By Renewable Energy Focus staff
This is the question raised by the Czarnikow Group in its look at the bioethanol market.
In 2010 US bioethanol consumption increased by a 20% to a total of 49 billion litres, up from 41bn in 2009. However, demand is now unlikely to increase significantly having hit the E10 blend wall – the effective saturation point for ethanol use at 10% of petrol, Czarnikow says.
Over the past 18 months, the US has swung from a net-importer to exporter of bioethanol, and the most viable point of supply for many countries around the world. This looks set to continue in 2011 as US production now exceeds implied E10 demand by around 5%.
US bioethanol prices are at 33-month-highs, but they have not rallied to the same extent as corn due to current over-supply in the market, and producer’s margins are being squeezed. Coupled with further demand later in the year as US citizens take their vacations, pressure is being added on buyers of US ethanol abroad.
Brazil
Brazilian supply has been unable to match the rise in bioethanol demand resulting in a shortfall in availability. Lack of new investment in cane production, rising sugar prices and production and underlying weaknesses in the earnings structure resulted in ethanol production falling short of 2010/11 forecasts, reaching only 25.3bn litres, just 3% higher than 2009/10.
During Q1 of 2011 pump prices of bioethanol in many Brazilian states have traded at a large premium to gasohol, and are currently being sold at record highs, forcing consumers to switch to gasohol.
Higher returns from sugar has meant that ethanol producers are not encouraged to reallocate cane to bioethanol. This raises a number of issues for the Brazilian Government given the competing objectives of containing inflation, maintaining growth in the economy and ensuring energy needs are met.
Europe
Given European Commission targets, European bioethanol demand has surpassed 5bn litres in 2010, driven by growth in demand in the UK, Germany and Spain. However, local production has been insufficient to meet demand, providing a good reflection of the difficult operating environment facing EU processors as high feedstock prices have dented operating margins.
EU member states face similar problems to the US with the implementation of higher blend rates as the EU targets to source 20% of energy from renewable sources by 2020. Consumer resistance is a further headache for European producers, who are fighting high grain prices and lower cost US bioethanol imports.
Toby Cohen, Head of Analysis at Czarnikow, says: “Market conditions may swing Brazilian ethanol production away from sugar without the need for government involvement. With the sugar market expected to return to surplus in the 2011/12 season, the fundamental outlook is changing and in this context a change in focus within Brazil may at some stage become economically desirable.”
Henry Toller, analyst at Czarnikow, adds: “As always, it seems the bioethanol market faces challenges to expand, but the history of the market since 2003 tells us that growth is always achievable.”