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Ethanol: A global perspective

Sep 28, 2006

Ethanol has gained importance as a fuel across the globe. Brazil was the first country to evolve this fuel out of sugarcane in the late 1970s. Ethanol production and use is expected to rise strongly and going forward, it will go along with an ever wider geographical spread. Ten years ago, there were only a handful of countries producing ethanol. The largest was Brazil, where ethanol is produced from molasses and sugar cane juice. The US produces mostly corn alcohol and in France, sugar beets are being used. In 2003, there were 13 countries spread over five continents, which actually used ethyl alcohol as a fuel component. Looking into the future,America is likely to be extensively covered by ethanol programs. Moreover, the green fuel (ethanol) will likely be established in the European Union as well as in India, Thailand, China, Australia and possibly Japan as well.

Worldwide Gasohol Programs
UPTO 5% ETHANOL UPTO 10% ETHANOL MORE THAN 10%
EU USA Brazil
Japan China USA**
Poland* Thailand Canada**
India South Arfica Sweden**
Peru
Colombia
Paraguay
Australia*
Mexico*
*Political Discussions
**Flexi-fuel Vehicles

The Brazil story
In the 1970s, Brazil faced problems in terms of the fact that the cost of Brazil's oil imports tripled in late 1973, due to the Arab oil embargo. Secondly, world sugar prices, which had been climbing upward since the mid-1960s, declined sharply in 1974. Faced with these problems, the Brazilian National Alcohol Program was launched in late 1975. The program was intended to reduce the need for oil imports and provide an additional market for Brazilian sugar. As a first step, the Federal Government immediately began promoting the production of ethanol for blending into gasoline and a second stage of the program was launched in 1979, when the Brazilian government signed agreements with major car companies to install assembly lines for 100% ethanol cars. By the mid-1980s, ethanol made up roughly half of Brazil's liquid fuel supply. However, the program did slow down in 1990s, as world oil prices were lower. Nonetheless, throughout this period, the government continued with the requirement that all gasoline sold in Brazil should contain roughly 20% ethanol by volume.

Today, ethanol provides roughly 40% of transportation fuels in Brazil. In 2005, Brazil produced 4.23 bn gallons of ethanol. The most dramatic development in the Brazilian ethanol program in recent years has been the explosive growth of flex-fuel vehicles (FFVs). In November 2004, FFVs represented 30% of new car sales in Brazil. For calendar year 2005, the figure was 53%. In February 2006, more than 70% of new cars sold in Brazil were FFVs. Brazil has a 36% share in the world ethanol market, which it produces by diverting sugarcane from sugar to ethanol. Brazil is expected to produce ethanol, which is equal to about 23 m tonnes of raw sugar in sugar season 2005/06 (September-ending). Brazil will continue to divert sugarcane to ethanol till crude oil prices are high.

The attractive price of ethanol from Brazil has resulted in the country becoming the largest exporter of this commodity. The second largest exporter of ethanol in 2003 was the United States. Ethanol producers in the US distilled a record quantity of more than 10.6 bn litres in 2003, mostly derived from corn. The EU has also taken the initiative and has started 2% blending. In Asia, India, Thailand and Australia may emerge as small to medium-sized exporters. In order to insulate themselves from increasing crude oil prices, other countries like Australia, Canada, Taiwan, Japan and Thailand have joined the rally to increase the bio-fuel use.

A bright future?
Ethanol is unlikely to see a downturn in the foreseeable future. On the contrary, world production is set to continue to grow vigorously at least up to 2012, as per various industry reports. There are various fuel ethanol projects in the pipeline around the world. Political support is clearly there for ethanol and in many instances, the industry and the relevant authorities are very close to reaching an agreement over a viable framework of support for ethanol. Also, if the sugar-alcohol economics and proper investments are done, the outlook for ethanol appears bright and strong rates of growth in both production and trade can be expected for the next several years.

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