Oil firms, carmakers back ethanol program

The country’s bid to be a major producer and user of fuel ethanol as an alternative to gasoline kicked off to a good start after one of the three biggest local oil companies and a major car manufacturing firm have agreed to support its use, The STAR learned.

Energy Secretary Vince Perez, who will leave for Thailand today upon instructions from President Arroyo to learn more about Thailand’s latest venture into ethanol production, revealed that a major oil player has committed to promote the ethanol program in the Philippines.

During the launch of Philippine Fuel Ethanol Alliance (PFEA) spearheaded by the local sugar industry Friday night, Perez likewise disclosed that a Japanese car manufacturer in the Philippines said it is willing to bring in ethanol-friendly engines. Ethanol or ethyl alcohol is produced from the fermentation of grains and sugar. At least 12 countries are currently using ethanol either as pure fuel or blended with gasoline.

In another development, Perez said the Malampaya natural gas consortium has agreed to commit for a period of seven years a fixed price for the supply of compressed natural gas (CNG) for use by public buses as fuel. This was after local bus operators said they would only convert to using CNG if there is a 30 percent pricing differential between the latter and diesel.

"With this development, we expect to launch the CNG program soon," he added.

But while the use of ethanol and CNG as alternatives for gasoline and diesel are facing a bright future, the success of the cocomethyl ester program appears uncertain, Perez disclosed. President Arroyo last April issued a directive for oil companies to use one percent cocomethyl ester in their blend.

Perez said that since the oil industry and the coconut sector did not pre-agree on a long-term pricing, there is no longer any economic incentive for the oil companies to use cocomethyl ester after its price rose to P60 per liter.

He asked sugar industry leaders to commit a minimum volume and a maximum selling price for ethanol for a period of seven years which Francisco Varua of the Philippine Sugar Millers Association (PSMA) said can easily be worked out.

"We can use the world market price for sugar and factor in inflation to come up with a fixed price for seven years. It is just like a forward contract," Varua said.

At a five percent ethanol-gasoline blend, the country could save as much as P5 billion a year. The Philippines imports about 46 percent of its fuel requirements, which last year meant $3.5 billion in foreign exchange spent. A five percent blend however would require 294.5 million liters a year in local ethanol production. Currently, local beverage alcohol producers produce only 265.65 million liters a year.

But Perez emphasized that government is serious in promoting ethanol production and use in the country, especially with a regime of high petroleum prices and with 69 percent of gasoline being imported.

"We could create a market for ethanol through legislation or an administrative order. The Development Bank of the Philippines also has a window to finance new distilleries. We in government through legislation can create the tax differential to promote ethanol either through a lower excise tax for ethanol or a higher tax for imported fossil fuel," he said.

The energy official likewise proposed that any new excise tax on petroleum products should set aside a few centavos for research and development on alternative fuel sources like ethanol.

The local sugar industry has trained its sights on ethanol production in order to address the increasing sugar production surplus in the country and prop up prices.

The Sugar Master Plan estimates that the production surplus by 2007 will reach as high as 340,000 metric tons in 2007 and 820,000 MT by 2013.

There are plans to build an ethanol processing plant in the country costing between P120 to P500 million that can produce about 20,000 to 50,000 liters of ethanol a day. The newly-formed PFEA, which includes the Sugar Regulatory Administration, the Center for Alcohol Research and Development Foundation (CARD), an organization of distillery companies, the Sugar Master Plan Foundation, and the PSMA have committed in a memorandum of understanding to produce fuel ethanol primarily from sugar and to work for a mandatory blend of ethanol and gasoline for automotive use through legislation or other policy instruments.

As a biofuel, ethanol is safe, non-polluting, non-toxic, and has lower volatility compared to gasoline and provides better engine performance by preventing engine deposits. It is increasingly being used worldwide as a fuel blend with gasoline to enhance octane rating and reduce toxic emissions.

World sugar leader Brazil pioneered ethanol fuel in the 1970s to combat rising energy costs. The ethanol fuel market is expanding by more than three percent per annum, with global consumption seen rising to 41.9 billion liters by 2006 from 34.7 billion litters in 2000. Right now, ethanol fuel consumption is led by South America accounting for 38 percent, and Asia, 20 percent.

The world’s biggest ethanol exporters include Brazil, the US, France, South Africa, and the United Kingdom. Brazil’s exportable surplus is about one billion liters while Japan is the largest importer at 450 million liters per year.

The latest to join the growing shift to ethanol use is Thailand. In 2002, its government has endorsed to increase ethanol-gasoline blend to 10 percent in 10 years. Eleven distilleries annexed to sugar mills are being constructed with licenses soon to be approved.

Perez said that representatives from the energy department together with the Philippine National Oil Co. (PNOC) and the SRA are leaving for Thailand to find out how to replicate the latter’s success in ethanol production as per instructions from the President.

Any gasoline engine can run on commercial blends of up to 15 to 20 percent ethanol depending on the vehicle. Brazil uses a 24 percent ethanol/gasoline blend from 22 percent in 2002.

But like Thailand, which started with a five to 10 percent blend, Perez said the Philippines could start with a five percent blend.

Meanwhile, the European Commission will require minimum biofuel share of transport fuel of two percent by 2005, 5.75 percent by 2010, and 20 percent by 2020.

In the US, ethanol is the alternative to methyl tertiary butyl ether or MTBE which is now being phased out due to its adverse impact on groundwater. Its fuel ethanol production has grown to four billion gallons or a 200 percent growth from 2003.