High Oil Prices Bolster Global Ethanol Market
Date: 11-Jan-05
Country: UK
Author: James Kilner
With crude oil prices climbing toward $46 a barrel ethanol has become an economically viable import for energy- hungry countries to use in industry or as a blend for vehicles, said Sergey Gudoshnikov, senior economist at the International Sugar Organization (ISO), an intergovernmental body.
"If oil prices stay like this for the next three, four or five years then we will see a massive industrial development," Gudoshnikov told Reuters in an interview.
Global ethanol usage is insignificant when compared with fossil fuels, as costs of production are now much higher.
But analysts believe the right conditions are in place for a longer term development of the global ethanol industry as high oil prices reduce the cost differential with ethanol production.
"At the moment it (the ethanol market) is just at the embryonic stage," Gudoshnikov said.
"Before we see meaningful production in Thailand, Australia and India, we need meaningful consumption in Europe, Japan and probably China," he added.
Ethanol is an alcohol-based alternative fuel produced by fermenting and distilling starch crops that have been converted into simple sugars.
It can be produced from any biological feedstock such as sugar cane or corn (maize).
Ethanol is used to improve the emissions quality of petrol and has the potential to reduce dependence on oil.
Last year distillers produced almost 41 billion litres of ethanol, a record amount, said Christoph Berg of German commodity analyst F.O. Licht.
"We will see continued growth next year with the potential to go up to 43 billion tonnes," he told Reuters.
Corn (maize)-distilled ethanol from the United States and ethanol derived from sugar cane in Brazil currently dominate world ethanol production.
Analysts say the proportion of cane sugar production in Brazil devoted to ethanol, now around 50 percent, could rise, especially if demand for vehicles using ethanol in Brazil remains buoyant.
But Berg said high import tariffs are holding back the development of the global ethanol market.
"If trade tariffs were abolished in one go, there would be an explosion in ethanol trade, because the cost of production in Brazil is much lower than elsewhere," he said.
While there is no tariff on crude imports, as an agricultural product ethanol is heavily taxed around the world.
Last year Brazil exported 2.3 billion litres of ethanol to India, the United States and the Caribbean, but is capable of selling much more, Berg said.
Production costs in Brazil are around half of the United States, he said, but Brazilian imports to the United States face a 54-cents-per-gallon tariff.
Ethanol futures settled unchanged on Friday with the February contract ending at 95 cents a gallon.
