International Ethanol Report: 2010

EPM takes a look at international developments with a special focus on Brazil.
By Luke Geiver and Holly Jessen | June 10, 2010
The heart of world ethanol production remains strongest in the U.S., but the pulse of international growth has started to beat harder. Nearly every region of the world from the United Kingdom to the Asia Pacific has begun construction or proposed new ethanol facilities. The Global Renewable Fuels Alliance reports that in 2010, 22.7 billion gallons of ethanol will be produced, a 16.2 percent increase from 2009. The following report represents a broad overview of this year's industry growth, governing factors and future projects outside the U.S. and Canada giving a snapshot of ethanol use on a global scale: EPM's 2010 International Report.

Guiding the Way
As in the U.S., several countries are working on mandates requiring the use of biofuels. India's government will mandate E20 use by 2011 and South Korea has decreased tariffs for materials used to produce renewable energy, not to mention the major role the Brazilian government plays in the production of Brazilian-based sugarcane ethanol. "Europe is working on its own energy directive and that may impact what producers in the U.S. are able to export," said Tammy Klein, executive director for the Global Biofuels Center. Similar to the obstacles in the U.S., Klein says most countries implementing biofuels programs are seeking energy independence, diversification and economic benefit even amidst controversy over food and land use. "They will represent a large portion of demand in coming years," Klein said. "They will also have issues that we have confronted in the U.S. with infrastructure and making sure the mandates work in conjunction with subsidies."

Of all the governing factors for ethanol production, the U.S. market remains the largest influence, although that may change in the future. "Many U.S. companies are looking for external markets," Klein said. "For the first time producers are paying attention to the global market. There's a number of ethanol producers that won't be able to get access to the California market, so they have to find a market somewhere for their product." Klein says markets in China and Europe continue to represent the largest opportunities for export. While governments all over the world have done a lot to support the biofuels industries, Klein said, "The industry is going to need regulatory certainty."

Global Growth
According to Klein, ethanol demand will go up by 80 percent by 2015. Nearly 80 percent of that demand will be seen in the Western hemisphere, with the other 20 percent in Asia-Pacific. In Europe, Ensus Ltd., a 106 MMgy wheat-based biorefinery in the U.K. began production this past year, and another wheat-based proposed project in Grimsby, U.K. is on the way.

In Vietnam, what started out as a speaking engagement, ended in a proposed agreement to construct eight ethanol facilities. Zig Resiak, program director for Kentucky-based ethanol producer Agresti LLC, said the company has now formed Agresti Vietnam. The new partnership between Agresti and the People's Republic of Vietnam will develop municipal solid waste plants in the Saigon area, and with over 50 percent of the capital raised for the facilities, Resiak says the projects are moving along very quickly. "This is also moving faster than the U.S. because of the carbon credits," said Resiak. "In this market, carbon is an asset." Construction will begin in December 2011 and the plants will use feedstock from local landfills. "The reception has been incredibly positive over there," Resiak said, adding the region is in need of environmental help.

Adding to the list of proposed plants in Vietnam, Toyo-Thai, a joint venture group between Italian-Thai Development and Japan's Toyo Engineering, will begin constructing two ethanol facilities. The completion date for both plants is set for 2012 and each plant will use a cassava chip feedstock to create fuel-grade ethanol.

Two other Japanese companies, Itochu Corp. and JGC Corp., will begin construction of a sugarcane-based ethanol plant in the Philippines. Just north of Metro Manila, the capital city of the Philippines, the plant will produce 14.3 MMgy. The Philippines Biofuel Act of 2009 requires the country to use a 10 percent ethanol blend in gasoline fuel by 2011.

While ethanol use is growing globally, no other country relies on ethanol as much as Brazil. The country has already lifted tariffs on ethanol imports in hopes the U.S. might do the same. While the future between the U.S. and Brazil on biofuel imports and exports is still unclear, the role the South American country will play in 2010 and beyond is not hard to see.

Brazil is the largest grower of sugarcane and sugar producer in the world and the second largest ethanol producer behind the United States, according to Brazilian Sugarcane Industry Association (UNICA) which represents sugar, ethanol and bioelectricity producers in Brazil. During the 2008-'09 sugarcane season, Brazil produced a total of 7.2 billion gallons (27.5 billion liters) of ethanol, according to statistics from UNICA and the Ministry of Agriculture, Livestock and Food Supply.

