Financial Daily from THE HINDU group of publications
Tuesday, Sep 20, 2005
Industry & Economy
Fuelling around with ethanol
SUGAR MILLS are hoping that the ethanol-blended fuel programme, the option immediately available for large-scale implementation to cut fuel costs, will be pushed more effectively by the policy-makers.
The sugar mill representatives feel that the oil companies, which are the monopoly buyers of ethanol, are yet to take the programme seriously. India, they say, should emulate the example set by developed countries that are taking to blending automobile fuels with ethanol or other biofuels. Oil companies have to enter into a long-term agreement with sugar mills for effective and regular supplies of ethanol for blending with petrol. With sugarcane production set to increase over the next few years, ethanol availability will not be an issue in the immediate future. This opportunity should be exploited to stabilise the supply of ethanol-blended petrol or gasohol.
Other concerns, apart from ethanol pricing, are the availability of alcohol for the other segments liquor manufacturers and industrial users. But with production expected to pick up this is not a concern; in fact, the sugar industry needs to prepare for a surplus, they say.
Mr Ram V. Tyagarajan, Chairman and Managing Director, Thiru Arooran Sugars, said that ethanol-blended fuel is an option that even developed countries were exploiting to control fuel costs. With oil prices expected to stay above $60 a barrel, ethanol is an attractive option.
Availability of ethanol will not be of concern as cane production is expected to sustain in the next three-four years. This means there will be enough to meet the requirements of liquor manufacturers and the chemical industry, which also has substitutes for alcohol. Ideally, the oil companies should look at long-term supply agreements with commitment on price and offtake to enthuse the sugar mills, he said.
The European Union and the US were looking at major programmes for blended fuel. Japan, which does not produce ethanol, plans to import from Brazil for supplying ethanol-blended fuel.
In Brazil, which blends up to 50 per cent of its fuel with ethanol, Petrobras, the national oil company, is encouraging the programme, he said.
No problems for mills
According to Mr S. L. Jain, Director-General, Indian Sugar Mills Association, the sugar mills will have no problem meeting the requirements of the ethanol-blended fuel programme.
The plan calls for about 350 million litres of ethanol for 5 per cent blending with petrol.
Even if the programme were to be extended to the entire country, over 500 million litres would be needed. The distilleries can produce about 1,800 million litres of which the Indian Made Foreign Liquor segment would use about 500 million litres and chemical industries 500-600 million litres. A clear surplus of about 600 million litres would still be available for the programme.
If the programme stumbled in the early stages, it was only because of the continuous drought that affected sugarcane production and the availability of downstream product, molasses, the raw material for alcohol.
Ethanol prices will be dictated by sugarcane prices that tend to increase annually. As a monopoly buyer of a produce from a dispersed production source, the oil companies are trying to dictate prices.
Mr Jain pointed out that when the programme was initiated in 2003, they were able to buy ethanol at about Rs 14 a litre. But in the subsequent year cane production fell and prices increased.
The sugar mills have now pegged prices at about Rs 18.75 against their earlier demand of about Rs 22.
ETHANOL, as a fuel for blending with petrol, is dehydrated rectified spirit or ethyl alcohol that is produced in distilleries. The raw material for alcohol is molasses, a by-product generated during sugar production.
During sugar production, sugarcane is crushed for its juice. After sugar is extracted the thick syrup that remains is molasses from which ethyl alcohol is produced.
This contains water, which is removed by a chemical process or by passing the alcohol through a column containing a material that absorbs the water, to get anhydrous ethanol.
Alcohol can also be generated directly from the sugarcane juice as it is being done in countries such as Brazil.
Sugarcane juice yields six times the alcohol than what can be produced from molasses. However, production of ethanol directly from sugarcane juice is not viable as realisation on the sale of ethanol in our country is low.
Sugar mills, therefore, use the molasses route as some of their costs are offset by the realisations on sugar sales.
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