Analysis on China's Fuel Ethanol Industry    

1. Select designated companies for fuel ethanol production

Among China's five designated fuel ethanol producers, Jilin Fuel Ethanol Co., Ltd. is raising capacity to 400 000 t/a from 300 000 t/a, Henan Tianguan Fuel Ethanol Co is capable of producing 300 000 tons per year, Anhui BBCA Biochemical Co., Ltd., has expanded capacity to 440 000 t/a from 320 000 t/a, while Heilongjiang Huarun Alcohol Co., Ltd.'s capacity is 100 000 t/a. In addition, COFCO (Guangxi) Bio-Energy Co., Ltd.'s cassava-based fuel ethanol project started production at the end of 2007, 200 000 t/a.
    The government also requires that the fuel ethanol is sold by government-set geographical reach. The 100 000 tons of fuel ethanol produced by Heilongjiang Huarun must all be sold in Heilongjiang province; Jilin Fuel is required to sell 100 000 tons per year in Jilin province and 200 000 tons in Liaoning province; Henan Tianguan is told to sell 130 000 t/a in Henan province and the rest 170 000 t/a in Hubei and Hebei provinces; Anhui BBCA must sell 100 000 t/a in Anhui province and the remaining 220 000 t/a in Shandong, Jiangsu and Hebei provinces.
   Gasohol was introduced in Heilongjiang, Jilin, Liaoning, Henan and Anhui provinces on trial basis before December 2005. Hubei provincial government started to promote the use of gasohol on December 1st, 2005. In the nine provinces where gasohol is promoted on trial basis, gasohol has taken a 20% market share in total gasoline consumption, saving 1 million tons of traditional gasoline per year. In 2006, gasohol sales went up 10% in Anhui province while 90% of the cars in Hubei are running with gasohol. Meanwhile, the Guangxi provincial government said in September 2009 that gasohol would be available at the region's gas stations since December 15th, 2007, and meanwhile traditional gasoline sales would be banned. The fuel ethanol sold in Guangxi is supplied by COFCO Guangxi.
   COFCO is at present China's largest fuel ethanol producer. The group has acquired 100% of Heilongjiang Huarun Alcohol Co., Ltd. and bought into Jilin Fuel Alcohol Co., Ltd. and Anhui BBCA Biochemical Co., Ltd. COFCO controls about 70% of China's fuel ethanol production capacity.

2. High costs

The production cost of fuel ethanol is relatively high in China but selling price and production efficiency are relatively low. Considering food security supply, China is unlikely to plant crops for fuel ethanol production on large scale as the United States and Brazil do. So to improve the resource utilization is an important way for domestic companies seeking sustainable development.
   The central government has rolled out a five-year subsidy plan at the end of 2003 for the nation's four state-designated fuel ethanol producers to counter high production costs. The Ministry of Finance also announced a flexible subsidy rule to fuel ethanol companies in 2007, aiming to prevent those state-designated producers from blind expansion with subsidy money.
   The five state-designated fuel ethanol groups have received RMB2 billion in state subsidies by 2009 from 2002, when the trial program started.

3. Problems

Cassava-based fuel ethanol projects have progressed slowly in China because of short supply and high prices of the raw material. At present, cassava is mainly used to produce modified starch in China, which represents much higher profit margin than for producing fuel ethanol. And that's why Henan Tianguan decided to build its 50 000 hectares cassava project for fuel ethanol production in Laos. The 200 000 t/a fuel ethanol project run by COFCO Guangxi started operation at the end of 2007 but has been in difficult situation (CCR2008 No. 11) mainly because of highflying cassava prices.
   In addition, though cassava is a non-grain crop, it can take land away from grains because the land suitable for planting cassava is also good for wheat and corn.
   Cellulose, which can be obtained from straw and husks, is cheap and in abundant supply. China is rich in the raw materials for cellulosic ethanol but the industrialization of the production has been realized yet worldwide. Should the technology be industrialized, the bottleneck for resource will largely be solved for China.
   COFCO announced in May 2010 to jointly build China's largest cellulosic ethanol plant with Sinopec Group and Denmark's Novozymes. Construction will be started in 2011 for the 10 000 t/a project. The ethanol production cost is RMB8 000 per ton at current market levels, far beyond gasoline rates. (CCR2010 No. 11)
   China lowered the import duty from 30% to 5% on ethanol and other modified ethanol from January 1st, 2010, which is likely to see a rise in fuel ethanol imports from Brazil. This for sure will add pressure on domestic fuel ethanol producers who are still relying on government subsidies.

4. Direction

The state will vigorously support the development of non-grain-based fuel ethanol, encouraging the use of cassava, sugar cane, sweet potatoes and sweet sorghum as feedstock. In the future China will introduce more incentives and subsidies to encourage the development of various non-food ethanol fuel products.

5. Suggestions

Abundant materials can be used to produce fuel ethanol including such grains like stale rice, wheat and corn and non-grain feedstock like sugar cane, sugar beet, cassava, sweet potato, sweet sorghum, arrowroot, ramie, potato, cottonseed, vegetable seeds, as well as straw and waste husks. But the rapid expansion in fuel ethanol capacity will see more same plants in a certain region, which could unbalance the ecology. So the feedstock of fuel ethanol should be diversified and be close to ethanol companies so transportation costs can be reduced.
   The fuel ethanol industry is dependent on the agriculture industry. There is different feedstock suitable for different regions so more coordination is needed among provinces. This will benefit China's grain supply security and the industry's sustainable development. According to China's renewable energy planning, Guangxi province, Chongqing, Sichuan and Hainan provinces should mainly plant sweet sorghum stalk while the Shandong region near the mouth of the Yellow River, the areas along the Yellow River in Inner Mongolia.
   At present China's fuel ethanol is mainly produced and sold in the domestic market. Henan Tianguan in 2005 leased 50 000 hectares of land in Laos to produce cassava as it tapped overseas resources to address the shortage in raw material supply. Meanwhile, more international cooperation is needed to improve the production technology in the domestic fuel ethanol industry and for its better development.

China's Fuel Ethanol Producer
Producer
    Capacity (2009 thousand t/a)    Feedstock    Share holding
Jilin Fuel Ethanol Co.
    400     corn        20% COFCO, 55% CNPC, 25% Jilin Grain Group
Heilongjiang Huarun Alcohol Co., Ltd.
    100     corn        100% for COFCO
BBCA Biochemical Co., Ltd.
    440     corn        20.7% for COFCO
Henan Tianguan Fuel Ethanol Co
    300     wheat       60% Tianguan Group, 40% Sinopec Group
COFCO (Guangxi) Bio-Energy Co
    200     cassava     85% for COFCO, 15%