Report: China may lower E10 mandate to E5

Source: By Erin Voegele, Ethanol Producer Magazine • Posted: Sunday, October 4, 2020

China’s ethanol blend rate is not expected to exceed 4 percent this year despite plans by the country to implement a nationwide E10 mandate by the end of 2020, according to a report recently filed with the USDA Foreign Agricultural Service’s Global Agricultural Information Network.

According to the report, which was filed in late July and published in August, China has unofficially suspended its goal to implement a nationwide E10 mandate before the end of this year. That goal was established in 2017. The report cites limited ethanol production capacity, a recent drop in corn stocks, and corresponding rising corn prices and reasons the rollout has been stalled. The COVID-19 pandemic has also significantly lowered fuel consumption and caused some existing ethanol production capacity to shift from fuel production to medical-grade ethanol production.

The report states that the government of China has reportedly delegated reaching E10 blend goals and decision-making authority to provincial governments. While northern provinces, which are home to corn production, continue to build new plants, the report states southern provinces can continue to import ethanol should economic factors allow. The GAIN report also cites reports from industry that indicate the central government of China officially plans to lower the E10 mandate to E5 at the end of this year.

Data included in the report shows that China is expected to have 18 first-generation ethanol plants in operation by the end of 2020, up from 14 in 2019. Those plants are expected to have a combined nameplate capacity of 6.578 billion liters (1.74 billion gallons), up from 5.257 billion liters in 2019. Plants are expected to operate at 49 percent capacity this year, down from 82 percent last year.

The country also has one cellulosic refinery with 65 MMly of capacity. That plant was not operational last year but is expected to operate at 31 percent capacity this year.

Domestic ethanol production is expected to reach 10.83 billion gallons this year, including 3.214 billion liters of fuel ethanol production. Ethanol production was at 10.74 billion liters last year, including 4.339 billion liters of fuel ethanol. A total of 30 million gallons of ethanol production this year is expected to be fossil-based synthetic.

Ethanol imports are expected to reach 100 million liters this year, all of which is expected to be fuel ethanol. China imported 104 million liters of ethanol last year, none of which was fuel ethanol. The country is expected to export 800 million liters of ethanol this year, none of which is fuel ethanol. Exports were at 21 million liters last year, including 7 million liters of fuel ethanol.

Ethanol consumption is expected to be at 10.13 billion liters in 2020, including 3.314 billion liters of fuel ethanol. Consumption was 10.823 billion liters in 2019, including 4.332 billion liters of fuel ethanol.

Corn and cassava are currently the top ethanol feedstocks in China. Wheat and rice are also expected to be used to produce ethanol this year. Sweet sorghum has been used in the past.

China’s ethanol blend rate is expected to be at 1.7 percent this year, down from 2.4 percent last year.

While China’s biodiesel production and use is currently insignificant, the report notes that increasingly stringent environmental measures are driving prospects for expanded biodiesel use in the country. Based on fuel use, a modest B5 mandate for on-road use only would currently require 6.807 billion liters of biodiesel. Potential is even greater if biodiesel would be used for off-road maritime and other non-transport use.

That potential is unlikely to be realized in the near-term, however, due to insufficient government support and incentives.

The report also notes that the COVID-19 pandemic has greatly lowered the supply of used cooking oil, which is China’s primary biodiesel feedstock. Domestic consumption is also down. Production however, has been boosted by robust demand from the European Union.

According to the report, 42 biodiesel plants are expected to be operational in China by the end of 2020, up from 40 in 2019. Those plants are expected to have a combined nameplate capacity of 2.726 billion liters, up from 2.68 billion liters in 2019. Capacity use is expected to increase to 53.4 percent this year, up from 35 percent in 2019.

Domestic biodiesel production is expected to reach 1.455 billion liters in 2020, up from 939 million liters in 2019. Imports are expected to be at 60 million liters, down from 953 million liters last year. Biodiesel exports are expected to fall to 715 million liters in 2020, down from 752 million liters in 2019. Domestic consumption is forecast at 800 million liters in 2020, down from 1.14 billion liters in 2019.

The report notes that discretionary demand for biodiesel dropped off during the final quarter of 2019 and is essentially absent this year. Only about one-third of total biodiesel demand is used in transportation applications, the majority of the fuel is used to fuel electrical power generation, fishing vessels and farm equipment. The fuel blend rate is expected to be at 0.2 percent this year, down from 0.3 percent in 2019.

Shanghai is the only local authority in China that implements a biodiesel program. Under the program, B5 is offered at a 5 cent per liter discount to regular diesel.

A full copy of the report can be downloaded from the USDA FAS GAIN website.