APAC Biofuels Perspective

8/6/2019 APAC Biofuels Perspective

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Biofuels Polices in Asia: Trade effects onWorld Agricultural and Biofuels Trade

Keiji Ohga* and Tatsuji Koizumi **

* Professor, College of Bioresource Science, Nihon University, Japan

** Economist, Policy Research Institute, Ministry of Agriculture,

Forestry and Fisheries, Japan

USDA Agricultural Outlook Forum, March 2, 2007


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. Chinese bio-ethanol Program

The number of automobile in china is increasing

26,937

0

5,000

10,000

15,000

20,000

25,000

30,000

1985 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: China Statistical Yearbook 2005


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Chinese petroleum consumption is increasing and its

import of crude oil and oil products are rising too

Source: China Statistical Yearbook 2005

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

1980 1990 1995 2000 2002 2003 2004 2005

Export

Import


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The increase in petroleum consumption is causing serious air

pollution problems

In order to deal with energy security and the air pollution problem, the

Chinese government is strongly promoting the National Fuel- ethanolprogram

In June 2002, the government started to make the use of fuel-ethanol

blended gasoline mandatory


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Chinese Fuel-Ethanol Program

Motorization

Increasing petroleumconsumption

Concern for Energy Security

Fuel-Ethanol Program ( 2002

Inferior Corn

High Economic Growth

Concern for

Environment

Promoting

IndustrializationSurging gasolineprice

Demand


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The Chinese Fuel-Ethanol Program

In 2004, the government introduced the compulsory use of a 10%

ethanol blended in gasoline (E10) in provinces of Helongjiang, Jilin,Liaoning, Henan, and Anhui

The government expands the E10 program to 27 cities in theprovinces of Shandong, Jiangsu, Hebei, and Hubei in 2006


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Current and Future Fuel-Ethanol Production (1)

P rovince Company Nam e Raw mater ia l

2005

production

(MT/Year)

2007

production

capacity

(MT/Year)

Su pply locat ion

Supply

volume

(MT/Year)

HeilongjiangChina Resources

Alcohol Co.Corn 100,000 100,000 H eilongjiang 100,000

J ilin Corn 300,000 600,000 J ilin 100,000

Liaoning 200,000

Hena n Whea t 200,000 200,000 Hena n 86,842

Hubei (9 cit ies) 113,158

Hebei (4 cities)

Anhui Anhui BBCA Corn 320,000 320,000 Anhui 100,000

Biochemica l Co. Shandong (7 cit ies) 220,000

J iangsu (5 cities)

GuangxiChina Resources

Alcohol Co.Cassava 0 110,000 Guangxi 110,000

HebeiChina Resources

Alcohol Co.

Sweet potat o,

corn et c

0 230,000 Hebei 230,000

HubeiTian Gua n Fu el-

Eth an ol Co.Gra ins 0 100,000 Hubei 100,000

Tota l 920,000 1,660,000

Henan Tian Guan

Fu el-Et ha nol Co.

J ilin F uel Etha nol Co.

Source: Law Concerning Testing of the Extensive Use of Ethanol-Blended Gasoline for Automobiles

and Regulations Concerning the Conduct of Testing of the Extensive Use of Ethanol-Blended

Gasoline for Automobiles (2006)


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China ResourcesAlcohol Co, Heilongjang

(Corn)

Jilin Fuel EthanolCo, Jilin (Corn)

Anhui BBCABiochemicalCo. (Corn)

Henan TianGuan Fuel-Ethanol Co,Henan (Wheat)

China Resources AlcoholCo, Guangxi (From 2007,Cassava)

China ResourcesAlcohol Co, Hebei(From 2007: Sweat

potato, corn etc)

Tian Guan Fuel-EthanolCo.Hubei (From 2007,Grains)

Fuel-Ethanol Production Sites

Source: Law Concerning Testing of the Extensive Use of Ethanol-BlendedGasoline for Automobiles and Regulations Concerning the Conduct ofTesting of the Extensive Use of Ethanol-Blended Gasoline forAutomobiles (2006)


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Corn is the major source of fuel-ethanol in China

