You are here

RPT-China set for ethanol binge as Beijing pumps up renewable fuel drive

(Repeats with no changes in text)

* Beijing plans national rollout of E10 gasoline by 2020

* E10 fuel contains 10 percent ethanol

* Plan first, long-awaited step towards formal policy

* Seen as blow to conventional oil producers

* U.S. may offer blueprint for rollout

By Hallie Gu and Dominique Patton

BEIJING, Sept 13 (Reuters) - China's bold plan to blend
renewable fuels into its gasoline supply within three years will
revolutionise its fledging biofuels industry, industry players
said, likely spurring billions of dollars in investment in
ethanol factories.

On Wednesday, state media reported Beijing plans to roll out
the use of a gasoline known as 'E10' - containing 10 percent
ethanol - across the world's largest car market by 2020. It's
the first formal timeline in a radical push that's part of a
broader drive to clean up the environment.

The move doubles up as part of the government's effort to
boost industrial demand for corn. Beijing must find a way to
work off a stockpile of 200 million tonnes - so big it could
feed China's 1.4 billion people for more than a year - after
decades of buying the crop to support farmers in a country
haunted by post World War II famine.

"More money will now flow in, including from private and
foreign investors," said Li Qiang, chairman of consultancy JC
Intelligence Ltd, predicting boom times for ethanol. More than
10 new ethanol plants are planned in the northeastern cornbelt,
according to JC Intelligence.

Most of those will go on line next year, adding 3 million
tonnes of capacity, the consultancy predicts. Reuters estimates,
based on industry officials' calculations, suggest an ethanol
plant of average capacity - about 300,000 tonnes per year -
costs about 1 billion yuan ($153 million) to build.

While sceptics may question the feasibility of such a rapid
rollout, Wednesday's news also comes days after Beijing said it
is studying when to ban production and sale of cars using fossil
fuels. It adds to potential headaches for the oil industry,
which could lose a sizeable portion of the 150-million-tonne
gasoline market worth 26.2 billion yuan at current retail
prices.

MAJOR VICTORY

The planned rollout marks a major victory for domestic
ethanol producers, which have struggled to compete with cheap
oil without a nationwide mandate that requires a minimum amount
of biofuel must be blended into fuel - similar to the United
States and Brazil, the world's top two markets for ethanol.

Ethanol-blended gasoline makes up only a fifth of gasoline
use in China for now.

"We have been waiting for this policy for many years and now
the shoe has finally dropped," said a manager at a major ethanol
producer, who declined to be named as he was not authorised to
speak to media.

According to Reuters calculations, as much as 15 million
tonnes of ethanol could be needed each year to meet new demand.
That's well above the target Beijing announced in December last
year - doubling output to 4 million by 2020.

It could also mean building as many as 36 new plants each
with 300,000 tonnes per year of capacity at an estimated cost of
36 billion yuan, according to Reuters calculations based on
experts' estimates.

Those factories would need 45 million tonnes of corn as
feed, potentially depleting the government stockpile in just
over four years.

Experts question how Beijing will implement the plan so
quickly and on such a vast scale, but Beijing is likely to take
a leaf out of the United States' play book.

Its decade-old renewable fuels policy illustrates how
government backing has transformed the U.S. cornbelt and built a
biofuels sector. Ethanol demand soared by 208 percent and
industrial corn use more than doubled between 2005 and 2010.

But the seeds of ethanol growth in China - the first in a
decade - emerged this year already, as firms sought to take
advantage of lower corn prices and hefty import tariffs on
ethanol introduced in January, fuelling the plant construction
in the northeast.

($1 = 6.5307 Chinese yuan)

(Reporting by Hallie Gu and Dominique Patton; Additional
reporting by Gavin Maguire in SINGAPORE; Writing by Josephine
Mason; Editing by Kenneth Maxwell)

© Copyright Thomson Reuters 2017. Click For Restrictions - http://about.reuters.com/fulllegal.asp

Read more about