The recent drop in global oil prices has not slowed down the development of alternative energy sources. According to a recent report, the National Development and Reform Commission and
Other officials are pushing forward with the promotion of fuel ethanol gasoline, aiming to increase production capacity from the current 1.02 million tons to 5 million tons by the end of the "Eleventh Five-Year Plan" period. The government will also set strict market access conditions and use bidding to select manufacturers. However, the four existing pilot companies will still be the main contributors for the newly added 4 million tons of capacity.
Currently, 500 million tons of ethanol-blended gasoline have reached 40 million tons, accounting for just 60% of the gasoline market. This means that these four companies have significant growth potential in the coming years. The pilot program was expanded in April 2001, when the State Planning Commission officially promoted the use of vehicle ethanol gasoline. This initiative aimed to address energy substitution and manage aging grain stocks.
Four pilot projects were approved with a total capacity of 1.02 million tons: Jilin Fuel Ethanol (300,000 tons/year), Henan Tianguan (300,000 tons/year), G Fengyuan (320,000 tons/year), and China Resources Alcohol (100,000 tons/year). From June 2002 to June 2003, pilot trials were conducted in provinces like Henan and Heilongjiang. By 2004, the program expanded to include more regions such as Heilongjiang, Jilin, Liaoning, Henan, Anhui, Hebei, Shandong, Jiangsu, and Hubei.
To further promote ethanol gasoline, the government plans to consolidate existing pilot areas and implement closed operations in Guangxi. In central and eastern regions, including Beijing, Tianjin, and the Yangtze and Pearl River Deltas, most areas have already achieved market closure. Additionally, research into flexible fuel vehicles is ongoing.
Despite the current capacity of 1.02 million tons, it is far from meeting market demand. During the "Tenth Five-Year Plan," Henan Province aimed for a 75% market share of ethanol gasoline, but actual consumption reached 230,000 tons in 2005, exceeding expectations. To meet future needs, production capacity must expand significantly.
By 2010, the goal is to reach 4.5 million tons of fuel ethanol production, accounting for 5.88% of annual gasoline consumption. Ethanol gasoline usage is expected to reach 37 million tons, or 55% of vehicle fuel consumption. However, the question remains: who will bear the new capacity? Existing companies currently benefit from state subsidies, ensuring low-profit guarantees. By-products from ethanol production can also generate additional revenue.
Industry experts suggest that fuel ethanol production should be located near raw materials like corn, cassava, and sweet sorghum, as well as near consumer markets and feed industries. The "Eleventh Five-Year Plan" emphasizes fixed-point production and controlled competition, with projects requiring approval from the National Development and Reform Commission.
A top executive from a leading fuel ethanol company told the "Securities Market Weekly" that the government prioritizes existing enterprises due to their technological capabilities and risk management. While the market is open for competition, the focus remains on expanding production and securing market share.
With only 1.02 million tons of capacity covering nine provinces, the four fixed-point companies face the challenge of increasing production quickly to meet rising demand. Some companies have already signed agreements to acquire large-scale manufacturers and expand locally.
In the competitive landscape, each company faces different challenges. For example, China Resources Alcohol, located in northern Heilongjiang, struggles with limited market expansion due to strong competitors in Jilin. Meanwhile, methanol gasoline is gaining ground in some regions, adding complexity to market dynamics.
Methanol gasoline, made from coal-based methanol, is cheaper and cleaner, but its production relies on non-food resources. Shanxi Province aims to become a national methanol production base, targeting 10 million tons by 2010.
To overcome financial challenges, companies are exploring alternative raw materials. Using corn to produce ethanol is costly, but fiber-based ethanol offers a promising solution. Henan Tianguan recently launched a fiber ethanol project, using straw waste instead of food crops, reducing pressure on food security.
If raw material substitution and efficient utilization are achieved, fuel ethanol could become more competitive without relying on subsidies. Sales of ethanol gasoline are managed by CNPC and Sinopec, with deployment centers built around existing infrastructure. As of early 2006, CNPC and Sinopec had sold millions of tons of ethanol gasoline, supported by government subsidies and tax exemptions.
The future of fuel ethanol depends on innovation, cost reduction, and strategic expansion. With growing demand and evolving policies, the industry is poised for continued development.
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