Biofuels Annual

An Expert's View about Oil in El Salvador

Last updated: 17 Jul 2011

The new Salvadoran government (GOES) headed by President Mauricio Funes, which took office on June 1, 2009, has not approved the Ethanol Law that was created by the previous administration.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 6/14/2011 GAIN Report Number: ES1105 El Salvador Biofuels Annual 2011 Approved By: Barnett Sporkin-Morrison Prepared By: Miguel Herrera Report Highlights: The new Salvadoran government (GOES) headed by President Mauricio Funes, which took office on June 1, 2009, has not approved the Ethanol Law that was created by the previous administration. The present administration has decided to change the gasoline-sugarcane mix ratio to 95 to 5 percent instead of the proposed 90 to 10 percent by the previous administration. This mixture does not affect normal gasoline engines avoiding the need for flex car engines. There are currently several bio- fuel initiatives being implemented to produce bio-diesel from higuerillo (Ricinus communis) and tempate (Jatropha curcas) plants, as well as ethanol from imported dehydrated Brazilian alcohol to take advantage of a CAFTA-DR quota. However, high international sugarcane prices have decreased the interest on part of the sugarcane industry to lobby for the ethanol law. The U.S. continues supporting El Salvador in identifying alternative renewable energies and has recently provided $250,000.00 under the Alliance for the Americas for Energy and Climate. Post: San Salvador Executive Summary: The previous Salvadoran government was not able to finish the approval process for the law to promote ethanol production from sugarcane. The new administration (headed by President Mauricio Funes who is affiliated with the Farabundo Marti Liberation Front - FMLN) which took office on June 1, 2009, is now in charge of completing this task. Under the proposed law, there would be a 95 percent fossil fuel to 5 percent ethanol mix, a mixture that does not require gasoline engine modification. The GOES?s main interest behind this legislation is to decrease the dependence on oil imports (which reached US$876.0 million in 2010) and also to create much needed jobs in the rural sector. El Salvador enjoyed a CAFTA-DR ethanol quota of 5.2 million gallons during the first year of the agreement and a 1.3 million gallon annual increase thereafter. CAFTA-DR requires that this ethanol be distilled in El Salvador but not necessarily from ethanol derived from local sugarcane. Additionally, under CAFTA-DR, El Salvador enjoys unlimited access for ethanol produced with local raw materials. A U.S.-Brazilian-Salvadoran joint venture has constructed a US$10.5 million alcohol dehydration plant near the port of Acajutla with an annual 60 million gallon capacity. The plant started operations in 2005 and has started dehydrating Brazilian alcohol to re-export to the U.S. under CAFTA- DR. El Salvador is also a pilot country for a U.S.-Brazil Bio-Fuels Initiative to develop alternative fuels in developing countries. In April 2008, the Inter-American Development Bank (IDB) provided approximately US$1.0 million to fund technical assistance to design the framework for this endeavor. Under this initiative, the U.S. Trade and Development Agency (USTDA) funded the pre-feasibility study for projects to support bio-fuel development. Other studies have been backed by the Organization of American States (OAS), including one focused on technical assistance for blending and logistical aspects of implementing the ethanol mandate and another investigating ways for local sugar mills to expand into ethanol production. Brazil also funded an agronomic study on bio-fuels potential in El Salvador. Also the Getulio Vargas Foundation?a noted Brazilian business school?conducted a study on potential sugarcane production areas for ethanol and sugarcane varieties that are better for ethanol production. It is too early to forecast how global ethanol developments will affect the social and economic environment of El Salvador. So far, there is no clear indication of how the new Salvadoran government will handle this issue. It seems the government is focusing on targeting Liquid Petroleum Gas (LPG) subsidies to the most needy and on diversification of energy production away from petroleum based (bunker fuel) and into carbon, gas and hydroelectric production. Author Defined: Policy and Programs: BIO-FUELS POLICY 1. Domestic Policy Environment a. Policies which support production and/or use of bio-fuels There is currently no specific policy supporting production and/or use of bio-fuels in El Salvador. However, the GOES through the Ministry of Economy (MINEC) has developed a National Energy Policy. One of the general objectives of this policy is to reduce the country?s vulnerability to energy shortages by diversifying energy sources including the production of bio-fuels. MINEC?s Hydrocarbon Division is in charge of creating and approving policies for import, transportation, distribution, and commercialization of hydrocarbons. An official Energy Commission took over managing El Salvador?s energy policy on October 2008; however, energy is to be additionally included under the legal framework of the Superintendency for Telecommunications (SIGET). Currently, the Hydrocarbon Law of 1981 regulates exploration and exploitation for fossil fuels; however, there are no exploration activities in the country at this time. Nonetheless, there are discussions related to having the Executive Electricity Commission (CEL) carry out a study to determine if there are offshore deposits of natural gas that can be exploited. The commercialization of energy products is based on the Regulatory Law for Deposit, Transportation, and Distribution of Petroleum of 1970. Presently, the GOES only regulates the price of LPG, whose price is regulated because it is subject to a government subsidy. The hydrocarbon diversification strategy is being developed in two fronts: Utilization of alternative fuels through the establishment