FocusMethanol-blended fuel slow to bloom in China

04 December 2009 07:08  [Source: ICIS news]

By Fanny Zhang and Nurluqman Suratman

SINGAPORE (ICIS news)--A widespread adoption of methanol-blended fuels for transportation in China may not happen soon despite its legalisation this month, enabling the country to tap into its massive coal reserves to produce cleaner gasoline, industry sources said on Friday.

The domestic methanol industry would have to wait longer to benefit from this new market even as the national standards for blended gasoline with 85% methanol took effect on 1 December 2009, they said.

Although taxi drivers in China have shown strong interests in using the hybrid fuel because of lower costs, car owners are less receptive, said Ma Liang, vice secretary-general of the China Association of Alcohol and Ether Clean Fuels and Automobiles (CAAECFA).

Blended fuel is a cheaper and an environment-friendly alternative to ordinary gasoline since China has abundant reserves of coal - the  main feedstock for methanol production. The country has about 1,000bn tonnes of proven coal reserves, said Ma.

But the high cost of modifying vehicle engines to use methanol-blended fuels is a strong deterrent for motorists, said the industry association executive, citing that switching to cleaner fuel would mean around CNY2,000 ($293) cash out for each car owner.

A lack of governmental subsidies and of strong support from the country’s energy and petrochemical giants Sinopec and PetroChina also restricts the growth of methanol-blended gasoline industry, said Ma.

The two companies, which own more than half of all gas stations in China, have yet to build facilities that can produce the blended fuel, industry sources said.

In China's northern province of Shanxi, where fuel blending was first introduced, there were not enough petrol stations pumping blending fuels, said Ma of CAAECFA.

Methanol players stand to gain the new government regulation legalising the use of the chemical for fuel blending as this provides a new avenue for manufacturers to channel excess capacity, market sources said.

Production of the chemical in China grew at an annual average rate of 25% between 2000-2008, said Xiang Lianbao, vice secretary-general of CAAECFA.

But demand from downstream industries like dimethyl ether (DME) and acetic acid were low this year that methanol plants in China were running at just around 30% of capacity, down from 54% in 2008, Xiang said.

China produced more than 20m tonnes of methanol last year, with total output in 2010 expected to hit 29.5-30m tonnes, said Xiang.

With additional reporting from Heng Hui
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By: Fanny Zhang
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