Beijing's ethanol use target has been affected by concerns over food security and the trade war with the US, writes Karen Teo
China is falling behind in its efforts to increase its domestic fuel ethanol supply, threatening a nationwide target set for this year.
Beijing wants Chinese carbon emissions to peak by 2030, and its push on bio-ethanol could help China meet this goal and reduce its reliance on crude imports. The government in 2017 proposed adopting the use of E10 gasoline — gasoline comprising a 10pc ethanol blend — nationwide by 2020 as part of reforms of the country's corn industry, which had surplus production at the time. Several provinces have announced local rollouts of the new standard since then.
Much of China's home-grown ethanol production comes from grains such as corn from key producing areas in northern China. The government has not pushed fossil fuel-based ethanol production using feedstocks such as syngas, coal or gas-based ethanol — which would help to supplement its corn-based ethanol output — over concerns about environmental pollution.
Based on China's apparent consumption of gasoline — net imports plus production — of 2.9mn b/d last year, the country would require around 12.5mn t (290,000 b/d) of ethanol this year and at least three times as much corn feedstock — around 38mn t — to meet the nationwide ethanol target. But it is likely to require far less than that in 2020. Apparent gasoline demand fell to 2.5mn b/d in the first half of the year as the Covid-19 pandemic decimated fuel use, reducing ethanol demand.
China produced about 900mn gallons (2.7mn t) of fuel ethanol last year, accounting for 3pc of global output, according to the US-based Renewable Fuels Association. This would be just 22pc of the projected ethanol demand for this year required under the nationwide adoption plan. China is estimated to have more than 4mn t/yr of fuel ethanol production capacity, suggesting run rates are at only two-thirds of capacity.
Food for thought
But Beijing is now encouraging rather than mandating local governments to roll out E10 gasoline use amid concerns about food security, and many have started to adjust their rollout plans. The Heilongjiang Soybean Association puts China's corn demand at around 285mn t this year and production at about 267mn t, leaving it with a shortfall of 18mn t, compared with 17mn t a year earlier. Corn output grew by 2pc to 261mn t last year from 257mn t in 2018.
As of the end of 2019, China had announced E10 rollouts in Liaoning, Jilin, Heilongjiang, Henan, Anhui, Guangxi and Tianjin, along with partial rollouts in Hebei, Shandong, Jiangsu, Inner Mongolia, Hubei, Guangdong and Shanxi. But progress in most of these provinces has been slower than expected. Currently only four northern provinces — Liaoning, Jilin, Heilongjiang and Tianjin— have been successful in promoting the widespread adoption of E10 gasoline.
Guangdong indicated earlier this year that only the cities of Zhanjiang and Maoming will adopt the standard. Shenzhen and Guangzhou, which together account for nearly half of the province's GDP, are not included.
China is also still involved in a trade war with the world's largest ethanol supplier — the US — which is making imports more costly and slowing its ethanol push. China in May received ethanol from the US for the first time in two years, Chinese customs data show. Nearly 9,000m³ of denatured ethanol was imported in May, while 97,000m³ was taken in the same month of 2018.
The slow take-up in E10 use has prompted some government officials to suggest delaying the mandate from this year or reducing the ethanol blending requirement from 10pc to 5pc and substituting the balance with oxygenates such as MTBE. But Beijing has not indicated that it is contemplating such a move.
| China ethanol and corn supply | mn t | ||
| China ethanol production | Global ethanol production | China corn production | |
| 2014 | 1.9 | 73.5 | 216 |
| 2015 | 2.4 | 76.8 | 225 |
| 2016 | 2.5 | 79.5 | 220 |
| 2017 | 2.6 | 80.9 | 216 |
| 2018 | 3.1 | 85.0 | 257 |
| 2019 | 2.7 | 86.8 | 261 |
| 2020* | na | 71.1 | 267 |
| *estimated | |||
| — National Bureau of Statistics, Renewable Fuels Association, US Department of Agriculture | |||
