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Bioethanol: 2010 review

Bioethanol: 2010 reniew

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The boom in the biofuel industry had slightly slackened by 2010. High expenses along with the financial crisis somewhat cooled enthusiasts of the transition to the new fuel.

At present, 85% out of the total biofuel output was accounted for by bioethanol and roughly 15% by biodiesel.

The USA is the country with the most developed bioethanol industry. It is the world's leading producer of corn and bioethanol. In addition, bioethanol is made from cellulose and other raw materials, but this production is not of such a large scale.

The abundant crop of corn allows using part of it for industrial purposes. As a result, corn prices are highly correlated with crude oil prices since 2005.

In the USA, about 30% of all corn is consumed exactly by ethanol producers. Greater corn consumption (44%) is registered only in the feed sector.

In February, the International Grain Council's estimate for the Y2010 world corn crop was raised to 797 MMT that is the largest volume registered over the last years. 205 MMT will be used for industrial purpose.

Increased margin of ethanol production in the USA allowed increasing the forecast for bioethanol use of corn by 2.5 MMT, up to 109.2 MMT. This is equivalent to 39% of all corn used inside the country. The greatest US bioethanol producers are the companies Archer Daniels Midland (ADM) and Cargill.

The USDA expects the corn acreage to expand to 36.0 Ml ha (+3%) in 2010. This will probably promote a growth in bioethanol production, too.

On February 3, 2010, the USDA approved amendments to the Renewable Fuels Standard (RFS). According to these amendments, the use of biofuel must increase to 36 Bl gallons (136 Bl liters) by 2022 against 11.1 Bl gallons (42 Bl liters) in 2009. The notion of biofuel has been extended and currently includes new, specially specified volumes of cellulose ethanol and biodiesel.

The rise in biofuel consumption to 36 Bl gallons (136 Bl liters) by 2022 is expected to cause displacement of roughly 13.6 Bl gallons (51.5 Bl liters) of conventional hydrocarbon and diesel fuels. This is about 7% of the forecast annual consumption. In this case, the annual emission of green-house gases will decrease by 138 MMT. This also may reduce the US export of corn by 8% and that of soybeans by 14%.

On February 16, 2010, CME Group announced its intention to open a futures contract for distiller's dried grains (DDG), a by-product of corn ethanol production, on April 26, 2010.

Brazil is also a major producer of bioethanol, making it from sugar cane. Brazilian ethanol is cheap due to low labor costs. In 2005, the global bioethanol output amounted to 36.3 Bl liters, including 45% made in Brazil and 44.7% in the USA.

Making biodiesel from oilseeds is more developed in the EU. Germany, France, and Italy prevail there owing to a favorable tax regime for producers.

The main reasons for looking for alternative fuels included the following:

Booming demand for energy resources

shrinking global stocks of crude oil and gas

environmental situation (emission of hazardous substances into the atmosphere)

Critics of bioethanol production state that much more hazardous substances are emitted into the atmosphere while making the environmental-friendly fuel - bioethanol - than while burning conventional fossil fuels. Besides, too "much energy" is spent for production of the fuel itself. Tropical forests are often cut down for cane plantations to produce bioethanol.

Black Sea Region

The bioethanol production is less developed in the Black Sea region. Government programs and stimulating measures are needed for the production start because bioethanol margins are small by themselves. The US government grants tax credits (not subsidies) to ethanol producers at about $0.51 per gallon of ethanol.

Unfortunately in the Black Sea countries the approved bioethanol production programs are mostly not implemented. Only small private facilities adapted by farmers for their own needs have become widespread.

The bioethanol production development is also restrained by the fact that most vehicles are not fitted to use this fuel. Filling stations also require reconstruction.

Ukraine. The development of a biofuel industry became possible only after coming into force of the Law of Ukraine of May 21, 2009. Anyway the government of Ukraine is still slowly in promoting the production of bioethanol and biodiesel.

While bioethanol production was previously government monopoly, the new law permits private companies to manufacture this product. Besides, bioethanol fuels like Е85 shall not be levied with excise duty. This opens a prospect for private investments.

Ukraine is a major producer of food alcohol. At the same time, many domestic distillers are unloaded or even were shut down. In the future these facilities can be used for making ethanol from lignocellulose. Obviously, the price of biofuel ethanol will depend on both its production cost and government tax policy. At present, raw materials that can be used for biofuel production (corn, rapeseed) are mostly exported abroad.

The new EU requirements to biofuel raw materials, which shall come into force from July 2010, may considerably complicate export of Ukrainian rapeseed to the EU. Ukraine currently exports about 90% of produced rapeseed to the EU countries.

The official Russia's position to the bioethanol industry is explained by sufficient crude oil reserves available in the country.

A large bioethanol plant - Biohim - was opened in Kazakhstan in September 2006.

BIOHIM produces bioethanol from low-grade wheat (4th and 5th grades). It is planned to sell its product both to the domestic market and Russia and the European countries.

Date:  20.03.2010

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