19 September 2007 14:50 [Source: ICIS news]
MUMBAI (ICIS news)--The Indian biofuels market has enormous potential but there are still big obstacles to be overcome, like the absence of a clear government policy and lack of feedstock availability, before it can play a significant role, international consultants Frost & Sullivan said on Wednesday in its strategic analysis of the industry.
"Due to these strategies [10% mandatory ethanol blending], the rising population and the growing energy demand from the transport sector, biofuels can be assured of a significant market in India," said research analyst Hari Krishnan from the consultants.
The Indian government is considering implementing 10% mandatory ethanol blending in motor vehicle fuel from October. Blending at 5% is currently optional for individual states.
"However, the lack of large-scale availability of feedstock restrains the market. Indian manufacturers are considering importing palm oil to produce biodiesel," Frost & Sullivan said.
The absence of a clear government policy on biofuels and lack of availability of domestic feedstock had inhibited several biofuel manufacturers from entering this market, it added.
"Securing feedstock through vertical integration will greatly help biodiesel manufacturers in mitigating availability issues and keeping the cost of production under control," Frost & Sullivan said.
Similar availability issues also affected the more developed Indian bioethanol industry, as ethanol was primarily manufactured from molasses, a by-product of sugar, it said.
"Since sugarcane production is cyclical, the availability and cost of production of bioethanol will vary depending on sugarcane crop yields," it added.
India's ethanol-blending programme could not be implemented during 2003-2004 due to a low sugarcane output and the second phase of this programme was announced in September 2006 only after a recovery in sugarcane production.
"It will be necessary to invest in research in areas such as cellulosic ethanol technology, improvement of production efficiency and yields," Krishnan said.
"Further research to aid in the development of alternate feedstock will also help manufacturers rely less on sugarcane," he added.
By reducing dependence on molasses, manufacturers could exercise better control over their production costs, since the bargaining power on prices rested with the government and oil marketing companies, Frost & Sullivan said.
India's crude oil and petroleum products supplies were largely import-dependaet, it said.
With oil import expenditure increasing by more than six times in the last 25 years due to an escalation in global demand and prices, biofuels were expected to be pressed into service, it added.
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