Ethanol blending target faces feedstock challenges on its path
India's policy move to achieve a more than three-fold growth in ethanol blending rate in gasoline in less than five years is surely a step in the right direction, but to many market experts and industry leaders it sounds like an over-ambitious journey.
New Delhi in June brought forward its target to achieve 20% ethanol blending with gasoline to 2025 from the previous target year of 2030.
"India has big aspirations. Their ethanol production capacity is increasing," said Loren Puette, biofuels analyst at S&P Global Platts. Platts Analytics estimates that India's fuel ethanol consumption will reach nearly 3 billion liters in 2022 and 3.2 billion liters in 2023. This would be up from an estimated 2.7 billion liters in 2021, equating to an ethanol blending rate of roughly 6.1%—displacing 30,973 b/d of fossil fuels.
o move closer to the target, India would need to push for a significant volume of ethanol production from grains, in addition to sugar, which is currently the primary feedstock.
"To achieve the 20% target, India needs to expand its ethanol production to 10.2 billion liters—including 5.5 billion liters from sugarcane and a whopping 4.7 billion liters from grains," according to the National Institution for Transforming India (NITI Aayog), a government-backed policy think tank.
In the current ethanol supply year 2020-21 (December-November), India is likely to produce 3.3 billion liters of ethanol, out of which 2.9 billion were supplied from sugarcane while only 42 million liters were produced from grain distilleries, the NITI Aayog report said.
India is looking to increase ethanol blending to mostly cut its reliance on fuel imports and give its agricultural sector a boost. India currently imports 85% of its oil requirements. According to NITI Aayog, a successful E-20 program can save the country $4 billion annually.
India is also a net importer of ethanol. It imported around 722 million liters of ethanol in 2020, mostly from the US. It is unlikely that India will continue to rely heavily on imports as it will fail the government's purpose to cut reliance on external supply. This further supports the need to expand domestic ethanol production. But the challenges are enormous.
"To achieve this sharp rise in the ethanol output from grains, India needs to first increase its capacity to produce ethanol from a steady flow of cheap food grains like rice and corn over the next few years," an official with a multinational company said.
Sugarcane is currently the primary feedstock for ethanol production in the country, but environmental limitations may give way to higher corn usage for ethanol in the coming years.
India is the world's third-largest carbon emitter and has been facing increasing pressure on its natural resources with a growing population.
NITI Aayog has noted in 2019 that India is facing a very significant water crisis. By 2030, the country's water demand is projected to be twice the available supply, implying severe water scarcity for hundreds of millions of people.
A panel from the think tank in 2019 recommended incentivizing farmers to stop growing sugarcane, hoping to reduce cultivation by up to 20% in some areas to protect the depleting water levels. And in a recent in-house study to understand the relationship between ethanol production and water usage, NITI Aayog concluded that sugarcane is the most lucrative food crop for ethanol, but it has the highest water consumption per acre. The second most lucrative option—rice—is also water-intensive.
NITI Aayog estimated that sugarcane and rice combined are using 70% of the India's irrigation water, depleting water availability for other crops. This points to a need for change in crop pattern, to reduce dependence on particular crops, and to move to more environmentally sustainable crops for ethanol production.
Corn to the rescue?
This leaves corn as the most environment-friendly option. Corn is one of the least thirsty crops in the race and can save the country a lot of water if chosen over sugarcane.
"Amongst grains, corn is the least water-intensive crop that can be used for ethanol production, although the rate of conversion to ethanol is lower than for rice and broken rice," NITI Aayog said. "The production of ethanol from corn and such other low water-consuming feedstock may be encouraged."
India currently has a problem of plenty with sugar and boosting sugar-based ethanol production can address the blending issue in the immediate future. But corn may increasingly turn out to be the fuel of choice in the longer term, keeping environmental concerns in mind.
India's corn trade in global markets has been a bit irregular, with the country both importing and exporting the coarse grain sporadically. Although there has been a steady growth in corn output to 30.2 million mt in 2020-21 (October-September), from 22.6 million mt in 2015-16, there is a lot of volatility in corn trade. Most of the corn in the country is used by poultry and starch manufacturers.
"There is no stability in India's corn trade. In one year, it imports a record quantity of corn while the next year it is out there trying to export it," an official with an ethanol manufacturing firm said.
Most of the corn in India is used by poultry and starch manufacturer. If the use of corn for ethanol indeed picks up, it can provide a stable market for India's corn sector.
(Credits : spglogal.com)