Ethanol producers in India are urging the government to support the sector as lower demand and tight margins persist, particularly as global crude oil uncertainty creates an opportunity to prioritise sustainable fuels.
The ethanol industry is calling for the diversification of ethanol usage, increases in blending mandates, and higher prices.
The war in the Mideast Gulf has been a "wake up call," director of Shree Renuka Sugars, Atul Chaturvedi told Argus on 26 March. The government should use domestically produced ethanol wherever possible to ensure steady demand, he said.
Chaturvedi particularly stressed considering ethanol for industrial use, including using ethanol burners for domestic and industrial cooking applications. Unlike for gasoline blending requirements, India does allow ethanol imports for non-blending purposes.
India's ethanol production capacity has exceeded its fuel-blending requirements, creating a structural surplus which could be directed toward industrial applications, he added.
But prices for domestic ethanol are regulated by the government, rendering it less competitive, while imported ethanol is consistently cheaper than its domestic counterpart. This regulation reduces the allure of domestic ethanol to be purchased for industrial use.
The average price of domestic ethanol stands at $1,102/t according to the oil ministry's latest data, significantly higher than Argus' last cfr Mumbai ethanol assessment of $770/t on 31 March.
Most ethanol India imports for industrial use is from the US, which is typically the world's lowest-cost producer.
Domestic fuel ethanol industry also faces pricing challenges
Adding to a structural surplus, Indian ethanol producers are grappling with squeezed margins as costs have been rising, while ethanol sales prices remain capped.
Sugar prices rose sharply in March after shipping disruptions at the strait of Hormuz pushed crude prices higher. Elevated crude prices typically push sugar mills to boost ethanol production and limit sugar output.
But this price lift did not extend to sugarcane based ethanol in India, where prices are fixed through government tenders. Producers sell ethanol to oil marketing companies (OMCs) for gasoline blending at fixed prices even when production costs increase, creating a significant opportunity cost compared with selling sugar.
The sugar industry has been asking the government to price ethanol from different feedstocks at parity for a long time, Chaturvedi said. The sugarcane-based ethanol prices should align with the fair and remunerative price at which maize ethanol is produced, he said. Grain-based distilleries benefit from lower raw material costs, making maize-based ethanol comparatively more advantageous under current conditions.
The government price of C-heavy molasses-based ethanol, which is derived from sugarcane, is 57.97 rupee/litre ($895/t). Maize-based ethanol is priced at Rs71.86/litre ($1,110/t).
Corn accounts for 31pc of ethanol feedstock, with sugar contributing 49pc and the rest coming from surplus rice and damaged foodgrain.
Prices of ethanol from maize command a premium over sugarcane-derived grades, further destabilising the sector and reducing purchases from sugar mills that use molasses.
India's accumulating unused ethanol stocks pose an economic challenge as the country's production capacity grows, Indian Federation of Green Energy (IFGE) Sugar Bioenergy Forum co-chairman Dilip Patil told to Argus. Without government involvement, ethanol plants become financially unviable.
Infrastructural challenges and the lack of flex-fuel vehicle promotion are hindering the expansion of higher blending mandates such as E30, despite ongoing government discussions. Flex-fuel vehicles can run on a variety of ethanol-gasoline blends, typically ranging from E20 to E100. India's ethanol lobby has been urging the government to promote fuel flex vehicles even before the current conflict.
Using ethanol for diesel blending could be another solution to manage the surplus, Chaturvedi added. This mirrors a recommendation from the All-India Distillers Association (AIDA) to the government last month for diesel blend to cut down fuel imports.
International and domestic trials have already shown that low volumes of ethanol can be blended into diesel without major engine modifications, AIDA said.
