China's 2020 Ethanol Blending Target Faces Obstacles

(Argus Media) China faces several challenges to hit an ambitious 10pc (E10) ethanol blending target in its gasoline fuel mix by 2020, according to participants at the Argus China Ethanol conference in Beijing.

The government announced the target last year to reduce congestion and support the domestic agriculture sector. Its policy of maintaining corn prices had up to 300mn t of the feedstock stored in 2016 with which to boost ethanol production, although current estimates are slightly lower at 200mn t.

But despite the surplus of raw material the country has a 10mn t production capacity gap with which to hit the E10 target. Gasoline consumption in 2016 was 120mn t that requires 12mn t of ethanol, whereas capacity is just over 2mn t.

Several domestic producers such as SDIC has stated aims to reach 4mn-5mn t of production in the next five years, but still it is unrealistic China will be able to meet its target without imports.

The US has been the main exporter of ethanol to China, delivering 17,000 b/d in December. But the prospect of a trade war between the two countries prompted last week the threat of an increase in ethanol tariffs from the US to 45pc from 30pc.

An additional hurdle is the cost of implementing this additional production, logistic and blending capacity, and whether it will be the government that bears the brunt of the burden or private-sector companies find it worthwhile to take it on themselves.

There will be competition from electric vehicles in the long term, which China is also pushing to improve sustainability. Around 500,000 electric vehicles were estimated on the road in 2016, rising to 770,000 in 2017 and forecast to reach 1mn this year. But there will still be ample need for traditional fuel in the short to medium term as 200mn gasoline-fuelled cars were already in circulation last year. READ MORE