30 September 2005

China seeks boost from biofuels

China is turning to crops including cassava roots and molasses to make auto fuel as the world’s second-biggest oil user struggles to meet demand from a growing fleet of private cars.

China Resources Alcohol (Heilongjiang) may build a 600 million yuan, or $74 million, plant in Guangxi Province to turn cassava and molasses into fuel, Li Bei, deputy general manager, said in an interview. The company is one of the nation’s four biggest grain-based ethanol makers, which aim to raise output of the gasoline substitute by 39 percent during the rest of this year.

The companies are turning to alternative crops like cassava, which is used to make tapioca. China’s corn crop, the world’s second-largest, may be 3 percent smaller this year, leaving less to feed citizens and less to turn into ethanol to be added to gasoline. That is forcing processors to seek new fuel substitutes after economic growth of 9.5 percent and soaring oil prices swelled the country’s energy bill.

China’s oil-import costs rose to $33.9 billion in 2004 as global crude prices rose to records. Private vehicle ownership has increased six-fold in 10 years, expanding gasoline use.

“Developing biofuels results from the shortage of energy resources,” Ma Hongjian, deputy director of the China National Center for Biotechnology Development, told a conference Sept. 22. Development also stems “from individuals’ demand for cars, which has driven the big increase for fuels.”

The Chinese government in February 2004 told five provinces to include 10 percent ethanol-content in their gasoline. The five account for 16 percent of the nation’s passenger vehicles. It told another four provinces to promote the use of ethanol-blended gasoline in trials.

Almost half of China’s ethanol, including ethanol used in food and drugs, is derived from grains, with the rest from cassava and molasses, China Resources said.

The state’s four grain-based ethanol makers – China Resources Alcohol, Henan Tianguan Group, Jilin Fuel Ethanol and Anhui Fengyuan Group – produce 720,000 tons of the fuel a year and plan to increase output to more than one million tons by the end of this year.

Still, hot weather and heavy rain may reduce the amount of corn available to process. Chinese production of the cereal may fall to 126.5 million tons this year, according to the China National Grains and Oils Information Center on Aug. 1.

If automotive fuel ethanol were used nationwide, demand would exceed five million tons and “the shortage will be serious,” Wang Mengjie, a researcher at the government-run Agricultural Engineering and Research Institute, said in a presentation to the biofuels conference.

China Resources Alcohol, which is considering turning to molasses and cassava, operates a plant in Heilongjiang Province with a capacity of 100,000 metric tons a year, and sells ethanol to China Petroleum and Chemical and PetroChina.

The search for new fuel sources is part of China’s plan to raise renewable energy use to about 15 percent of total supply by 2020, from 7 percent, the official Xinhua press agency said Tuesday. The report cited Zhang Guobao, deputy chairman of the National Development and Reform Commission.

China provides subsidies to encourage production of nonpetroleum fuels as it tries to cut reliance on coal and oil. The government is planting so-called energy crops in salt marshes and other land unsuitable for feed-grains to supply ethanol plants.

Crude oil prices would have to rise to $100 a barrel before China Resources could stop relying on subsidies and start making a profit on its substitute fuel, said Li, the deputy general manager. Oil prices reached a record $70.85 a barrel on Aug. 30.

Higher costs and China’s massive gasoline consumption mean that ethanol is unlikely to have much of an impact soon. China is expected to import 500 million metric tons of oil a year by 2020, according to Ma at the Center for Biotechnology Development. That is 500 times the nation’s expected ethanol capacity at the end of this year.

“It’s not really realistic to count on biofuels to meet vehicle demand in the short term because the amount of gasoline burnt is rather large,” said Yu Jie, Greenpeace China’s energy policy adviser.

Still, using cassava and molasses may help cut the cost. The raw material expense of making one ton of ethanol from cassava may be 2,100 yuan, compared with 3,300 yuan for ethanol made from corn and wheat, said Li Shizhong, a professor at the Center for Biomass Engineering at China Agricultural University.

Government subsidies and low corn prices may make biofuel more viable in China, said John Cropley, a New York-based senior economist at LMC International. Corn prices on the Dalian Commodity Exchange have dropped 4.5 percent in six months.

“What we know is, oil prices are higher, corn prices are at the lowest for a generation, so you have a huge potential margin,” Cropley said. “If the economics aren’t good under these circumstances, then they never will be.”

Source: Bloomberg News (IHT) Sept. 29, 2005.

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