Ethanol blending: Clarity awaited

MUMBAI: The government's decision to make mandatory 5% ethanol blending from December onwards has made the chemical industry nervous, which fears the price of ethanol - a key building block for the industry - would now shoot up impacting the competitiveness of several players in the value chain. Sugar companies are happy with the development, but the oil players are wondering if the immediate ramp up would be really possible.

Ethanol or ethyl alcohol is a basic raw material for chemical industry, derivatives of which find use in various industries from agrochemicals, dyes, pigments, paints, additives to pharmaceuticals.

Ethanol can also be burned cleanly as a high-octane fuel. It is used as an oxygenate in gasoline formulations to create cleaner-burning, more efficient fuel. Typically, ethanol is blended with petrol in a formulation consisting of 5% ethanol and 95% petrol (known as E5), which can be raised to E10.

In India, currently, ethanol is produced mostly only from molasses, which is a by-product in the manufacture of sugar. However, availability of ethanol is always dependent on sugarcane crop, which is cyclical. A failure of the crop could result in failure to meet the blending targets.

Hence, experts believe that the reliance on a food crop such as sugarcane for the production of ethanol must be reduced and other alternate sources of feedstock should be looked at. A wide range of biomass could be utilized for the purpose of ethanol production if the technology for the production of cellulosic ethanol stabilizes and becomes widely available and commercially viable.

The cost of ethanol used by the chemical industry would go up, fears the chemical industry, which won't be able to pass on the cost hike due to global competitive pressure. In comparison, the liquor and wine industry - potable alcohol - industry won't feel the pinch as it enjoys heavy customs duty protection.

Petroleum ministry officials are not gung-ho about the initiative as they point out problems like lack of availability, taxation and quality issues that have haunted the programme in the past. "Nothing of that has changed," points out an industry veteran. Everyone awaits further clarity on the issue.