ANALYSIS - Japan Oil Firms Should Invest in Ethanol, Not ETBE
Date: 08-Aug-07
Country: JAPAN
Author: Risa Maeda
Massive investment will be needed on either a facility for gasoline mixed directly with plant-origin ethanol, the option being followed by other countries, or the oil industry's favoured partly oil-based additive of ethyl tertiary butyl ether (ETBE).
With Japan well behind its emissions target under the Kyoto Protocol and tougher goals likely to be introduced after the pact's first phase ends in 2012, some analysts say oil firms could be stuck with infrastructure that cannot be upgraded beyond the 3 percent of biomass ethanol used in ETBE.
"What look like cheap bargains now would be costly in the end," said Tetsunari Iida, executive director at the Institute for Sustainable Energy Policies in Tokyo.
Unlike pure ethanol, ETBE has low water solubility and low vapour pressure and can be stored and transported as gasoline. But it is not as efficient in reducing emissions.
With the government failing to provide a lead, the incentive for oil firms to favour ETBE is clear: infrastructure to manufacture and distribute ETBE-blended gasoline could initially cost half of that to sell a mix of 3 percent ethanol, or E3.
ETBE would allow refiners to reuse facilities for production of additive methyl tertiary butyl ether (MTBE) -- phased out since 2001 -- and utilise isobutane, a by-product of the refining process, without changing their existing distribution systems.
"ETBE-blended gasoline is easier to handle in the circulation network," said a spokesman for Nippon Oil Corp.
COSTLY ETBE
A recent study by the Institute of Energy Economics in Japan showed the oil industry would have to spend about 300 billion yen ($2.54 billion) in order to ensure its petrol stations, tanks and terminals can handle E3 gasoline.
By contrast, the initial investment cost for replacing Japan's entire gasoline supply -- the third-largest in the world at 1 million barrels a day -- with gasoline that includes 7 percent ETBE would be around 150 billion yen.
In resource-poor Japan, ETBE is currently supplied by Lyondell Chemical Co. from Europe, although domestic refiners are looking into the feasibility of producing more at home or in Brazil, a major producer of sugar-origin ethanol.
On top of the investment costs, using ETBE would help oil firms retain their share of the shrinking domestic fuels market, making it even more difficult for Tokyo to move toward the 10 percent ethanol mix favoured in some Western countries.
Some industry officials believe a push toward greener fuels is inevitable as Japan struggles to rein in greenhouse gas emissions. If so, it will be difficult to do that with ETBE, meaning the industry could be forced to invest a second time.
For ETBE gasoline to achieve the same level of ethanol content as E10, the fuel would need to contain 22 percent ETBE.
For the moment, Tokyo's official line on biofuel is unclear, as bickering between different government departments has stymied the formation of a coherent government biofuel policy.
The trade ministry, which includes energy policy, began a subsidised two-year test sale of ETBE-mixed gasoline in April, while the environment ministry is backing a five-year plan to test sell E3 that starts later this month in Osaka.
Refiners such as Nippon Oil and Idemitsu Kosan Co. Ltd. hope to sell 12 million kl (207,000 bpd) of the 7 percent mix nationwide in 2010, up from this year's preliminary 170,000 kl.
AUTO MAKERS LEAD
At a time of intensifying competition for food-or-fuel crops such as sugar and corn, the oil industry's argument against putting additional strain on agricultural resources has some traction.
"Bio-ethanol is good as it is carbon neutral. But it eats into food output and is feared to damage environment and cause water shortage," a trade ministry official said.
But in the interim, the country's world-beating auto makers are leading the way to lower CO2 emissions.
Toyota Motor Co
