Ethanol not the answer to fuel shortage

C. G. Moghe, Jakarta

In his article dated July 12, 2005, Harold Koh posed a question Is Ethanol the answer to fuel shortage? and had a lot of things to say proposing that it is.

His fears are in fact valid. Indonesia, now a net importer of oil, lacks the financial resources to foot the potential import bill of continuing imports estimated by Koh to be more than US$1.1 billion in 2005 (assuming a price of $50 a barrel). As a solution Koh visualizes the use of ethanol as a supplementary fuel for motor vehicles, without really getting in to the depth of the issues involved and the current situation of the sugar industry (which is supposed to provide enough molasses from which the ethanol is to be produced).

In simple terms, after the sugar cane juice is processed to get sugar, the residual molasses is distilled to get the Ethanol. Therefore a strong and efficient sugar industry is necessary for getting adequate Ethanol at economic prices. While ethanol has indeed been used successfully as an alternative fuel in Brazil (as well as other countries), with the automobiles using fuel containing at least 24 percent ethanol according to Koh, the situation is vastly different in Indonesia. Koh thus quite correctly says that "Brazil's success in ethanol use is due primarily to its strong sugar industry".

Brazil is a net exporter of sugar in the world market but Indonesia does not manufacture enough sugar to meet its internal needs. In fact the Indonesian sugar industry can not meet the world competition and world sugar prices have always been lower than those in Indonesia.

Indonesian sugarcane yields have not kept pace with the world yields and the sugar cane farmers of Indonesia are unable to sell their sugar, except with the protection offered by the Government in various forms. There is no likelihood therefore of any significant change in this situation in near future, leading to adequate supply of ethanol from domestic sources.

On the other hand, import of ethanol for blending with petrol/gasoline may be somewhat more economical than import of petrol/gasoline, it will still leave the country to foot the import bill, which it is ill equipped to manage. If the local meager supply of molasses is diverted for making ethanol for blending, then it will create a shortfall in the industries which use the molasses today, generating an adverse chain reaction in some other areas, while trying to solve the problems related to import of petrol/gasoline.

Koh has rightly observed that "The production of feedstock for ethanol will require large and sustainable supplies of sugar cane. Indonesia is perfectly placed to achieve this, thanks to the large tracts of fertile agricultural land, a year long growing climate, and abundant labor force in the rural areas".

He has however ignored that despite these "ideal conditions", Indonesia has been importing huge quantities of Sugar, indicating that something somewhere in Indonesia is not in the "Ideal form" and Ethanol as an alternative fuel is commercially not workable.

What Indonesia needs to concentrate on is Compressed Natural Gas (CNG) and Bio-Fuel obtained from processed oils such as Palm Oil.

For both the natural gas and palm oil industries, Indonesia is a world class player.

The abundant natural gas available in Indonesia (which can be further supplemented by reserves yet to be tapped), exported in the form of liquefied natural gas (LNG) can be easily further developed, together with the infrastructure for transportation and distribution of CNG. Use of CNG will also be more eco- friendly.

All the necessary natural gas would be available locally, without any need to import. The use of CNG is also well developed the world over with several manufacturers in a position to make vehicles, especially trucks and buses using CNG, where the usage is heavy and the changeover will make a major positive improvement in the national budget.

Indonesia is the largest producer of palm oil in the whole world, with vast potential to develop the industry further. The processing of palm oil into bio-fuel will mean very high value addition, which will further encourage growth in production of palm oil, keeping the fuel prices down, as compared to imported petrol/gasoline.

So the future would be CNG and Bio-Fuels, not Ethanol, as far as Indonesia is concerned.

The writer has been working more than 33 years in banking, financial services and projects. He can be reached at cmoghe@indosat.net.id