E10 in China and Potential Market Devastation in Store for MTBE: Just When You Thought It Was Safe to Go Back in the Fuel Pool

by Steven Slome, Ron Cascone, and Matthew Morton (Nexant Inc./Biofuels Digest) As of mid-2019, the Chinese government has only six months to make good on its 2017 pledge to roll out mandatory ten percent ethanol content in gasoline (E10) on a nationwide basis by 2020. While China’s unique economic and political structure may theoretically allow it to achieve this ambitious target within a relatively short time period, such a move would present significant challenges. China’s use of fuel ethanol is currently confined to a relatively small number of provinces and cities, accounting for only 3 percent of national gasoline consumption. The implementation of the government’s new target in 2020 would entail a very steep rise in demand, equivalent to around 11 million tons above 2018’s level.

China’s ethanol plan raises a number of questions. Firstly, in the context of today’s global ethanol market, it is unclear from where, and in what form, the country intends to source the ethanol volumes required to meet its goals.

Secondly, implementation of a national E10 mandate would most likely come at the expense of MTBE, of which China is the world’s largest consumer. The elimination of almost half of global MTBE demand by a successful E10 roll-out would mean significant uncertainty for local and international producers, as well as for the market for MTBE feedstocks methanol and isobutylene.

ETBE, produced with ethanol instead of methanol, has been used in Europe and Japan as a way to get ethanol into gasoline, while not upsetting the existing value chain, and minimizing the need for investment in new ethanol blending infrastructure. ETBE could conceivably play a role in the Chinese drive for E10; if domestic producers of MTBE no longer have a market for their product, they may consider switching production to the ethyl ether. Additionally, with tariffs on US products, there is a question of whether US ethanol could be converted to ETBE in another country and shipped to China without receiving the US tariff. Currently, there are no stated plans to switch to ETBE to achieve E10, as the experience in the US and Brazil with splash blending to achieve E10 (and in Brazil considerably higher blends, up to pure ethanol), means that the ETBE solution is not necessarily required.

Currently, the prices of ethanol have come down sufficiently to put ETBE costs at parity with MTBE on a raw materials basis.

Nexant is examining the possible outcomes of several implementation scenarios in a three-volume report, “Biofuels in China: An existential threat for MTBE?” The report is due out this fall, and will focus on the impacts to Markets (Volume 1), Pricing (Volume 2), and Cost Curves (Volume 3) under different scenarios. READ MORE

Excerpt from Ethanol Producer Magazine: A report filed with the USDA Foreign Agricultural Service’s Global Agricultural Information Network indicates that China’s ethanol blend rate is expected to reach only 1.8 percent this year as support wanes for previously announced biofuel policies.

China had planned to implement a nationwide E10 mandate by 2020. While E10 remains the official policy, the report notes that actual blend rates vary and are often significantly lower, even in locations with an E10 program. The GAIN report discusses rumors that China may unofficially move to an E5 mandate in the coming years, but notes the government insists E10 remains in force. READ MORE