Ethanol: A Collision between Food and Energy

Drying out after the deluge.

By Dave DuByne

In the matter of ethanol production, China has two Achilles’ heels. Rising food prices and natural disasters are influencing bio-fuel production, and leading to new regulations for gasoline exports.

In the past, the country has satisfied nearly 100 per cent of its own grain demand. The autumn harvest accounts for 70% of the total annual production. In January this year, Chinese grain consumption for 2006-2007 was forecast to reach 144.5 million tonnes, with country-wide output reaching 144 tonnes.

In northern China, a drought has hit about 11.5 million hectares of arable land (1 hectare equals about 2.5 acres). And during the rainy season in the south, flood waters submerged about 9.7 million hectares, putting the total submerged and parched dry land at one-sixth of the country’s 120 million-hectares of arable land. Add to this damage to half a million hectares that have been devoured by rice-plant hoppers in Sichuan Province, and Beijing may have to turn to imports.

China leads the world in consumption of rice and wheat, and this year’s grain forecast is razor thin, consumption versus production. If China turns to imports, how much additional grain will be required, and how much will it drive up grain prices on the world market?

Inflation Worries: The Consumer Price Index (CPI) grew 5.6% in July 2007, the highest in ten years, with meat (especially pork) rising 43% in one year. Meat, poultry, eggs and grains led the index. The following month, in August, China declared a moratorium on the construction of most ethanol plants. Chinese officials recognized that producing corn-based ethanol was linked to rapidly rising food prices. Xu Dingming, an official of the National Energy Leading Group, told a recent seminar: “Food-based ethanol fuel will not be the direction for China. Unless ethanol can be produced using ‘non-staple crops,’ it won't be produced in China at all”.

On September 1st, the head of China’s Energy Ministry, Ma Kai, told a television audience that “For the long-term development of our Chinese nation, saving energy and reducing pollution are so important, so urgent. If we don’t change this situation… the economy will go badly and won’t go far”. It was the first televised large-scale appeal to consumers to change their lifestyles and conserve energy.

A week earlier, the National Development and Reform Commission (NDRC) called on China's major oil refiners to strictly control oil product exports. The NDRC is the government body in China that normally decides economic and pricing policies. Immediately following the order The Petroleum and Chemical Corporation (Sinopec), Asia's largest refiner, said it now plans to export no more than what is called for from its fixed long-term contracts, and PetroChina, the other major oil refiner in the country, cut August gasoline exports to 160,000 tonnes, a decrease of 33% a – the year's lowest figure so far. The China News Service added that, apart from contracted supplies such as those to Hong Kong and Macau, Sinopec will reduce oil product exports in all regions to the lowest level of the year.

Ethanol Production: There is still ethanol production in China coming from China’s largest ethanol producer, China Agri Industries. China Agri plans to open two more refineries this year – a 100,000-ton project in Hubei and a 300,000-ton project in Liaoning. These projects will use sweet potatoes as the feed stock. An additional 1 million tons of capacity also using sweet potatoes, awaits regulatory approval. If it gets permission to go ahead, this capacity will be added by the end of 2008.

China Agri has started using a different feedstock grain, sorghum, to produce ethanol. Sinopec and PetroChina have teamed up with China Agri in the downstream ethanol blending business. Other feedstock plants for China Agri ethanol plants include sugar cane and cassava. The shift of feedstock has caused a bump up in price of sorghum and sweet potatoes.

Ethanol production is an important part of China’s energy strategy. However, a billion and a half people watching their food prices double in the last two years have led to a lot of unhappy words. Energy consumption has collided with food production in a time of natural disasters. It seems the Chinese course of action is to curb exports of gasoline, keep it in the country to offset lost ethanol production.

Liquid Fuels: China has bountiful natural gas, hydroelectric power and coal supplies. Connected by pipeline, Tajikistan fills in the gaps, and there is no lack of energy for factories and power plants. The point is, of course, that crude oil is irreplaceable. There is no substitute, even in countries and regions rich in two out of three fossil fuels. Crude oil is the lifeblood of the economy, since it drives transportation.

Chinese road transportation networks use a combination of compressed natural gas (CNG), electric vehicles as well as ethanol blended gasoline, far more diverse methods and on a much larger scale than North America. Even so, this country can’t survive without large amounts of crude oil. Perhaps what we see happening here is a litmus test for future reliance on substances other than crude oil to power our transportation networks. If so, the effects of peak oil and depleting oil supplies worldwide will be far more damaging than most people expect.

It seems there is no “magic bullet” for our world’s energy problems. Even a combination of magic bullets isn’t enough. Right here, right now, staring you in the face: The vulnerability of ethanol production is all too obvious.

David DuByne is from the United States and is presently living and teaching Business English in Chongqing, China. He and webmaster Marc Hastenteufel are translating his website - Dave's ESL biofuel - into Mandarin Chinese. This English teaching website is devoted to bio-fuel and oil depletion. Robert Rapier, an expert on cellulose ethanol, gas-to-liquids (GTL), and butanol production, provides technical assistance in the renewables and conservation section.