Japan Delays Biofuel Introduction, Scarcity Seen
Date: 11-Jul-05
Country: JAPAN
Scarce availability of domestically produced ethanol made from grains and possible heavy dependance on imports are blocking gasoline blended with bioethanol from hitting the market, analysts said.
As well as requiring huge investments in facilities to make bioethanol-blended gasoline, the ambitious government policy would also create risks for the oil industry involving import costs and possible volatility in freight rates.
The Environment Ministry in Japan, a country that consumes about 1.04 million barrels of gasoline a day, had aimed to introduce auto fuel containing 3 percent bioethanol -- often made from wheat, soybeans and sugar cane -- on the retail market at the start of the fiscal year from April 2005.
The government also wants all retail gasoline to be replaced with ethanol-blended auto fuel by 2012, eventually helping to cut carbon dioxide emissions by as much as 2 million tonnes a year.
"Bioethanol is a great idea for cutting CO2 emissions, but it's unrealistic to expect bioethanol-blended gasoline to start selling in the retail market soon," said an environmental analyst, who asked not to be named.
Such gasoline, called E3, has yet to become available at Japanese gas stations. Gasoline with bioethanol content of up to 5 percent is sold in some European countries, and varieties with up to 10 percent bioethanol are used in the United States.
"Japan is the world's second-biggest gasoline market after the United States, and in order to replace 3 percent of such a big market, you need a very large amount of bioethanol," said Hidetoshi Shioda, an energy analyst at Nomura Securities.
"Japan would have to import all such ethanol for gasoline blending, mainly from Brazil."
Brazil is the world's largest bioethanol producer.
Shioda and other analysts said the heavy reliance on imports would cost refiners more than just their facility investment, which the government estimates at more than 10 billion yen ($89.3 million) every year to 2012 for the industry.
"Brazil is on completely the opposite side of the globe from Japan. Importing bioethanol from there would take more time than importing crude oil from the Middle East," from which Japan gets nearly 90 percent of its crude, Shioda said.
"That could raise concerns over other risks like international freight costs, and international grain markets."
Japan's top auto makers, including Toyota Motor Corp. and Honda Motor Co Ltd., said they did not currently make cars commercially that can run on bioethanol-blended gasoline.
"In terms of our environmental approach, we focus on the production and development of hybrid (gasoline-electric) cars," a Honda spokesman said.
