Crude oil price spike likely to trigger interest in ethanol programme

The spike in global crude oil prices could spark more interest on the part of oil-marketing companies (OMCs) in stepping up the ethanol-blending programme.

However, there is a limit to which ethanol makers can enhance supplies at short notice, said industry sources, because of their limited capacities and constraints in the supply of raw material.

According to officials, India has managed to blend almost 9.34 per cent ethanol with petrol in the first quarter of the 2021-22 supply year, which started in December. This is almost 15 per cent more than the blending of 8.1 per cent achieved in the 2020-21 supply year.

This has raised the prospect of it reaching the targeted 20 per cent blend by 2025.

Oil prices have been on the boil ever since Russia invaded Ukraine in late February. The prices spiked owing to fears that oil and gas supplies from energy giant Russia could be disrupted, either because of the conflict in or Western sanctions.

The prospects of a full embargo on Russian fuel are leading to the latest rally in international oil prices.

The basket of crude oil India buys (including purchases from Oman and Dubai, and of Brent crude) rose above $126.36 a barrel on March 7, according to information from the Petroleum Planning and Analysis Cell of the oil ministry.

This is against an average of $81.5 per barrel at the time of the freezing of petrol and diesel prices four months back.

The spike has triggered hope as to whether ethanol supplies can be enhanced to enable some reduction in costs by the OMCs.

However, industry sources said meeting demand beyond what has been planned and tied up could be challenging. This is particularly true of ethanol made from sugarcane, which now comprises the bulk of the raw material that goes into making ethanol.

For the 2021-22 ethanol supply season, which started in December 2021, India has 4.50-5 billion litres of installed ethanol-producing capacity (from both sugarcane and damaged grains). Of this, expressions of interest (EoI) have been placed for supplying 4.16 billion litres by OMCs.

Between April and November 2022, fresh capacities of 500-700 million litres will be added by way of greenfield and brownfield expansions by both sugarcane-based ethanol makers and grain-based ones, but trade sources said not all would start production full steam in one go.

“As it is, sugarcane juice is not available because the crushing season is nearing its end, so reliance is on B-heavy and C-heavy molasses for producing ethanol. For grain-based ones, there is no such problem,” a senior industry official said.