Biofuels market rides a crest as demand surges

MUMBAI: A strong economy, rising incomes, and a vibrant market have given a huge boost to the transport sector, which is the fastest growing energy-consuming sector in India. These trends have made a case for biofuels in India, strengthened by the huge dependence on oil imports.

New analysis from Frost & Sullivan, Strategic Analysis of the Indian Biofuels Industry, reveals that the market is an emerging one and has a long way to go before it catches up with global competitors.

India's crude oil and petroleum products supplies are largely import-dependant. With oil import expenditure increasing by more than six times in the last 25 years due to escalation in global demand and prices, biofuels are expected to be pressed into service.

Biofuels will be critical in reducing dependence on fossil fuels, achieving greater energy security, and reducing noxious emissions.

"The Government is currently implementing an ethanol-blending program and considering initiatives in the form of mandates for biodiesel," says Frost & Sullivan Research Analyst Hari Krishnan. "Due to these strategies, the rising population, and the growing energy demand from the transport sector, biofuels can be assured of a significant market in India."

However, the lack of large-scale availability of feedstock restrains the market. Biodiesel will take a while to establish itself as an effective biofuel, since Jatropha plantations in the country are still in the initial stages of development. Three to four years and many plantations later, the country may have the feedstock necessary for the large-scale production of Jatropha oil for use in biodiesel.

The absence of a clear Government policy on biofuels and lack of availability of domestic feedstock has inhibited several biofuel manufacturers from entering this market. Hence, Indian manufacturers are considering importing palm oil to produce biodiesel.

Securing feedstock through vertical integration will greatly help biodiesel manufacturers in mitigating availability issues and keeping the cost of production under control. Moreover, using inedible oils as feedstock can aid in avoiding competition with food applications.

Similar availability issues also affect the better-developed Indian bioethanol industry, as ethanol is primarily manufactured from molasses, a by-product of sugar. Since sugarcane production is cyclical, the availability and cost of production of bioethanol will vary depending on sugarcane crop yields.

India's ethanol-blending program could not be implemented during 2003-2004 due to a low sugarcane output and the second phase of this program was announced in September 2006 only after a recovery in sugarcane production.

"It will be necessary to invest in research in areas such as cellulosic ethanol technology, improvement of production efficiency and yields," notes Krishnan. "Further research to aid in the development of alternate feedstock will also help manufacturers rely less on sugarcane."

By reducing dependence on molasses, manufacturers can exercise better control over their production costs. This will be a huge relief to them, since the bargaining power on the prices of biofuels firmly rests with the Government and oil marketing companies.