BEIJING (Dow Jones)--China is expanding the use of ethanol as an alternative fuel to oil, but is unsure about methanol as the coal-based fuel is toxic and causes pollution, said a member of China’s top bioenergy policy-making panel.
A flurry of ethanol projects involving state-run giants, such as China National Petroleum Corp. (CNPC.YY), has spotlighted the boom in ethanol production in China, which the government sees as part of the solution to its energy dilemma as car use soars and the country becomes more reliant on foreign oil.
“China targets to use ethanol-blended gasoline for 75% of its total gasoline demand by 2010, or around 50 million metric tons out of 70 million tons,“ said Li Shizhong, deputy director of the Institute of New Energy Technology under TsinghuaUniversity.
However, there is a policy vaccuum on methanol use, with automakers holding back from producing engines that use the alternative fuel until a national standard is in place, leading some provinces to go alone with their own specifications for blending with gasoline.
Li told Dow Jones Newswires that the goal for ethanol output will be nearly four times as much as domestic production this year. China - the world’s third-largest producer of ethanol fuel after Brazil and the U.S. - will produce 1.3 million tons of ethanol this year, equivalent to 13 million tons of ethanol-blended gasoline.
Ethanol is typically derived from corn, cassava, sweet broomcorn and other crops. China currently blends 10% ethanol with 90% gasoline, which can be used in vehicles without making changes to engines.
“The government is stipulating criteria governing access to the ethanol industry in a bid to encourage investment from both state-owned companies and private Chinese companies,“ Li said, adding that this policy is likely to be approved by the year-end.
Speaking on condition of anonymity, an official from an ethanol trade company said: “If the government opens the industry to private Chinese companies, then it is likely to make it more efficient and the government can cut subsidies to the sector.“
Li said the government currently grants subsidies of CNY1,373 ($175) a ton of ethanol to producers.
But foreign companies are likely to find their entry to the sector barred for some time as the government strives to nurture the development of the industry, he said.
Chinese state-owned oil and agriculture companies have been actively building ethanol facilities in an effort to corner the growing market.
CNPC, the country’s largest oil producer by capacity, wants to build a plant in the southwestern province of Sichuan by 2010 to produce ethanol from sweet potatoes, with an annual production capacity of 600,000 tons.
China National Cereals, Oils & Foodstuffs Corp., better know as Cofco, China’s largest grain trader, started building a CNY1 billion ($126.6 million) ethanol plant in October in southern China’s Guangxi Zhuang Autonomous Region with an annual capacity of 400,000 tons. It also plans to invest CNY1.2 billion to build another 300,000-ton ethanol plant in the northern province of Hebei.
Cofco’s latest move was the trial operation of a pilot ethanol facility in the northern region of Inner Mongolia this week, Li said.
But the growth of the ethanol industry in China has led to a clash of interests between food security and the need to diversify the country’s energy sources.
Li said the use of non-grain crops, such as cassava and sweet broomcorn, will help solve the conflict and the government is encouraging farmers to plant non-grain crops for ethanol production.
Uncertain Methanol Market
Li said methanol’s future as an alternative fuel in China remains uncertain.
Used largely as a raw material in the manufacture of products such as resins, plastics and paints, experts have cited methanol’s considerable potential when blended with gasoline due to its comparatively low cost.
But methanol is toxic and can corrode car engines and technological breakthroughs are needed to overcome these problems, Li said.
Methanol can also pollute the atmosphere when used as a fuel as one ton of methanol can yield 9.5 tons of carbon dioxide, worsening the air quality in the country, he said.
“The central government hasn’t approved methanol as a legal alternative fuel, but is still studying its proper usage,“ Li said.
He doubted a recent report by the China Chemical Industry News in November that the government had confirmed methanol as an alternative automotive fuel in a meeting held by the State Council, the country’s Cabinet.
“I attended the meeting, but it was not a decision-making meeting - only a discussion with experts,“ Li said.
“Vice-Premier Zeng Peiyan, who chaired the meeting, only said: ’We’ll continue to study the fuel,’.“
The central government is unlikely to give final approval to methanol use in cars by 2010 without better technology becoming available, he said.
But this hasn’t stopped many companies from piling into the methanol market, with CNOOC Ltd. and coal miner Shenhua Group all involved in projects.
The National Development and Reform Commission, China’s economic planning agency, expects methanol production capacity to quadruple by end-2010 to 20 million metric tons.
If domestically-produced methanol is stopped from entering the fuel market in China by then, the glut may be exported overseas, dragging down global methanol prices in the process.
Source: Renya Peng contributed to the story, Dow Jones Newswires (8610) 6588 5848 renya.peng@dowjones.com