While there are many budding industries and sources of biomass energy in China, in the long-term, economic feasibility will be the determining factor. Whether the industries use corn, sugar, switchgrass, or synthetic substances for biofuel production depends on what organic source is most profitable.
In the foreseeable future, the government will dominate ethanol development. Thus, while there are countless small private natural ethanol production plants in China producing food grade alcohol, the four fuel ethanol production plants are all run by state-owned enterprises. By fiat, these producers can only sell their products to SINOPEC and CNPC, the two state-run petroleum companies. SINOPEC and CNPC then blend the ethanol with gasoline and distribute E10 to gas stations. Over 95% of the gas stations in China are state-owned. Fuel ethanol production is dominated by the government and will not be influenced by public awareness or consumer demand in the short- and medium-term.
Ethanol gets strict quality standards
On April 18, 2001, the Denatured Fuel Ethanol and Bioethanol Gasoline for Automobile national production technology standards were established in order to set uniform, quality levels across the board. Since the China Petroleum and Chemical Corporation (SINOPEC) and the China National Petroleum Corporation (CNPC) regulated the distribution and sales of the denatured ethanol, internal standards for blending, storage and transportation of E10. Saccharification, fermentation and additive standards are listed below, however.
The 2006 ethanol subsidy that the government provides producers is $172/MT (1,373 Yuan/MT), according to government reports, and China has appropriated $188 million (1.5 billion Yuan) in financial subsidies to ethanol producers each year.
Before May 2006, all financial incentives and biofuel promotion were limited strictly to ethanol. On May 30, 2006, the Ministry of Finance published the Interim Procedures for the Management of the Special Development Fund for Renewable Energy Resources. In these interim procedures, the government outlines the creation of a special fund to encourage the development of renewable energy resources. By renewable energy resources, the procedure refers to wind energy, solar energy, hydro-energy, biomass energy, geothermal energy and ocean energy. The procedure focuses primarily on renewable alternatives to petroleum. Biomass energy, in this context, extends beyond bioethanol to also include biodiesel and biomass power generation and methane. Companies can apply to the fund for capital to invest in research, development, demonstration and production of these biofuels.
The Chinese Government recently prioritized biomass energy ahead of wind power. This unprecedented change indicates that China is shifting its focus of official support for renewable energy from wind power to biomass energy. The Ministry of Finance and NDRC view biomass energy as their top priority among sources of renewable energy.
The Chinese government is expected to enact new fiscal policies to encourage the development of biomass energy from organic matter, in hopes to spur R&D investment. The Ministry of Finance is deliberating a cost-sharing and risk-sharing mechanism for biomass companies, by which risk funds accumulated during times of high oil prices will be used to compensate losses and sustain companies' operations if oil prices fall.
China has been eyeing Brazilian fuel-ethanol for some time, and imports could begin in the near future. Presently, the biofuel market is a domestic one in most countries around the world. Only 10 percent of biofuels produced in the world are sold internationally; Brazil accounts for roughly half of those sales.
Corn
China's fuel ethanol industry used corn as a feedstock for 80 percent of its 2005 production and is forecast to use corn for 90 percent of its 2006 production. Henan's Tian Guan Group is the only plant to rely more heavily on wheat for denatured ethanol production. If China continues to rely on corn for bioethanol production, it could increase corn consumption by 25 percent by the end of the decade, forcing the country to import 10 million tons of corn a year by 2010. Corn consumption in China would rise at an average of 5 percent a year, while corn used for ethanol would increase at a rate of 10 percent a year.
The growth of corn use for industrial purposes may impact China's feed industry during the upcoming years. Currently, the demand for corn from China's feed industry stands at roughly 68 percent of the total demand, forecast to reach 93 million MT in 2006/2007. Industrial consumption of corn accounts for 20 percent of the total corn demand and is forecast to reach 27.5 million tons in 2006/2007, up by 25 percent from 2005/2006. Ethanol production accounts for 40 percent of the total industrial corn use. If the government were to mandate E10 at the national level, industry capacity would be lifted by at least 5 million MT. Any planned increase in ethanol production will likely result in a higher demand for corn. This could turn china from a net export of corn to a net importer.
The area planted for Chinese corn will rise to around 27 million ha in 2006, up by approximately 1 percent from last year. Post forecast that total corn output in 2006 be around 140 mmt, reaching a record level. Favorable agricultural policy from the central government has helped farmers' incomes and stimulated growth.
Sugar
Environmental concerns have dissuaded many plants from using sugarcane and sugar beets for ethanol production. China's State Environmental Protection Agency (SEPA) is carrying out environmental impact assessments for all ethanol production technology. Due to inefficient and wasteful production technologies, sugar for fuel ethanol production is unlikely.
Wheat
Wheat is currently the principal feedstock source for fuel ethanol at the Henan plant. There are three reasons wheat not likely to be a large component in China's biofuel production: high domestic demand for food; relatively low efficiency rate in ethanol production; government policies away from the use of grain-based feedstock in ethanol production.
Lignocellulosic
United States-based organic and natural food company SunOpta recently announced that it is selling what will be the first cellulosic ethanol plant in China. Cellulosic ethanol can be produced from basically any organic matter (agricultural waste, grasses, sewage, sludge, switchgrass, plant stalks, trees-virtually anything that contains carbon), instead of solely from traditional feedstock (corn, wheat, rice, sugar). Generally, cellulosic ethanol is not commercial viable, but China will test this with the first cellulosic ethanol production plant up and running by 2008. When viable, in China, most production plants will retrofit current ethanol production plants for lignocellulose production.
BIODIESEL
Market Demand May Exceed Ethanol
There is a rising demand for biodiesel since the diesel market is twice that of the gasoline market. The principal difficulty is the lack of eligible sources for biodiesel production. China is a net importer in all the major edible vegetable oils, the largest importer in the world. Coupled with the lack of fatty organic matter, the lack of land upon which new crops could grow exacerbates the difficulty of biodiesel production. As a result, China's ethanol production growth exceeds biodiesel's. In May of 2006, China took some preliminary steps towards biodiesel promotion by setting up a special development fund to encourage research, development, and production. Biodiesel's future in China relies on three key factors:
1. Government support and NDRC defining a clear plan for expansion, not only for biodiesel production, but also for the harvesting of NGB crops. 2. Research and development to solidify technologies for production 3. Defining and obtaining key organic sources for production. Potentials inputs include rapeseed, Jatropha nuts, switchgrass, sunflower seeds, Chinese pistachio, peanuts, sesame seeds, Barbados nuts, Fufang vines, Yousha bean, and Chinese dogwood nuts.
Present production very limited, though potential huge
Domestic production between 100,000 and 200,000 MT
Biodiesel is in the very early phases of testing and development. The Wuhan Energy Oil Material and Biodiesel Engineering Technology Research Center and the Hubei Energy Oil Material and Biodiesel Engineering Technology Research Center have been in the testing phase and will begin a trial production of 2,000 MT of biodiesel each year. Wuhan Airui Biodiesel Co. began producing 100,000 MT per year. Biodiesel production from Jatropha, Chinese Pistachio and rapeseed has been limited and is still in the testing phase. China plans to produce 2 million MT of biodiesel by 2010.
Tom Sellen; Dow Jones Newswires; [email protected]Dow Jones Commodities News
