Partial Substitution of Fuel Alcohol for Oil Consumption


With the rapid development of the national economy in the 21st
century, China has constantly increased its oil consumption and
already depends on imported oil for close to 50% of its supply.
Due to various factors, the price of oil keeps increasing.
Various biological energy sources have therefore aroused
people's interest. As fuel alcohol was developed ahead of the
pack, and its technology has now matured worldwide, it has become
a focus as a partial substitute in petroleum based fuels.
   Vehicle gasohol refers to the mixture of fuel alcohol and
general gasoline. Fuel alcohol can usually be added to replace
10% in volume of gasoline for use in gasoline engines. In this
sense, gasohol only partially replaces gasoline. The use of
gasohol is already quite popular in foreign countries. For
example, the United States and Brazil started research and
dissemination of gasohol in the 1960s. China formulated a
national standard for vehicle gasohol in 2001 with the initial
purpose of solving the problem of long term stored grain (which
is stored for the emergency need or outbreak). With the high oil
price today, however, the use of gasohol as partial substitute
energy has caught greater attention.


  1  Present status

1.1 Capacity

The production of fuel alcohol in China today mainly uses a
fermentation process. Considerable quantities of byproducts are
generated in its production. Corn is used as raw material. The
popular process being used is the modified wet-process.
   Fuel alcohol cannot fully replace petroleum. Technically,
vehicle fuel gasohol usually refers to the mixture of 10% (in
volume) fuel alcohol and 90% (in volume) gasoline. Adding more
than 10% (in volume) alcohol would produce a considerable
negative impact on engines. The Chinese Government has also set
the standard at up to 10%.
   Fuel alcohol production in China started rather late - in 2001.
The technology is not yet well developed and the cost is
relatively high. Besides, due to concern that large-scale
production of fuel alcohol would affect the corn market and harm
farmers' interests, China has approved only four fuel alcohol
producers so far. These four are all located in major corn
producing areas.

Table 1 China's Certificated Fuel Alcohol Producer As of The End
of 2006
Company                      Operating capacity, thousand t/a
Jilin Fuel Alcohol Co., Ltd.         600
Henan Tianguan Group                 300
Anhui BBCA Biochemical Co., Ltd.    440
Heilongjiang CR Alcohol Co., Ltd.    100
Source: CNCIC  


In April this year Baicheng Tingfeng Alcohol Co., Ltd. started
to construct 30 thousand t/a fuel ethyl alcohol project in
Baicheng, Jilin province. This new project is designed to use
corn starch as feedstock instead of corn, which is more meeting
the current policy of 'developing fuel alcohol produced from
non-grain feedstock.' Guangxi Bio-Energy Co., Ltd. of China
National Cereals, Oils & Foodstuffs Corporation (COFCO) started
to construct a 400 000 t/a cassava-based biological fuel alcohol
project in October 2006.
   To promote the dissemination of gasohol, it is requested in
the national standard for vehicle gasohol (GB18351-2001),
formulated by the Chinese Government, that fuel alcohol has to
be sold to designated oil companies at a price of 0.911 (price
conversion co-efficient of fuel alcohol) multiplied by the
ex-factory price of 90# gasoline. Oil companies blend fuel
alcohol with gasoline into gasohol. The high price of oil has
however led to a steadily increasing demand for fuel alcohol.

1.2 Input/output analysis

Let's consider the 100 000 t/a fuel alcohol unit in a fuel alcohol
producer in Northeast China as an example for the input/output
analysis to illustrate the profit-earning prospect of the fuel
alcohol sector in China.

Table 2  Production Cost of a 100 000 T/A Fuel Alcohol Project
Item                                             Price
Annual fixed cost depreciation (RMB million)    25.85
Raw materials (RMB/t)                        3.3 × corn
price
Auxiliary materials (RMB/t)                      132
Energy including water, power and coal (RMB/t)    346
Labor, supplier and overhead (RMB/t)               164
DDGS* profit offsetting (RMB/t)                  -528
Corn-cake profit offsetting (RMB/t)               -22
Corn oil (RMB/t)                                 245
Maintenance and repair (RMB/t)                     113
Gasoline for modification (RMB/t)    5% × 1/0.78 × gasoline
     density × gasoline price
    * distillers dried grains with soluble
Source: CNCIC


   The gasoline price is not only determined by the ex-factory
price of fuel alcohol. The cost also includes 5% (in volume)
gasoline for modification. The addition is mainly intended to
make a difference from edible alcohol.
   The profit of the 100 000 t/a fuel alcohol project is
therefore:

Per-ton profit = 0.911 X price of 90# gasoline (RMB/t) - per ton
production
cost of fuel alcohol

   The per-ton profit of fuel alcohol is therefore mainly
determined by two variables, namely the corn price and the oil
price.
   Based on the corn price and the oil price before 2004, fuel
alcohol producers suffered a loss of around RMB1 000 per ton of
fuel alcohol. For the sake of future energy strategy, therefore,
China formulated specific policies in 2001 to support fuel
alcohol producers to enable them to "cover the production cost
with a slight profit".

1.3 Profit sensitivity analysis

The National Development and Reform Commission (NDRC) will
gradually eliminate subsidies to fuel alcohol producers after
2008. Fuel alcohol producers must therefore develop their own
profit-making ability. Besides strengthening technical
innovation and operational management, changes in the oil price
and the corn price have become key factors for the profit
increase. The market price of fuel alcohol is determined by the
price trend of oil products in the domestic market. Oil price
changes will undoubtedly pr