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TITLE STYLE Ethanol in India – a Journey

Amit Sachdev

India Consultant

U S Grains Council

NEC’16@New Orleans

Area of Interest

Total Population of India Approx. 1.26 billion

Will surpass China by

2028

Economic Growth

Within the group of countries – many challenges; due

to; Sheer number of people and diverse views

• Politics

• Trade

• Science

India always has has an ambition to be self sufficient /

self reliant in agriculture and other commodities, but

the reality is totally different

Economic growth of over 7% and projection of 7.7% over the years has led to increasing purchasing power for the 300 million strong middle class and increased demand across the categories

• Food & Feed

• Cars

• Houses

• Telecom

Leading India to be a net importer of many food and non food items

• Pulses/Lentil 5.5 MMT

• Vegetable Oil 15.5 MMT

• Corn 0.5 MMT

• Oil meals

• Ethanol for chemical use

Ethanol production in India

Grain Based

• Total capacity to use 3 MMT of grain to convert to ethanol

• Of which 1 MMT or more is corn and the rest is Rice & Sorghum

• All of the grain based ethanol is for beverage industry – Whiskey

• India is the largest market for Whiskey and moving from a molasses based whiskey to grain based

Sugar Based - Molasses

• Sugar is the primary

product and molasses

which is a co-product is

converted to ethanol

• Not all sugar factories

have integrated ethanol

plants

History of fuel blend mandate

• 2002; notified use of upto 5% ethanol for blending by the Oil Marketing Companies (OMC)*

• 2007; 5% use of ethanol made mandatory and price fixed by GOI. Since no offtake, program was shelved; price fixed by GOI

• 2008; Import tender for ethanol; no purchases

• 2010; Pricing policy changed, program took off

• 2014; Fixed price announced as an incentive to sugar sector to pay off the arrears for sugarcane purchase (no direct blend program, but an indirect sugarcane subsidy program – sugar being a politically sensitive commodity). Final supplies 820 mill liters (216 mill gallons) against requirement of 1.56 billion liters (412 million gallons). Effective blend rate 3.56%

• 2015: E10 mandate, tender for 2.66 billion liters (703 million gallons) @ $2.66/gallon. Effective supplies committed 1.04 billion liters (275 million gallons). Effective blend rate 4.34%

• 2017: E20????

• * OMC’s are all Government owned

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Demand; Supply; Deficit

6 Source: data from Industry, Industry Association

Gasoline requirement; Ethanol requirement; Production and Supplies in Mill Gallons 2014/15 2015/16 2017/18 Gasoline requirement in India 6084.66 6328.04 6844.41 Ethanol Required 5% 304.23 tender for

10% 608.47 632.80 703.70 Target 2017 20% 1368.88

Ethanol Production

Molasses Route 392.86 392.86 no change* Sold to Oil Marketing Companies 216.93 275.13 39.10 % Utlized

% age use 3.57 4.35

Total use by Industrial/Chemical 240.74 264.81 Diverted from Molasses route to Industrial 175.93 117.72 From grain based or imports 64.81 147.09

If all of molasses based ethanol is diverted for blending Effectve usage 6.46% 6.21%

Deficit in Industrial sector 175.93

Potential to produce ethanol via molasses route (By 2020 ?) 793.65

E10 Mandate* 740.00 divert to industrial use 53.65

Deficit that will need to be fulfilled 211.16 for chemical sector

* In affect production could be low as sugar production is expected to be down

History: Imported ethanol

• Grain based ethanol cannot be used in the blending program*

* Interpretation: domestic grains may not be used to produce ethanol for blending (non food commodity to be used)

• Tender for imported ethanol in 2008 – no purchases were made as price was high (obvious reason, as commodity prices were higher and hence ethanol prices and then the fuel v/s food debate)

* but whiskey can be produced using domestic grains

Import Policy; Duty structure

Duty 7.5% and because of India’s FTA with Brazil – concession of 20%; duty effective duty will be 6% in imported from Brazil

Indian import policy for denatured ethanol – NO HYDROCARBONS and NO GASOLINE. While from the US the product is exported for blending in fuel, it is used as an ingredient for chemical manufacturing. ITCHS code is 2207 (UNDENATURED ETHYL ALCOHOL OF AN ALCOHOLIC STRENGTH BY VOLUME OF 80% VOL. OR HIGHER; ETHYL ALCOHOL AND OTHER SPIRITS, DENATURED, OF ANY STRENGTH – 22071090 (un-denatured) and 22072000 (Ethyl alcohol and other spirits, denatured, of any strength.

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Price Comparison

US Ethanol

$1.47/gal + Freight + Duty (7.5%) = $2/gal

Brazilian Ethanol

$1.94/gal + Freight + Duty (6%) = $2.46/gal

Indian price $2.66/gallon

Lower for chemical $2.11/gallon (but not many sugar mills interested to sell to chemical)

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Climate change – India’s

commitment

• Most recently India announced plans to cut CO2 emissions per unit of gross domestic product -- by up to 35 percent from 2005 to 2030.

• The other problem being high particulate matter in the air in the metro cities like Delhi, Bombay, Kolkata and Chennai and also the fast developing tier 2 and Tier 3 towns.

• As the incomes grow, more and more people can afford cars and that is adding to the air pollution in the cities.

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If India needs to show commitment – small time measures like odd-even rule have no meanings. Fuel blending mandate must be fulfilled.

Pollution Scare – leading to

Pollution: Not only because of Vehicles

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Pollution: North v/s South

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MITIGATIONS

Mitigation of Air

Pollution

Sustainable Development

International Conventions and Treaties

National and International funds, Eco-Conversion

New Technologies,

Recycling

Lower Combustion

Lower Transboundary

Emissions

Lower Emissions

Road Map – promoting ethanol

blending in fuel

• Share US story – assisting the farmers (Sugar), pollution control in cities; but more important is fulfilling the mandate (commitment)

• Mapping the current ethanol demand and supply; port and OMC infrastructure

• Creation of a working group (India- US) under USIBC essentially to create a white paper fuel blending advantage; pollution; health benefits; octane, discontinue use of MTBE etc – target Sept 2016

• Present the paper to Minister of Road Transport; Niti Ayog; Prime Minister’s Office – the dialouge must remain open and information should be exchanged

• Continue to provide price information on ethanol that will help make decisions in favor of US ethanol

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Summary

• 17 percent of world population on 3% of world area; 28th largest trade partner with US. Current trade $100 billion, target $500 billion. Ease of doing business rank now 130, Target by Modi Government under 50.

• Biggest bottle neck – contract enforcement. Intentions are good, rules regulation are in place; lacking in political will.

• Energy requirements are soaring and along with that climate change issues must be tackled.

• New administration want to trade and work with US administration closely and aims have US as the largest trade partner (Defense, Agriculture, Trade)

• Water has become a major concern for Indian agriculture and climate change will affect water availability. India will need to step up is Climate Change agenda.

• Market is there – but not a short term market, opportunities for long term engagement in India.

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