Year 2009

 January 2009

Ethanol plans axed on low use
Oversupply makes business unviable intact

Business

By YUTHANA PRAIWAN

More than half of the 47 licensees for ethanol production are unlikely to get their production plans off the ground in light of a steep fall in oil prices, a senior Energy Ministry official said yesterday.

The government awarded 47 licences for a total daily capacity of 10 million litres of ethanol five years ago when the country first embarked seriously on alternative-fuel development.

However, oil prices have fallen to only US$43 a barrel currently from a peak of $147 in mid-July last year, offering almost no incentive to motorists to fill their tanks with gasohol, a mixture of ethanol and petrol.

According to Praphon Wongtharua, director of alternative fuels of the Department of Energy Development and Efficiency (DEDE), Thailand has a total production capacity of 1.57 million litres but the current utilisation rate is only 1.2 million litres a day, which in turn is nearly 300,000 litres more than the demand of 930,000 litres.

"Demand for ethanol will probably rise to 1.2 million litres a day by the end of this year," he said.

He said only 11 licensees were now producing ethanol, with a daily output of 1.2 million litres. Another two will be ready to start production with daily capacity of 400,000 litres. They are a joint venture between Thai Oil Plc and Mitr Phol and Padaeng Industry Plc in Mae Sot, and a subsidiary of KSL Plc in Ban Pong, Ratchaburi.

Another 300,000 litres a day will also come from a 70%-complete plant in Sa Kaew, a joint venture between ES Power and Taiping Co.

As a result, a surplus of approximately one million litres a day will be likely by the end of this year.

"So it is no surprise if other ethanol producers, whose plants have not yet been built, automatically abandon their licences on speculation of extremely poor business prospects," Mr Praphon said.

The Energy Ministry admitted that these ethanol licensees had not yet confirmed their operation plans with the DEDE.

"Given the projected huge surplus over the next several years and no definite date when mainstream petrol fuels will be phased out, the investments carry a very high risk," he said.

Mr Praphon also criticised the lack of infrastructure support such as trains, ethanol pipelines and depots.

"Compared to other ethanol exporters like Brazil, Thailand's industry has expensive logistics costs of around 25% to 30% of total costs, which is terribly high," he said.

Furthermore, this year Vietnam will likely have a capacity surplus, resulting in possible exports, and he sees it as another rival in international ethanol markets.

He hopes the Energy Ministry will maintain the policy of low retail prices of gasohol for as long as possible to encourage motorists to use the alternative fuel.

Currently, the spread between the premium petrol price and gasohol 95 is 13.30 baht a litre and 5.50 baht for regular petrol.

Sirivuthi Siamphakdee, chairman of the Thai Ethanol Manufacturers Association, also foresees a massive surplus of ethanol supply in the coming years. Yet he insists that the best solution is regulatory changes.

Among them is for the government to have separate laws for refined alcohol and liquor instead of using the same regulation as for liquor, which is very strict.

Mr Sirivuthi also agreed that demand would rise far more slowly than supply. Therefore, he projects no more than 20 out of the 47 licensees will go ahead with their production plans.

"The law change will help these producers because they can ship the excess ethanol output overseas more easily," he said.

"Thailand lost a chance to make money from our plentiful supply of biofuel over the past six months because of this unnecessary statute."

By Bangkok Post

January 28, 2009

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