While Brazil's ethanol production numbers have more than doubled since 2002-'03, it hasn't been totally smooth sailing. Production held fairly steady, around the 11 or 12 billion liter mark, from 1990-'91 to 1995-'96. After a two-year climb to 15.3 billion liters in 1997-'98, the amount of ethanol produced dropped to a low of 10.5 billion liters three years later. Since then, the numbers have been steadily climbing to today's totals of 27.5 billion liters. Growth is slowing, however, Joel Velasco, UNICA's chief representative in North America, told EPM. During the current growing season, UNICA estimates that 10 new ethanol plants/sugar mills will be built. The number of new plants coming online was 19 last year, down from 30 and 25 in the previous two years.

Of about 440 sugar mills in Brazil, the majority include ethanol production, which means there is some flexibility between producing sugar and ethanol. This is limited, however, by the fact that most new ethanol plants don't have sugar factories and older factories don't have spare capacity, he said. About 100 of those 440 plants only produce ethanol and bioelectricity—no sugar.

The bulk of the ethanol, or more than 91.3 percent, is produced in the south central region of Brazil. This area includes Sao Paulo state, which is responsible for 60.7 percent of the ethanol production. In 2008-'09 the sugar and ethanol company Sao Martinho was the highest producing company in that state, with 411.9 million liters of ethanol production. The rest of Brazil's ethanol, or 2.4 billion liters produced last season, came from the northeast region.

The Brazilian ethanol industry is very different from the U.S. ethanol industry—and it's not just about corn versus sugarcane. In Brazil, two types of ethanol are produced and sold to consumers: anhydrous and hydrous ethanol. Anhydrous ethanol, which is the standard in the U.S., contains about 0.5 percent water by volume and is blended with gasoline for fuel use. Hydrous ethanol, on the other hand, can have about 5 percent water. In the last growing season, 66 percent of the ethanol produced was hydrous ethanol.

The type of vehicles on the roads in Brazil has changed over the years. In 1984 more than 94 percent of automobiles made by major automakers could burn E100, or hydrous ethanol, according to UNICA. A variety of factors caused automakers to rapidly decrease the number of ethanol-powered vehicles produced and by 2001 only 1 percent of the vehicles on the road ran on E100.

In 2003, flex-fuel vehicles (FFV) were introduced in Brazil. Today, the majority of vehicles in Brazil are FFV, which can run on E100, gasoline or any mixture of the two, according to the National Association of Automotive Vehicle Manufacturers. In fact, during 2008 there were 2.3 million licensed FFVs on the road compared to 217,021 gas vehicles and only 84 ethanol vehicles.

Whether driving an FFV or not, thanks to a blending mandate in Brazil, all gasoline contains at least some ethanol. Although the blend mandate was temporarily lowered to 20 percent for three months this year due to a short crop, it's now back up at 25 percent.

The inflow of foreign capital to Brazil's sugar and ethanol industry has increased recently—especially in 2010. In the first few weeks of the year alone, there were four major transactions. "Foreign capital is not new to the industry and isn't necessarily dominant," Velasco said, "as illustrated by one of those recent transactions: the merger involving Brenco and ETH, in which domestic capital is by far in the majority." He also mentioned deals where Brazilian companies have been purchasing stakes in foreign-owned companies.

In mid-2007, foreign capital held a majority stake in 7 percent of the Brazilian sugarcane industry. By the end of 2009, 44 Brazilian sugarcane mills were controlled by foreign capital. That added up to 14 percent of the approximately 590 million tons of cane crushed in the 2009-'10 harvest. Foreign control of Brazilian ethanol and sugar companies is now up to 22 percent, not including the latest deal between Petrobras and French controlled Guarani Sugar and Ethanol Group. "Trailing all this activity is a series of events that became more noticeable in the first decade of the new millennium, with the industry in Brazil functioning freely and without government controls," Velasco said. "This has truly been the decade of the rise of the cane industry, with efficiency and productivity gains that could only have occurred in a free market environment." EP

Luke Geiver and Holly Jessen are associate editors of Ethanol Producer Magazine. Reach Geiver at (701) 738-4944 or [email protected] and Jessen at (701) 738-4946 or [email protected].