U.S. efforts to expand internationally were on full display last month as I traveled with a group of industry representatives to Mexico and Japan to explore export opportunities. These trade missions, which were coordinated through a joint trade promotion partnership between the RFA, U.S. Grains Council and Growth Energy, allowed us to meet with government officials and industry players in the respective countries and thus assess the market for openings for American product.
Our first stop was Mexico City, where we met with the Mexico Ministry of Energy as well as representatives from PEMEX. Although PEMEX has a history of avoiding the use of ethanol, recent acceptance of ethanol tenders and energy reform have changed its tune. Mexico recently enacted the Energy Reform bill, which opens up the energy sector to competition. Under the reforms, PEMEX will remain state-owned, but with other players now joining the fray, it will need to keep pace with domestic and international companies beginning in 2017. The need to be price-competitive could lead to the use of ethanol as a means of gaining an edge against international challengers.
MTBE is presently used as the primary source of octane within Mexico's fuel supply. Substituting MTBE for ethanol would protect the nation's water supplies while reducing emissions, particularly in greater Mexico City, which has been plagued by fossil fuel-induced pollution for decades. PEMEX representatives explained that they understand the environmental and cost-saving benefits of ethanol over MTBE. However, infrastructure concerns remain; there has been a 40% growth in gasoline and diesel over the last decade but only a 3% growth in new infrastructure. Tanks and pipelines to refineries are greatly needed and investment in the private sector must be made (PEMEX said it would be willing to work with a private builder). Nevertheless, the demand is present. We visited an entrepreneurial E100 fueling station. The station offers pure ethanol (with blue dye) and educates customers on how to blend for their car. With 50% of the gasoline supply already imported as finished gasoline from the United States, the structural foundation is already in place for U.S. ethanol producers to join the game.
Our next stop: Tokyo. Propelled by the impact of the catastrophic earthquake a few years ago, which shut down its nuclear power industry, Japan is conducting a review of its 2017 energy policy. Despite a renewed focus on energy, we found that transportation fuels are not a top priority for Japanese officials. Nevertheless, the trade mission was a good opportunity to discuss the possibility of permitting the import of U.S. ethanol to use as transportation fuel.
Currently, Japan has an E3 limit and most ethanol is blended into the supply as ETBE. There are almost no independent dealers in the country's petroleum market. Instead, there are 14 large companies organized into five groups that sell contracts through a formalized distribution system. ETBE was selected as the fuel of choice and there is no infrastructure for direct blending. Thus, a long-term contract to import Brazilian sugarcane-based ETBE was created. The only ethanol directly blended is in Okinawa at 60 stations that also allowed E10 in 2012. As it stands today, only Brazil sugarcane ethanol can be used as the direct blend or as the feedstock for ETBE production. While directly blended ethanol is limited to a few dozen stations, ETBE is sold at 3,300 stations nationwide. Japan has, in fact, tried to stimulate domestic ethanol production to no avail. However, beginning in 2011, refiners have had a mandate to introduce "sustainable" bio-ethanol into the fuel supply. ETBE at 7% volume has been the choice to meet the mandate. By 2017, 500 thousand kL (oil basis) of biofuels will be used. Many in Japan are optimistic that the market share of biofuels will continue to increase through the use of E10, which would translate to a 22% volume of ETBE.
If there's a single takeaway from these missions, it is that international markets remain open to dialogue with the United States in accessing U.S. ethanol. The next step for American producers is to determine the needs for each nation as it relates to the use of ethanol, bearing in mind the regulations already present. Mexico's ban on domestic corn use presents an opportunity for U.S. producers, while Japan's need to diversify its energy market and lower greenhouse gas emissions could be a boon for both the conventional and advanced sectors in the United States. To be clear, there are still many hurdles to jump in the coming years. Still, our delegation was encouraged by our meetings with officials in both countries. With consumer demand for ethanol continuously rising, our neighbors to the south and across the Pacific will prove to be important pillars the industry could eventually come to count on.
