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The Quest to Open Ethanol Markets in South America

December 2, 2014

           

As the election season came to a close here in the United States, I avoided most of the political drama by catching a plane south of the border to visit the beautiful countries of Peru and Panama. The reason for this trip was not to enjoy the sites and culture of these two countries, but to take part in an ongoing effort by the U.S. ethanol industry to grow ethanol markets around the world and to strengthen America’s trade ties. By partnering with the U.S. Grains Council in this trade promotion effort, our industry has been given an opportunity to better understand the transportation fuel market in Peru and Panama, and pinpoint exactly how increased imports of American ethanol to South America can benefit these and other countries in the region. The first stop on our trade mission was Peru which currently imports ethanol exclusively from the United States for domestic use. By importing American-made ethanol to blend in their domestic fuel stock, Peru has been able to capitalize on some of the economic benefits of ethanol from the U.S. But, while we found that Peru is right on point when it comes to using ethanol as an oxygenate to improve its air quality, the country is leaving a major opportunity on the table by not using ethanol for its octane benefits. We seized the opportunity to explain the octane boosting power of ethanol and how it would benefit Peru economically. Peru is a very valuable ethanol export market for the U.S. today, and could be an even larger export market for America in the future if the full octane value of ethanol is recognized, and the country considers increasing the blend rate. Today, Peru consumes 2.1 billion liters of gasoline; a figure that is estimated to grow by 22% over the next decade. At the current blend rate of 7.8%, Peru’s total ethanol demand for 2014 is 160 million liters and next year is expected to rise to 165 million liters. Last year, Peru imported 33 million liters of ethanol from the U.S., and this year it is estimated that its ethanol imports will grow modestly to 40 million liters. However, even without an increase in the blend rate, it is forecast that Peru’s ethanol import demand will grow to 75 million liters in 2015 which is a dramatic jump from the current year. This could provide a very valuable trade opportunity for the U.S., which could even be more significant if Peru considered moving to 10% ethanol blends. Peru is not just a target market for ethanol exports; it is also driving innovation and growth in the biofuel industry with its farming and ethanol production practices. During the meetings we learned how Peru uses glacier run off to irrigate the desert region of Piura. In doing so, Peru is transforming a portion of the Piura region from desert to farmland. The farmland now produces sugar cane and other agricultural commodities. A portion of the sugar cane is then used for ethanol production. This is just one example of the innovative and forward-thinking initiatives in Peru. Next up was Panama where we found that ethanol is not well received by the public. Delving deeper, we learned that the public’s concerns about ethanol are in large part due to production problems at the country’s only ethanol plant, which have led to higher prices for their ethanol and a lack of sufficient volumes to meet the country’s demand. It seems that Panama’s only ethanol plant has not been run very efficiently, and has had difficulty finding sufficient feedstock to produce enough ethanol. This has resulted in higher prices at the pump for consumers, and has led to a backlash from political officials and leaders. While Panama has an aggressive ethanol blending policy that calls for blends to grow from 5% to 10%, the policy has been suspended due to absence of competitively priced ethanol from its only producer of ethanol. Despite this setback, as a result of our meetings, various Panamanian officials continued to express interest in the cost-saving benefits of ethanol produced in the United States, and it seems that the country is open to considering the possibility that ethanol imports from the U.S. could help meet Panama’s domestic blending targets while they work to improve their ethanol production. While Panama is a smaller market, they hold a unique position in the region, and thereby hold the key to promoting biofuel use in many of the surrounding markets. This wasn’t the first trade mission and it won’t be the last. The RFA Board of Directors has identified expanding global markets as a key initiative. Keying off that directive RFA has traveled far and wide to promote the benefits of America’s ethanol and open new markets. We will continue to do so as the year comes to a close. Next up for our trade promotion efforts: Southeast Asia.