Thai surplus ethanol to be exported - negotiations over tank farm lease

Thailand's ethanol producers are currently facing a surplus and want to export their biofuel (earlier post). They plan [*cache] to hold talks with the country's largest company, state-owned oil and gas holding PTT Plc, and with Thailand's leading petrochemical company IRPC Plc to provide chemical storage tank leases as mutual facilities to support the exports. According to Sirivuthi Siamphakdee, chairman of the Chamber of Ethanol Producers, individual exports will not cover the cost of each small shipment which is why a pooling system must be organised.

The planned talks come after the government relaxed regulations permitting ethanol exports last month to ease the surplus. The producers, each processing ethanol at between 200,000 and 500,000 litres per day, need to store ethanol in tanks until the volume is large enough to meet the loading capacity of vessels, which have a capacity of at least five million litres. Seven ethanol plants nationwide are operating at a combined capacity of 955,000 litres per day, and Thai ethanol demand for the manufacture of gasohol (E10) is currently only 450,000 litres per day. This leaves 18 million litres in stock. New ethanol output from two plants will raise total capacity to 1.6 million litres per day soon.

The producers earlier asked the Energy Ministry to help remove export barriers, but the institution replied that it could not become involved in private-sector business. Ethanol manufacturers now face the difficult calculus of deciding whether or not to put up substantial investments to build new tank farms. Local ethanol demand could grow quickly, making such dedicated infrastructures unnecessary.Leasing storage tanks on an ad-hoc basis from the large oil & gas and petrochemical companies offers a way out to tackle the ethanol surplus immediately. But this comes at a premium:
bioenergy :: biofuels :: energy :: sustainability :: cassava :: ethanol :: logistics :: biofuel trade :: Thailand ::

Some ethanol producers have meanwhile ceased production to wait and see how the domestic market evolves. But meanwhile, another seven new plants with a total capacity of 2.1 million litres per day will start operations over the next two years. In short, by 2009, total ethanol output could reach 3.7 million liters per day, more than a billion liters per year. The question is whether this amount will be taken up by the local market soon enough. Thai ethanol is primarily made from cassava.

The reasons behind the Thai surplus can be found in a combination of factors: lack of planning, weak policy frameworks, and a steep learning curve to understand fundamental market drivers. But the military coup which ousted PM Thaksin Shinawatra threw plans in disarray too.

The former PM actively encouraged investment in ethanol plants and feedstock production, telling the industry it intended to stop sales of premium gasoline, which would result in much higher demand for E10. However, after the military coup last year, the interim government said octane 95 gasoline would remain on the market as long as there were cars that could not use E10.

The producers failed to succeed in convincing the new Energy Ministry to mandate the 10% ethanol blend. Its refusal is based on the fact that car manufacturers have not yet given guarantees that the blend does not harm older car engines. Flex-fuel cars, which make up 75% of all new cars sold in biofuel leader Brazil, have not yet penetrated the Thai market either. The Ministry said it does not want to take the risk of causing damage to Thailand's car fleet by mandating the blend.

Image: tank farm at the Rayong refinery, owned and operated by a subsidiary of PTT Plc, located in the southern province of Rayong. Credit: PTT Plc.