Opportunity Around The Globe

Many of the key players in ethanol’s export markets will hold their places into 2021, but policies, tariffs and demand for industrial ethanol could make waves. Making sure ethanol is treated as a here-and-now climate change solution will be critical.
By Lisa Gibson | November 27, 2020

As of August this year, the U.S. had exported more than 905 million gallons of ethanol, a figure a bit higher than many experts expected for the year, says Craig Willis, senior vice president of global markets for Growth Energy. Despite tariffs, COVID-19 and other barriers blocking global markets, Willis expects exports this year to exceed 1.3 billion gallons, inching toward 2019’s total of 1.472 billion.

“Frankly, this year is coming in better than a lot of people thought,” Willis says.

Much of the balance over COVID-19 demand reduction is owed to an increase in industrial ethanol demand, he says. “It hasn’t been a one-for-one offset at all, but industrial demand has helped us out considerably.” Mexico, South Korea and India all have been strong markets on the industrial side. “While it’s not fully offsetting reduced fuel demand out there, it definitely has helped out and given us stronger numbers than maybe some anticipated.”

Total year-over-year gasoline demand reduction for 2020 is estimated to end up between 9% and 12%, while 2021 will see an improvement to only 1% to 3%, Willis cites. “So we should see an increase next year, just because people are hopefully going to drive more as we get past this COVID environment that we’re in.”

COVID isn’t the only culprit. Tariffs and policy issues—such as those in Brazil and China—stood in the way of meaningful export increases to those markets in 2020, and likely will continue to keep U.S. ethanol exports from reaching their full potential next year.

“We need to make sure ethanol is treated as an energy product, from a tariff standpoint,” says Brian Healy, director of global ethanol market development for the U.S. Grains Council. “This continues to be an issue that’s going to impact fuel ethanol exports over the next five years. … The tariffs do not reflect the energy solution that ethanol is in these markets. We need to work on this disparity from a tariff-level standpoint.”

As countries like Canada, China, Mexico and Brazil evaluate their carbon-reduction policies and goals, ethanol needs to be at the table, Healy says. “Ethanol needs to continue to be elevated in climate discussions and environmental discussions. We cannot let ethanol get behind or excluded in these discussions. It’s got to have a prominent role as a solution to reduce GHG emission in the transport sector.

“Frankly, that’s the direction the world is headed in. We need to make sure we’re not left out of it.”
And looking ahead, several key markets show promise.

Canada finished out the 2019-’20 marketing year as the No. 1 export market for U.S. ethanol, at 321 million gallons, according to the USDA. “It’s been consistent for the last 10 years or so, so expect that market to be an opportunity for both Canadian and U.S. producers, and an expansion in 2021 timeframe as federal and provincial policies are developed there,” Healy says.

Canada is the “steady Eddy,” Willis says. The country is rewriting its Clean Fuel Standard and Ontario has implemented an E10 standard. “[The Clean Fuel Standard] is in a draft phase, but in some of the models they have out there, they have E15 there by 2030, so we’re watching very closely what’s going on in Canada.”

Brazil’s tariff rate quota bumped the country to No. 2 in U.S. exports for marketing year 2019-’20, giving Canada the top spot. Exports to Brazil reached 263 million gallons. “It will certainly be incumbent upon the current administration to deal with the TRQ (tariff rate quota) issue there,” Healy says. “Until that is resolved, it’s unclear how much further our exports will slide going into that market.”

The TRQ was given a 90-day extension, moving its expiration to Dec. 14. Brazil exported 314 million gallons to the U.S. last year with virtually no tariffs, Willis says. “What we’re asking for there is a level playing field.”

Exports to Brazil were down by 30% compared to the previous year, Willis says. “There were some impacts of decreases in demand related to gas declines related to COVID, but trade policy issues there certainly were problematic.”

The country's RenovaBio low-carbon fuel policy should add more than 4 billion gallons of ethanol demand by 2030, and sugar prices are starting to rally, which decreases feedstock for domestic ethanol.

“We’ll continue to watch Brazil extremely closely,” Willis says.

“India currently is our third-largest export market,” Healy says, adding that’s largely a result of industrial exports increasing during the COVID-19 crisis. The U.S. exported 194 million gallons of ethanol to India in marketing year 2019-’20, according to the USDA.

“They’ve actually been one of the few that’s grown in spite of COVID,” Willis says. “A lot of our markets have gone south in demand, but we’ve actually gone up year over year in India.”

While the market has primarily been industrial use, Healy says work is ongoing to help India meet its 10% fuel blend rate goal with exports from the U.S. The country does not have enough domestic supply, he says. “We’re looking at a mini trade deal being discussed in that market.”

“The U.K. is another important market,” Healy says. “We exported 105 million liters over last marketing year.” But the U.K. will be fully Brexited Jan. 1 and is discussing an E10 mandate, up from E5. “Our hope is that will bring back some U.K.-based domestic production online,” Healy says.

A trade agreement with the U.S. would help lower access barriers currently diminishing potential in the European Union, Healy adds.

“This market really popped up this year because of an uptick in industrial demand for hand sanitizer,” Healy says. “We’ve been working in that market for a number of years, demonstrating the economic opportunity for expanding markets.”

Mexico holds 1.2 billion gallons of fuel ethanol demand potential, Willis says. A recent Turner Mason study showed ethanol could have saved consumers 62 cents per gallon last year, he says.
“We spend a lot of time on advocacy and telling our story, and Mexico is a great example where ethanol can save consumers a significant amount of money,” Willis says.

While China’s tariffs have essentially blocked U.S. exports since 2018, the country remains an opportunity. The 45% tariffs make economics unfavorable now, but the country has provincial-level policies that require ethanol both from domestic producers and exports. “That is still an opportunity, as long as tariffs are reduced,” Healy says.

It’s the second-largest gasoline consumer in the world and would move the bottom line for the U.S. ethanol industry faster than any other export market, Willis says. “China could be the quickest mover, so we’re always watching that very closely and doing any advocacy we can there. We’re at the mercy of the Chinese government with that tariff.”

Author: Lisa Gibson
Editor, Ethanol Producer Magazine