1) Corn

80 % of fuel-ethanol is made from corn in China

Ethanol facilities in Heilongjiang, Jilin, and Anhui use corn

2) Wheat

Wheat is used in Henan

3) Cassava

The Guagxi Zhuang autonomous region plans to build a fuel-ethanol plantThe plant is scheduled to begin operations in October of 2007 at a

production capacity of 110,000 MT

4) OthersPotato, sorghum, rice, sugar, and lignocellulose are on experimental stage

for fuel-ethanol production
http://images.google.com/imgres?imgurl=http://www.tepco.co.jp/cc/press/betu06_j/images/060208_01.gif&imgrefurl=http://www.tepco.co.jp/cc/press/06020801-j.html&h=156&w=281&sz=35&hl=ja&start=3&tbnid=3xHOJHY-v6fbrM:&tbnh=63&tbnw=114&prev=/images%3Fq%3D%25E3%2582%25AD%25E3%2583%25A3%25E3%2583%2583%25E3%2582%25B5%25E3%2583%2590%26svnum%3D10%26hl%3Dja%26sa%3DG


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Chinese fuel-ethanol production cost and agricultural production

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

0 1,000 2,000 3,000 4,000 5,000 6,000

Cassava

Sorghum

Wheat

Corn

Production(103 tons)

Production cost (Yuan/ton)

Note: Production data is derived from FAS, USDA, PS&D (2006)

Production cost is derived from the Chinese National Development and Reform Commission


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Chinese ethanol production cost is higher than other producers

0.44

0.20

0.25

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

China Brazil USA

US$/Liters

Note: Chinese production cost is derived from the Chinese National Development and Reform Commission.

Brazilian cost is derived from Sao Paulo Sugarcane Agroindustry (2005)The US cost is derived from USDA (2006)


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Corn use for Fuel-Ethanol production

Although Chinese central government ordered to use inferior corn for

fuel-ethanol production, facilities in Heilongjiang and Jilin use normalcorn

If China continues to expand corn-based fuel-ethanol production,

corn utilization ratio for ethanol will increase

Chinese central government stated to regulate corn-based fuel-ethanol production (Statement from National Development and ReformCommission in 21/12/2006)


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Chinese corn production, consumption and ending stocks

Fuel-ethanoltest plan

started (2002)

Regulation for corn-based ethanol

production(2006.12)

E10 Programs in5 states

(2004.10

E10 Programs in 27cities (2006

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000Consumption

Production

Ending Stocks

95/96 06/0704/0502/032000/0197/98

(103 tons)

Source: FAS, USDA, PS&D(2007).


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If China expands ethanol production from cassava, China will have

to rely on imported cassava

Source: USDA, Grain Report, China, Peoples Republic of Bio-fuels An Alternative Future for

Agriculture, CH6049 (2006).

Chinese cassava imports

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

2000 2001 2002 2003 2004 2005 2006

( Jan- M ay)

Thailand

Vietnam

Indonesia


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Summary (Chinese Bio-Ethanol Program)

80% of fuel-ethanol was made from corn in China in 2005

Chinese central government wants to regulate corn-based ethanolproduction

Chinese government wants to diversify the sources of fuel-ethanolproduction, especially to cassava

Technological innovation is required for developing cassava-basedfuel-ethanol production


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Malaysian Biodiesel ProgramMalaysian petroleum consumption has increased rapidly

since 1990

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Production

Consumption

Source: OPEC, OPEC 2005 (2006)


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Malaysia is the second largest producer of palm oil

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

1980/81 90/91 2000/01 06/07

Indonesia

Malaysia

Rest of

the

World

Source: FAS, USDA, PS&D. (2007)
http://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpghttp://www.procnews.com/photos/palmoil_nuts2.jpg


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Malaysia is the world largest exporter of palm oil

0

5,000

10,000

15,000

20,000

25,000

30,000

1980/81 90/91 2000/01 06/07

Malaysia

Indonesia

Rest of the

World

Source : FAS, USDA, PS&D(2007)


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International palm oil prices are unstable

Note : Palm Okein RBD,Mal.cif.Rottesdam

Source: Oil World, Oil World Annual 2006 (2006),

Oil World, Oil World No.51/52, Vol.49. (2006)

