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27 Nov 2008


Ethanol Industry, 2009 Slowing Amid Numerous Risks (Business Brief No.2361)

Ethanol is mainly derived from agricultural produce, i.e., sugarcane, cassava, corn, rice, sweet sorghum and soybean. In Thailand, ethanol production is made primarily from sugarcane (molasses) and cassava. In fact, Thailand has strong potential in ethanol production thanks to availability of raw materials. Domestic plants used for producing ethanol in bio-fuels usually use molasses as their raw material of choice, as they can use waste downstream from sugar refineries giving us an advantage in production where we have the infrastructure to gain the economies of scale. Meanwhile, the number of cassava-based ethanol plants here is comparatively low.
In 2009, KASIKORN RESEARCH CENTER (KResearch) forecasts that the ethanol industry may record slower growth from 2008. This year, oil prices had fluctuated in an average of USD80-100/barrel, which has stimulated higher consumption of biofuels such as gasohol due chiefly to attractive prices. It could be said that the switch from fossil fuels has much to do with demand for gasohol coming from ordinary consumers. Many forecasts indicate that global oil prices in 2009 might ease to an average of USD60-70/barrel, which may prompt consumers to return to fossil fuels. Even so, rising demand for ethanol is expected to continue in line with higher consumption of gasohol. Among the supporting factors are our availability of energy crops and the government's ongoing promotion of the use of gasohol via pricing differences between refined petroleum fuels and gasohol blends, as well as seeking ever higher admixtures of ethanol in gasoline. Another positive factor is the government's ambitious goal of raising the ratio of alternative fuel consumption nationwide to 20 percent of overall motor fuel use by 2022, whereas it is only 0.5 percent, at present.
In addition, domestic oil prices are likely to rise after excise tax reductions on fuels per the government's ‘Six-Point, Six Month' subsidy program come to end on January 31, 2009. Of late, oil companies have also managed to increase the number of gasohol service stations. Global biofuel consumption has been increasing, as well.
Nonetheless, the ethanol industry may be threatened by numerous risk factors, especially excess production, highly volatile global oil prices that may affect gasohol consumption, as well as surges in the world's crop outputs –particularly corn and soybeans – in the 2008/09 crop years. The global gloom, ignited by the US financial crisis, is also expected to hurt demand for fuels, while receding speculation in the world's commodity markets may eventually dent domestic prices for ethanol in line with the global trend.
The government should take into account the narrower spread between the prices of petroleum fuels and gasohol amid ongoing declines in global oil prices. This may encourage the public to resume heavier consumption of petroleum-based fuels, which may put the nation's strategic plan for alternative energy development in jeopardy. Clear-cut guidelines to cope with oil price volatility are therefore needed so that our plan to develop alternative fuels will be viable and continue over the long-term.

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