Thailand announces $11.3 billion 10-year plan to build sugarcane and cassava bioeconomy

January 25, 2017 |

BD TS 012617 Thailand cover sm

This week we reported from Thailand:

“The government launched its 10-year plan to build a bioeconomy hub for the region with private and public sector investment expected to reach $11.3 billion as it focuses on sugarcane and cassava to feed modern biorefineries that will produce biofuels and biochemical as well as biopharmaceuticals, “future” food and “future” feed. The first $1.44 billion phase of investment is set for 2017/18, first in the eastern province of Rayong and later into Khon Kaen.”

Whoa, there. $11 billion? Time to move to Thailand, everyone. While you’re packing, we’ll analyze the news.

Letter from Thailand

Last May, we reported in “Letter from Thailand” on the state of activities – most importantly, columnist John Forcier observed:

The country will gradually begin phasing out its E10 gasoline blend in favor of E20 by offering increasing levels of price support to the higher ethanol content fuel. As a result of this year’s drought and corresponding reduction in sugar production, the amount of ethanol produced from cassava instead of molasses will likely rise to around 40% compared to the more typical 30%.

B10 biodiesel is expected to be commercially available by 2018. The use of B10 will then be mandated for government-owned vehicles while some type of tax incentives will probably be made available to incentivize private users. B10 is scheduled to be mandated in all diesel vehicles by 2026 at which time the government will begin promoting B20.

The struggle for feedstock

In the past 60 days with a late start to the sugarcane season, it has less been about expanding mandates as much as scrambling for feedstock to meet the current ones.  We reported last month that In Thailand, 4 million metric tons of spoiled rice is set for use as feedstock for ethanol production to help fill the gap in supplies required to meet current blending mandates.

Meanwhile, there have been imports of cassava, and trouble with those imports. As we reported in August, Cambodia’s cassava farmers are looking at alternative cash crops like corn and soy in an effort to reduce reliance on Thailand’s manipulation of prices and markets for the crop. The country doesn’t have processing facilities for ethanol or starch, so it is exported to Thailand for further processing but since the military junta took over the country in 2014, it manipulates the prices by closing unofficial border checkpoints when it wants to reduce the prices. Cassava only fetches around 10 cents per kilo.

What about low oil prices?

Thailand looked long and hard at the state of oil prices, in 2015, and the feasibility of a “build the bioeconomy” push at a time of low fossil demand and abundant supply. We reported in April 2015 that “the energy ministry is reviewing its plans to promote ethanol consumption in light of lower petrol prices. The policy had been to consume 9 billion liters annually by 2021, up from 3.5 billion liters now, but cheaper gasoline will make the aims difficult to achieve. Promoting E85 has been ruled out because it would require subsidies, but E20 may still be an option.”

And E20 is the chosen direction. As we reported in March, the government is phasing out lower 10% ethanol blend fuels by 2018 and 2027, instead bringing in E20 and E85. Doing so will triple ethanol demand to more than 25 million liters per day. To boost demand for the higher ethanol blends, excise taxes will be levied on the lower blends to help counteract cheaper fossil-based fuels. All fuels except E20 and E85 include an oil fund levy that is meant to help subsidize higher biofuel prices to be more competitive at the pump.

25 million liters per day

Per year, the demand adds up to 9.1 billion liters per year, or 2.4 million gallons. Now, Brazil has been at the apex of sugarcane efficiency, yielding something like 74 liters per ton of feedstock. For Thailand’s E20 goals, think 122 million tons of feedstock and something like 1.66 million hectares of land. But that’s based on Brazilian yields — Thailand’s has been lower, something like 40-60 tons of feedstock per hectare depending on season.

And where is Thailand right now? According to this USDA Foreign Agriculture Service report, the country produced 100 million tons of feedstock in 204/15 — that was a down year due to drought, and normal levels would be around 105 million tons.

So – even with the use of cassava for roughly 30% of the country’s biofuels feedstock needs, we can see that there’s a substantial acreage increase in the wings for Thailand with this switch to E20.

Hence, the build-up will focus not only on ethanol production capacity, but also on adding acreage. It’s all at the expense of imported oil, so good for the Thai economy and trade balance — and the blend rate of E20 is aimed at avoiding a cost crunch for drivers.

Beyond fuels, what about chemicals?

Overall, Malaysia has been more aggressive on developing technology and projects related to the expanded advanced bioeconomy, and there’s been higher activity levels in Indonesia too. Both of them are looking at palm waste feedstocks, as well as glycerine left over from palm oil biodiesel production.

But we reported in August 2014 that NatureWorks Asia Pacific, a joint venture between PTT Global Chemical (PTTGC) and based Cargill, had requested the government to provide $78.2 million in soft loans to help jumpstart the bio-plastics industry in the country. Those loans would then spur 40 times the investment from the private sector within the next five to 10 years, 75% of that in upstream production projects.

All that bagasse

One interesting area of activity may be the question of what to do with all the sugarcane bagasse. One third of the tonnage that comes in to a refinery is bagasse. Traditionally, combusted for power — now, an opportunity for cellulosic ethanol as well as renewable chemicals that offer far higher price values. So, think opportunity.

The Bottom Line

The development announcement, in the long-term, could well set up Thailand with a feedstock infrastructure that is the envy of the world, and leads to a flock of technologies heading to southeast Asia in search of commercial projects. After all, with cassava priced at 10 cents per kilo — that’s 15% under the price for, say, corn sugars even when corn is trading at $3.00 per bushel.

For the near-term, excepting a rise in the availability of bagasse, we’d think that Thailand will simply be assembling feedstock and production capacity to meet it’s E20 mandate. That’s be a lot of construction and planting, and for the immediate now that is likely to be the focus — more, more, more of the same.

But keep an eye on this market as the opportunities develop. $10B is a gigantic investment by anyone’s standards — and another sign that, given the EU’s about-face from first gen biofuels, struggling economic times in Brazil and an uncertain political climate in the US, Asia is going to be the major global focus of activity for biofuels expansion over the next five years.

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