India's decision to restrict the use of sugarcane juice or sugar syrup to produce ethanol could cause it to miss its 2023-24 target for ethanol blending in gasoline.
Delhi has a set a goal to increase ethanol blending in gasoline to 15pc in the November 2023-October 2024 ethanol supply year and 20pc by 2025 from 12pc in 2022-23, as part of efforts to reduce its dependence on crude imports. Indian oil marketing companies (OMCs), or fuel retailers, buy ethanol from sugar mills and distilleries to blend with gasoline and reduce crude use.
But the Indian government on 7 December 2023 directed sugar mills and distilleries to halt their use of sugarcane juice or sugar syrup to produce ethanol during the 2023-24 ethanol supply year. This was followed by a directive on 15 December 2023 stating OMCs will issue to each distillery a revised allocation of sugarcane juice and B heavy molasses-based ethanol for 2023-24. All molasses-based distilleries will endeavour to make ethanol from C heavy molasses, it added.
OMCs have since allocated 425.6mn l of ethanol to be produced from sugarcane juice and 1.15bn l from B heavy molasses for the first two quarters of the 2023-24 ethanol supply year, according to sugar industry sources. This is a big drop from their tenders issued in October 2023 seeking to buy around 8.25bn l of ethanol for the 2023-24 ethanol supply year, for which they received offers for around 5.6bn l. Sugarcane-based ethanol comprised 2.7bn l of the offers and around 2.9bn l was grain-based ethanol, the sources said.
Distilleries supplied 5.02bn l of ethanol to OMCs in 2022-23, according to government data, with sugarcane-based ethanol comprising around 1.42bn l.
Of the total ethanol used for blending in gasoline in India, around 61pc comes from B heavy molasses, 20pc from sugar syrup, 11pc from surplus rice, 6pc from damaged foodgrains and maize and 2pc from C heavy molasses. C heavy molasses has little sugar content compared with sugarcane juice and B heavy molasses.
The latest restriction is likely to have been brought about by Delhi's concern about domestic sugar output falling owing to insufficient rains in key sugarcane-growing areas. India is the world's second-largest producer and largest consumer of sugar.
Election pressure
The government has cause to fret over falling sugar output because this has also raised sugar prices for consumers — and general elections are set to take place in April-May.
Sugar and confectionery prices rose by 7.14pc in December from 6.55pc in November, inflation data from the National Statistical Office show. Retail inflation rose at a four-month high pace of 5.69pc in December from 5.55pc in November, driven by a rise in pulses, vegetables, fruits and sugar.
Prices may increase more owing to a likely fall in sugarcane production, although the government's curbs on sugar exports may ensure supplies and cap domestic price rises.
Erratic rains, especially in key growing regions, are likely to drag down India's sugarcane production to 435mn t in the July 2023-June 2024 crop year from 491mn t the previous year, the government estimates. Delhi has extended restrictions on sugar exports indefinitely beyond the original deadline of 31 October 2023 to "ensure sufficient availability of sugar for domestic consumption at a reasonable price".
Not-so-sweet alternatives
Other feedstocks aside from sugar are also not easily available, plus their competing uses for food and ethanol fuel production mean the government needs to worry about keeping consumer prices low and meeting its blending target.
The Food Corporation of India (FCI) suspended supplies of surplus rice feedstock to distilleries for ethanol production last July because of food availability and price concerns. The government also imposed a ban on exports of non-basmati variety white rice. Excess rice makes up the biggest share of grain feedstock and contributes a big chunk to ethanol production.
"The government has still not lifted the ban on supply of FCI rice for ethanol production, which may impact supply from grain-based distillery to an extent," Indian credit rating agency Icra said.
The government is separately looking at maize to make ethanol and reduce pressure on sugar and rice, but it has acknowledged that maize as a feedstock is yet to gain momentum and there is "hardly any production of ethanol from maize by grain-based distilleries in India". It may take 2-3 years to build a well-oiled production system around maize, sugar industry sources said.
Given Delhi's competing priorities, the 15pc blending target for the 2023-24 ethanol supply year may take a backseat, at least in the first half of the year with elections around the corner. Some sugar producers think current curbs are short-term measures, expecting these to ease in the coming months.
But if sugarcane production drops as forecast, Delhi may decide to retain its sugar export restrictions and instead divert surplus sugar to domestic ethanol production to bring India closer to its 15pc ethanol blending target for 2023-24. India achieved 12pc ethanol blending in gasoline with 4.94bn l ethanol in the 2022-23 ethanol supply year, oil minister Hardeep Singh Puri said. This eased to 10pc in November 2023, latest oil ministry data show.
