Ethanol runs into supply problems in Thailand, Philippines

By John Grafilo and Peter Janssen Jun 27, 2006, 4:00 GMT

Bangkok/Manila - Thailand and the Philippines are following in Brazil's footsteps in switching from fuel oil to ethanol at their domestic petrol stations, but progress has been slowed by sticky problems with soaring sugar prices.

Like Brazil - one of the world's few ethanol success stories - both Thailand and the Philippines are net importers of oil and major growers of sugarcane.

The plant is one of the raw materials commonly used to make ethanol, which when mixed with petrol (at 5/95 up to 10/90 ratios) makes gasohol for vehicles.

As soaring petroleum prices translated into lower economic growth, higher manufacturing costs, inflation and disgruntled car owners, the governments of Thailand and the Philippines have launched national plans to switch motorists over to gasohol that is mixed with either 5 per cent or 9 per cent ethanol.

Thailand plans to ban all sales of 95 octane benzine - the preferred fuel for luxury cars - at petrol stations nationwide in January, forcing filling stations to sell 95 octane gasohol instead and inviting protests.

The Philippines, under a biofuel bill currently being debated by Congress, will enforce the sale of 95 octane gasohol at petrol stations within two years, and 91 octane gasohol within four years.

But both plans are threatened by a near-quadrupling of international sugar prices over the past year which has led to supply shortages.

Gasohol sales in the Philippines have been negligible this year, and what is available is mixed with ethanol imported from Brazil. While gasohol is becoming popular in Thailand, the government has been forced to subsidize it this year.

Sugar prices in Thailand have shot up from 1,200 baht (31.50 dollars) per ton last year to 4,500 baht (118 dollars) per ton this year, up 275 per cent. The surge is nearly parallel to price hikes in world oil prices.

'We did not expect the rise in world sugar prices,' admitted Manoon Siriwan, senior executive vice president of the Bangchak Petroleum Company, one of Thailand's leading oil refineries that also operates filling stations nationwide.

Bangchak, a government-owned enterprise, was Thailand's first refinery to offer gasohol to motorists at its 500 petrol stations two years ago.

Offering both 95 octane gasohol and 91 octane at 1.50 baht (4 cents) less per litre than the market price for similar benzines, Bangchak's gasohol has proved a marketing success story.

'Since we launched gasohol two years ago, Bangchak's market share of gasoline sales has increased,' said Manoon. 'While the industry's growth has been 7 per cent, ours has been 18 per cent.'

Thailand currently produces 3.6 million litres of gasohol a day, including 80,000 litres.

Mitr Phol Sugar Corp, one of Thailand's largest sugar mills, has reportedly agreed to sell the government its molasses stock at a fixed price to produce 40 million litres of ethanol for the remainder of the year.

But at 25.30 baht (66 cents) per litre, the government will need to subsidize gasohol retailers at 2.30 baht (6 cents) a litre to make it worth their while to distribute the gasohol, said Manoon.

Next year, Thailand will need to switch from using sugar to tapioca, or cassava, a cash crop that tends to have less volatile price fluctuations, said Pornchai Rujiprapa, deputy permanent secretary of the Ministry of Energy.

Thailand's private sector has invested in four new ethanol factories that will turn tapioca into 510,000 litres of ethanol by next year, hiking the country's national output to close to 900,000 litres, enough to produce 9 million litres of gasohol a day.

The Philippines has taken a slightly different tack.

The government plans to set up a total of 10 ethanol plants nationwide within the next two years, producing up to 1 million litres of ethanol a day.

But instead of using tapioca, plans call for establishing 12 new sugarcane planations to feed the ethanol plants.

'Ethanol would be competing with the price of sugar unless we develop an area only for ethanol, that's why I thought of putting up a plantation of sugarcane for ethanol in order to have a distinct area for ethanol,' said Philippines Finance Secretary Herminio Teves, who anticipates that sugar prices will remain high for the next five years due to increasing ethanol demand.

But it is not clear how the government envisages price setting for sugar destined for ethanol production, and strong political will is obviously necessary in both countries to make ethanol work.

For instance, protests are expected to delay Thailand's benzine ban next January, since several multinationals such as Caltex and Esso have yet to introduce gasohol at their stations, and Bangkok's powerful luxury car lobby - including many powerful politicians - are expected to balk at filling their tanks with gasohol.

'But we have to do it. It is necessary for the country to use our own raw materials,' said Pornchai.