0

100

200

300

400

500

600

700

800

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10

US$/Tonne

1998 1999 2000 2001 2002 2003 2004 2005 2006


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Malaysia is promoting National Biofuel Policy

National Biofuel Policy

(August 2005)

Energy Security

Depletion of fossil fuel

Escalating petroleumprices

Agricultural Development

EnvironmentalConcern

Unstable palm oil price

Biodiesel boomin EU


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National Biofuel Policy (Objectives)

Supplementing the depleting supply of fossil fuels with renewable

resources

Mobilizing local resources

Exploiting local technology to generate energy for the transportation and

industrial sectors

Enhancing exports of biofuels

Benefiting from the spin-off effect of more stable prices of palm oil


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National Biofuel Policy (Implementation Plan)

Short term

Malaysian standard specifications of B5 (5 percent processed palm oil

and 95 percent diesel) will be established

Selected government departments with their fleets of diesel vehicles will

participate in trials for using B5 diesel

B5 diesel pumps for the public will be established at selected stations


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National Biofuel Policy (Implementation Plan)

Medium Term

Malaysian standard specifications of palm-oil-based biodiesel for

domestic use and export will be established

Legislation to mandate the use of B5 diesel will be passed and

enforced

Long Term

The proportion of processed palm oil in the diesel blend will be

gradually increasedGreater uptake of biofuels technology by Malaysian companies

and foreign companies abroad


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Biodiesel production in Malaysia

Biodiesel production in Malaysia is estimated 158 thousand tons in

2006 and 1.3 million tons in 2007

(PECC, Pacific Food System Outlook 2006-2007)

Government has granted licenses to 32 biodiesel plants, with

potential annual capacity of 2.6 million tons(PECC, Pacific Food System Outlook 2006-2007)

If Malaysia promotes B5 program in all regions, 500 thousand tons ofbiodiesel will be newly required

Malaysia may export biodiesel to European markets at the range of300-350 thousand tons by 2010 (Asian Palm Oil for Euro Biodiesel, 2005).


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Main Biodiesel Projects in Malaysia (2006)

MPOB, Golden

Hope PlantationBhd(60,000t)

MPOB, JC CjangJoho(60,000t)

Golden HopePlantations Bhd

(30,000t)

Source: F.O.Licht, World Ethanol & Biofuels Report, Vol.4, No11,2006


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Biodiesel Production costs in Malaysia

Raw material cost contributes about 80 percent of total production

cost

(US $/Liter)Raw m aterial

Crude Palm Oil (CPO) 0.39

M ethanol 0.02

Conversion from CPO to Biodiesel

Capital Cost 0.07

Variable Cost 0.05

Total 0.54

Note: Based on date from Japan Petroleum Energy Center (2004).


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Production Costs (International comparison)

0.54

0.43

2.9

0

0.5

1

1.5

2

2.5

3

3.5

Palm Oil (Malaysia) Palm Oil (Brazil) Rapeseed (Japan)

Note: Malaysians cots is based on date from Japan Petroleum Energy Center (2006).

Brazilian cost is derived from Biodiesel in Brazil (2005)

Japanese cost is derived from Japans Ministry of Agriculture, Forestry and Fisheries

P l Oil d i i M l i


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Palm Oil production in Malaysia

Malaysian palm oil production will expand to the future

Particularly in Sarawak, East Malaysia

Source: MPOB (2005)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1998 1999 2000 2001 2002 2003

East

M alaysia

Peninsula

M alaysia


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Malaysias potential for palm area expansion is estimated to be

about 2.0 million ha, which can produce 10 million ton of CPO

CPO Production in Malaysia

Source: Japan Petroleum Energy Center (2004)

