Report: Ethanol demand to outpace production

By Kris Bevill | September 23, 2010
Posted Oct. 1, 2010

A recent analysis of global biofuels in the next decade predicts a shortage in ethanol supply beginning in 2015 due to increased demand for biofuels to meet regulatory requirements. Hart Energy Consulting's study of global biofuels concluded that worldwide demand for biofuels will increase by more than 100 percent over current demand levels by 2020. As a result, by 2020 global ethanol supply may be short by 5 billion gallons.

"We view this as good news for the industry," said Tammy Klein, global study leader and assistant vice president of Hart Energy Consulting. "We are projecting increasing demand for the product in the market and high utilization rates. However, we don't expect a rush of new facilities or additional build-out in the industry. Rather, we think it's more likely the producers will debottleneck, possibly expand facilities and run over nameplate capacity. We expect facilities will improve efficiency and this is meaningful for future potential low carbon fuel standard (LCFS) and renewable fuel standard (RFS) compliance. This is the challenge for producers - to make their process more ‘sustainable' and ‘GHG [greenhouse gas] friendly' - and we think they will rise to that challenge."

Brazil is expected to have the greatest ethanol demand increase. The U.S. ranked second in ethanol demand growth, followed by China, Japan, the U.K. and Germany. Brazilian sugarcane-based ethanol is expected to come into high demand by countries seeking to fill their low-carbon biofuels requirements. "Obligated parties in the U.S. will find themselves competing for these volumes as never before," Frederick Potter, Hart Energy Publishing executive vice president, said. "We expect this to lead to continued price appreciation for sugarcane ethanol over the 2011-2020 period." Klein said she expects only one billion gallons of U.S. cellulosic ethanol to be produced in the next decade, although she recognizes the situation could change rapidly as technological breakthroughs occur.

Brazilian producers have been slow to complete the necessary RFS registration process required to import their product to the U.S., but Klein said that will change. "Brazilian sugarcane ethanol in our view will be a key avenue toward compliance with the LCFS," she said. "We project the U.S. market may need up to 2 billion gallons of sugarcane ethanol [by 2020]. Demand for sugarcane ethanol is also expected to grow significantly in the EU27, Japan, China - there will be competition for the product." China's demand for ethanol is expected to double in the next 10 years, reaching 2 billion gallons by 2020.

It was assumed the U.S. will implement E12/E15 blend requirements within the decade. So while gasoline demand is expected to continue to decrease in the U.S., blending percentages will not. Klein said she estimates an 88 percent marketing blending rate of E15 by 2020.

Thirty-five countries in four regions were included in the study. Predictions were based on analysis using current capacity, production and utilization rates as well as Hart Energy Consulting's calculations of policy changes expected in the coming decade.