping exports may begin this year. The two countries have held talks, but nothing has been agreed so far.


A number of European Union (EU) countries, such as France and Spain, have introduced a range of incentives to protect their ethanol markets, partly under pressure from their powerful agricultural sectors. The EU has also recommended the blending of ethanol in fuels.

Ethanol is also used in Sweden, where Akzo Nobel Surface Chemistry has tested diesel with 10 per cent ethanol. Akso predicts that this new ethanol diesel will be on the market in 2005.

Fortum, the Finnish refiner, plans to trial its own blend of gasohol with five per cent ethanol content at its 187,000 barrels per day Porvoo refinery. Fortum is predicting a growth market and will be granted a tax benefit of US30 cents a litre for production.

Biodiesel is still the alternative fuel of choice in Europe. Currently, Germany, Austria and Sweden use 100 per cent pure biodiesel in adapted vehicles.

In France, some fleets use a 30 per cent blend of biodiesel, whilst regular diesel carries a five per cent blend by volume. Italy too uses a five per cent biodiesel blend in its diesel fuel. The UK, behind much of Europe in terms of biofuels, is starting to catch up and is too selling five per cent biodiesel at many retail outlets now.


began its ethanol program this year. Nine Indian states and four union territories are phasing in a five per cent ethanol blend in gasoline.

Those states, which make up the main sugar-producing areas, are participating in the first phase of the project.

The second phase, planned for October this year, will see the program spread nationally.

A third phase will then see the blend increased to 10 per cent and there are also plans to blend ethanol with diesel, India's most popular automotive fuel, comprising 80 per cent of all motor fuels consumed.


sugar mills in East Java province are reportedly in talks with China aimed at increasing ethanol exports. The amount of ethanol produced by the mills is so far relatively small, at around 4 billion litres annually. About 80 per cent of the mills' revenue comes from sugar production and the mills are interested in bringing in a greater percentage from ethanol products.

East Java's state plantation company, PT Perkebunan Nusantara, is supervising the deal with China on behalf of the 17 mills that it manages and it is hoped they will be able to increase production by almost 500 per cent, to around 20 billion litres, over the next five years.


continues to trial a blend of 10 per cent ethanol in gasoline and oil and natural gas conglomerate PTT Plc will make gasohol available at 69 retail outlets in metropolitan Bangkok in 2003, as well as "diesel palm" (diesel blended with palm oil). Another conglomerate, Bangchak Petroleum, is investing 20 million baht in selling substitute energy sources, such as ethanol, at 180 petrol stations in the greater Bangkok area.

The Thai Government recently approved the construction of eight plants and is looking at permitting the construction of a further 12 using cassava, cane molasses and rice husk as feedstocks to produce about 1.5 million litres of ethanol daily. PTT is also studying a new product called "diesohol", which is a mixture of high-speed diesel, ethanol and additives, partly to replace diesel usage.

Ethanol is produced from a variety of crops including sugar cane and wheat. Ethanol reduces harmful exhaust emissions from cars, is safe to use in engines and, if it were mandated at, say, 10 per cent in Australian fuel, would be an enormous boost to key agricultural commodity industries such as sugar and wheat.

  • Pat Byrne

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