Current palm Area 3.6 m illion ha

Potential area expansion About 2.0 m illion ha

Total national land area 33.0 m illion ha

Current production 12.1 m illion t /year

Production prospect14 m illon ton in 2005

19 m illion ton in 2020


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Malaysian biodiesel export

Malaysia wants to export biodiesel to European market

Malaysian palm oil may become a raw material of European biodiesel

production

Whether European market chooses CPO or biodiesel from Malaysia is

uncertain. It depends on the quality and cost of biodiesel


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Benefits for Malaysia

New demand for palm oil

Mutual beneficial effects on petroleum and palm oil sectors

Efficient utilization of raw materials

Mitigating the effects of petroleum price escalation

Savings in foreign exchangeEnvironment-friendly source of energy

Achieving socio-economic safety net


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Concerns for biodiesel expansion

Expansion of palm oil production is possible in Malaysia

1.0% of palm oil production is used for biodiesel in 2006, and 7.9 %

of palm oil production will be used for biodiesel in 2007

The expansion may cause a high international palm oil price


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In Malaysia, 11% of the total land area is already devoted to palm oil(F.O.Licht 2006)

Between 1985 and 2000, the development of palm oil plantations was

responsible for an estimated 87 % of deforestation in Malaysia (Friends of theEarth 2005)

Sustainability of palm oil production and biodiversity are main concern

for expanding bio-diesel production


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Summary (Malaysian Biodiesel Program)

Malaysia will expand biodiesel production from palm oil

Malaysia may meet both domestic and international demand

Malaysian biodiesel programs can contribute to mitigate energy in security and be

beneficial for palm oil producers

However, this program may cause to increase international palm oil price

This program can damage for sustainability of palm oil production and

biodiversities in Malaysia


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Japanese Bio-Ethanol program

Preventing global warming

Development of strategic industries

Vitalization of rural and farming communities

Biomass Nippon Strategy was formulated in December 2002


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Revised Biomass Nippon Strategy

Kyoto Protocol was put into effect in February 2005

Revised Biomass Nippon Strategy was formulated in March 2006

Promotion of utilization of biomass for transportation fuel, particularly

of domestic biomass

Current Bio-Ethanol Production


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Current Bio Ethanol Production

Japanese bio-ethanol production is at an experimental stage

Current production level is 30 kl (April 2006)

Tokachi area, Hokkaido (From wheatand corn unsuited to food)

Shinjo city, Yamagata (From sorghum)

Sakai city, Osaka (From wasted woods)

Maniwa city, Okayama (From wasted woods)

Ie village, Okinawa (From Molasses)

Miyako Island, Okinawa (From Molasses)

For Further Promotion of Domestic Bio Ethanol


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For Further Promotion of Domestic Bio-Ethanol

The abandoned arable land can be used to grow crops for bio-ethanol

production

Farmland planted with crops may be used to provide raw materials for

bio-ethanol

Technological innovation is the key

E pected Res lt


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Expected Result

Food and Agriculture

Reinforcement of international competitiveness to agriculture

Improvement and maintenance of food supplying capability

Environment

Contribution to fulfillment of the target dedicated by the Kyoto Protocol

Actions in consideration of Post-Protocol situation

Energy

Action to cope with rising crude oil price

Diversification of energy sources (energy security)


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Production cost and fuel-tax need to be reduced to expand bio-ethanol

production in Japan

53.853.8

53.8

52.0

76.4

7.0

66.2

46.0

83.4

18.2

53.8

0

20

40

60

80

100

120

140

160

Gasoline Dom estic M olasses

Im ort Tariff

Im port

PriceGate price

from oil

M anufacture

Fuel

Tax

Processing

Cost

Raw

M aterial

Cost

121.0yen

148.4yen 144.2yen151.8yen

Im ported Ethanol

from Brazil

W heat (Non-food

grade)


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Summary (Japanese Bio-Ethanol Program)

Japanese government promotes bio-ethanol production and

utilization for automobile

Securing raw materials for bio-ethanol, reduction of production cost,

tax reduction for bio-ethanol are needed to expand bio-ethanol

production in Japan

Further technical innovation is the key factor to promote domestic

bio-ethanol production


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Concluding Remarks

The governments in Asian countries are promoting bio-fuel programs

Their raw materials for bio-fuels have various sources

Increasing bio-fuel consumption would compete with food and feed

The governments in Asian countries are working for bio-fuel programs,

which will not conflict with food security


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APAC Biofuels Perspective

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