In this scenario, Brazil is ideally placed to push ethanol, made from sugarcane, which can be mixed with petrol in varying proportions. Being the largest and the lowest-cost producer, it could emerge as a global supplier. In the 2004-05 season (May-April), ethanol output is expected to be 16 billion litres, of which 2 billion will be exported. The price at which Brazil sells its ethanol can be competitive at global prices of $22 a barrel. With crude selling much over that mark—it's over $50 a barrel now—ethanol has an edge. Experts think the average crude prices will be $30-35 on a long-term basis.
ISO officials told Outlook that "Brazil is trying to foment ethanol growth. It supplied to the US (the second-largest producer) last year, and it has signed agreements with Japan. Negotiations are on with China and the EU (which plans to buy one billion litres a year from South American sources)." Adds a commodities trader at Coimex, Brazil's largest private ethanol exporter, "We can double the acreage under cane to 10 million hectares, commit the crop for ethanol to increase supplies."
The tide will turn in Brazil's favour once Petrobras steps in. The conglomerate is, as an Indian embassy official in Sao Paulo puts it, "ONGC, IOC, OIL, HPCL and BPCL all rolled into one". Having helped the country become self-sufficient in oil and gas, it's looking seriously at ethanol. Petrobras top brass revealed says the company plans to spend $330 million to build four new pipelines to transport ethanol to domestic ports. It may tie up with China to build ethanol-handling logistics there to handle the latter's imports. By 2008, Petrobras hopes to export 8-9 billion litres annually, compared to a target of 2 billion litres this year. Oil giants like Shell, BP and Texaco are talking to Petrobras to join hands in the ethanol business.
To meet domestic demand, the US is upscaling ethanol production too; only, it has to use new raw materials (like cellulosic materials) instead of cane since the latter's supplies are limited. China has set up the world's largest distillery based on corn. But it's trying tapioca as a raw material, as Brazil is with bagasse (residual after cane crushing). Thailand and India nurture ethanol ambitions too, but more for domestic use. EU, which will have to stop sugar subsidies due to wto compulsions, may protect its farmers' interests by diverting cane for ethanol. But most consumers may turn net importers—the US may buy 8-10 billion litres annually in the next few years, Japan 14 billion litres by 2011, and EU 8.5 billion litres by 2006.
Since ethanol is only a petrol substitute, several nations are working to develop bio-diesel from different sources like soyabean, mustard and rapeseed. Petrobras' thinking is that rapeseed will be most suitable for Brazil since the crop can grow easily in the northeast tip of the country, where most of the populace is poor and has little employment avenues. This will allow social upliftment and remove the yawning gap between the rich and the poor. India is trying a local plant, jatropha curcas, which grows in abundance here. The US and EU have optimistic bio-diesel plans too.
At the same time, developed nations are also hedging their bets on hydrogen as the next big viable, clean alternative. The US wants a full-fledged hydrogen economy by 2015, while Japan plans to have 5 million cars running on the fuel by 2020.Japan's 2005 budget for it is 260 million euros, and the US may commit the equivalent of 190 million euros in 2005 (excluding individual state fundings). In comparison, EU is just waking up and plans to invest nearly 3 billion euros over the next few years to fuel its hydrogen aspirations.Now China has entered the fray, and initial research has started in India. Canada too may become a major player.
However, the race for hydrogen itself is prompted by the desire of each nation and community to set the global standard for this technology. For, whosoever manages it will logically become the near-monopolist supplier. Compare it to the telecom sector, where gsm and cdma technologies have fought hard to leave their imprints on the world arena. "The battle is to be the first to set technology standards, and that's the reason for the conflict between the US and EU," says an EC official in Brussels. (It's a different matter that both the US and EU have joined hands in an international agreement to jointly develop and promote hydrogen and fuel cells.)
So, what does the future hold for these fuels? Experts Outlook spoke to seem to believe that all of them will coexist in varying ratios in different countries. Traditional fossil fuels will remain important until technology forces down the prices of alternatives. For example, hydrogen costs have to come down by a factor of 10 before it can be a commercial success. Similarly, ethanol costs in the US and EU are quite high; they can only remain viable at respective crude prices of $30 and $40 a barrel now.
But the use of ethanol, bio-diesel and hydrogen will increase rapidly. Each nation will have to find its own mix, based on political, diplomatic and economic factors. Japan and EU may wish to increase their dependence on hydrogen. The US may rely on a mix of ethanol and hydrogen. So may China and India. And bio-diesel will coexist in all these countries. Whatever might be the respective energy blends, the traditional oil producers are looking to lose their stranglehold.
