Coal-based ethanol leveraging fuel ethanol – a promising future?

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Coal-based ethanol leveraging fuel ethanol – a promising future? Author/Source: Date: 2017-10-24 Clicks: 50 Introduction: The development of biofuel ethanol in our country has been going on for 16 years; however, due to changes in policy directions, the growth of this industry has been rather turbulent. With the further expansion of the use of ethanol-blended gasoline, the fuel ethanol industry once again faces a crucial opportunity for development. A shift in policy direction led to restrictions on the production capacity of biofuel ethanol. From 2001 to 2006, there was rapid development in this sector: relevant facilities were quickly put into operation, production capacity increased to 1.02 million tons, and the scope of operations also expanded gradually. However, due to the rapid consumption of food, the biofuel ethanol industry was soon overwhelmed by criticism alleging that it was competing with livestock for food and with humans for land*, putting the industry in a difficult situation. On the premise of ensuring **food security**, fuel ethanol projects should be halted without hesitation; it is proposed that there should be no increase in the production capacity for fuel ethanol made from food crops, with priority given to supporting the development of industries that use non-food raw materials such as tubers, sweet sorghum, and fiber resources. From then on, the biofuel ethanol industry entered a phase of slow growth; after a decade of development, its total production capacity reached only around 2.6 million tons. http://img.yf116.cn/image/img/20171024/1642256014577.jpg Low level of marketization and declining subsidies for biofuel ethanol. At present, China’s fuel ethanol industry operates under a strict system of industry access controls, with regulations regarding designated production sites, targeted sales, closed distribution channels, and price setting. Production companies must obtain approval and the right to supply goods before they can deliver products to the two major oil companies, China National Petroleum Corporation (CNPC) and Sinopec. These companies then allocate the products according to certain proportions before selling them. To avoid unfair competition, supply areas are restricted for each company. In terms of the pricing mechanism, in February 2011, the National Development and Reform Commission issued the “Notice on Adjusting the Price of Denatured Fuel Ethanol” (Document No. FGB Energy [2011] No. 316). According to this notice, the settlement price of denatured fuel ethanol was adjusted to be equal to the ex-factory price of No. 93 gasoline multiplied by a conversion factor of 0.9111, which represents the cost associated with blending and selling ethanol-blended gasoline for automotive use. From the production, sales, and pricing mechanisms of biofuel ethanol, it is clear that the biofuel ethanol industry exhibits distinct characteristics of **promotion and monopolistic operation. Due to the high production costs of fuel ethanol in our country, companies cannot generate profits solely through its production; to a large extent, the profitability of fuel ethanol firms relies on policy subsidies. However, in recent years the fuel ethanol industry has faced restrictions, leading to a reduction in these subsidies. http://img.yf116.cn/image/img/20171024/1644186025870.jpg http://img.yf116.cn/image/img/20171024/1644476028748.jpg Policy support drives further development opportunities for fuel ethanol. On September 13, 2017, 15 departments including the National Development and Reform Commission, the Energy Administration, and the Ministry of Finance jointly issued the \"Implementation Plan for Expanding the Production of Biofuel Ethanol and Promoting the Use of Ethanol-blended Gasoline in Vehicles.\" According to this plan, by 2020, ethanol-blended gasoline is to be widely used across the country. By 2025, efforts will be made to achieve large-scale production of cellulosic ethanol, with advanced bio-liquid fuel technologies, equipment, and the entire industry reaching international leadership levels, as well as a more sophisticated market-based operation mechanism being established. Statistical data show that in 2016, China’s apparent consumption of gasoline was nearly 120 million tons. Assuming a 10% addition rate of fuel ethanol, if the use of ethanol-based gasoline becomes widespread across the country, the consumption of fuel ethanol is expected to reach 12 million tons by 2020. Currently, the production capacity of the ethanol industry in China is around 11.5 million tons, of which about 2.2 million tons are produced as fuel ethanol. In other words, if ethanol-based gasoline is used nationwide, there will be a significant gap in the production capacity of the fuel ethanol industry. The main reason behind the renewed push to promote the fuel ethanol industry is the currently high levels of corn inventory; expanding sales channels for fuel ethanol helps to effectively utilize these corn stocks. On the other hand, the production of fuel ethanol from cassava is restricted by the origin of the raw material, while the current production cost of cellulose-based fuel ethanol remains high, and the transportation range of the raw material is also somewhat limited. In summary, the production capacity of biofuel ethanol will continue to expand. In the short term, the market share of corn ethanol is expected to increase significantly, with the rate of growth exceeding that of ethanol produced from non-corn feedstocks. And **permits for the sale of fuel ethanol will also be gradually relaxed, enabling the effective and comprehensive utilization of existing ethanol production capacity. Of course, based on **food security considerations, the overall scale of the biofuel ethanol industry will remain limited, in order to avoid a rapid expansion that could lead to uneven quality of products and thus impact end-users. On the other hand, compared to biofuel ethanol, coal-based fuel ethanol projects not only offer advantages in terms of cost and profitability but also contribute to the adjustment of the production capacity structure in the coal industry. Therefore, after addressing the issue of high food stock levels in the short term through the development of biofuel ethanol, it is possible to include coal-based fuel ethanol in the scope of promotion in the medium to long term, thereby reducing policy intervention and establishing a more sophisticated market-oriented operating mechanism.