of a legal framework that permits the use of LPG and Liquid Natural Gas (LNG) as automobile fuel; Promotion and use of bio-fuels establishing the legal framework and the conditions that promote production and use of bio-diesel and ethanol, primarily using local or regional raw materials. On the bio-fuels front, the GOES is working on legislation to promote sugarcane derived ethanol production, storage and sales. The law would mandate a 95 to 5 percent gasoline-ethanol mix, a mixture that requires no gasoline engine modification. Under the previous Salvadoran government, the Ministries of Agriculture and Economy both worked on the legislation and sent it to the Executive Branch for review and presentation to the National Assembly to be brought to a vote. However, with a change in government on June 1, 2009, this process has stalled and there is no indication as to how soon the Funes administration will seek legislative approval for this law. The residual waste referred to as ?Vinaza? is a constraint, and Colombia has offered assistance in using it as fertilizer due to its high potassium content. Bioethanol and Biodiesel: Production Current: Two years ago, the Ministries of Agriculture and Economy started a pilot program to promote the production of bio-fuels in which private university researchers participated. The program led to the construction of the first bio-fuels plant that was financed by the Government of Finland using racine oil derived from the higuerillo plant (Ricinus communis) as the feedstock. The other bio-fuels investment is a joint venture between Salvadoran and Guatemalan investors, with 35 percent equity participation by the government-run Salvadoran Investment Corporation (CORSAIN). At a cost of US$2.5 million, this plant has been designed to produce bio-diesel from African palm imported from Honduras and Guatemala. Plant production capacity is 25,000 gallons per day (approximately 5 percent of current diesel consumption); however, due to high palm oil prices, this plant is searching for other sources of raw materials to be able to re-start production. Bio-diesel produced was being sold to public transportation consortia at a price similar to regular diesel. The main benefit of using bio-diesel is that it?s biodegradable and it prolongs the life cycle of the engine. There are two companies producing sugarcane-derived ethanol: La Cabaña sugar mill and a joint venture between CASSA (owners of Izalco and Chaparrastique sugar mills), Cargill and Brazilian Crystal that has been named American Renewable Fuel Suppliers (ARFS). The ARFS plant is a US$10.5 million investment with a capacity to produce 60 million gallons of ethanol annually. This plant started operations in September 2005 and is only dehydrating Brazilian alcohol to re-export to the U.S. market under CAFTA-DR. The La Cabaña plant has the capacity to produce 31,700 gallons per day from raw sugarcane or 15,850 gallons per day using molasses. Due to the absence of a law, these companies have to search for other markets for their product. There is no impact foreseen on traditional uses such as feed, food, or trade. Ethanol production is sugarcane based and there is ample idle land that can be devoted to fulfill the growth in sugarcane demand. Bio-diesel produced from palm oil and higuerillo (Ricinus communis) and tempate (Jatropha curcas) plants is not expected to cause any impact either. Palm oil was being imported from Honduras and Guatemala, while higuerillo and tempate are being grown locally. The main impact on feed and food is due to the sudden hike in international yellow corn prices. El Salvador?s poultry, cattle and swine industries depend on imports of yellow corn for animal feed mixes. Due to increasing international commodity prices, rising costs affecting the production of these products are been transferred to the consumer severely affecting food security. Planned: El Salvador has been selected as a participant in the U.S.-Brazil Bio-Fuels Initiative to develop a pilot program for production of sugarcane based ethanol fuel in Latin America. At this time there is no funding available to establish the first ethanol plant estimated at US$20 million. However, the Inter-American Development Bank (IDB) has provided funding for consultants to develop a program strategy. According to the Salvadoran Sugar Association, in order to produce 7.5 million gallons per year of ethanol, which is the estimated need to support a 5 percent ethanol mix, El Salvador would need two ethanol plants producing 15,850 gallons per day running for 120-150 days. These plants would require additional sugarcane as raw material. It is estimated that an additional 4,000 hectares of sugarcane would need to be planted, creating 2,500 new jobs. Currently, 72,000 hectares are under sugarcane cultivation. The Government of Colombia has provided technical assistance and a small biodiesel plant worth approximately US$250,000 that was handed over to the Ministry of Agriculture to serve as a pilot program. Consumption There is limited consumption of bio-fuels at this time. Outside of a few small private biodiesel processors that use local feed stock, as well as burnt cooking oil, there is no other use of bio-fuels. The main reason is the absence of a law that allows for the officially mandated use of bio-fuels in El Salvador. The size of the national vehicle fleet is estimated at 600,000. El Salvador?s petroleum imports are expected to reach US$1.1 billion in 2011 at current oil prices. The breakdown of the fuel market in El Salvador is estimated to be 57 percent diesel, 26 percent regular gasoline, and 17 percent premium gasoline for a total of 343.1 million gallons per year. There are five crude oil and refined product importers, including Venezuelan ALBA Petroleos, and approximately 373 service stations nationwide. Demand for fuels has increased by approximately four percent in the first quarter of 2011 compared to the same period in 2010. Following are the fuel consumption numbers (gallons) for the first quarter of 2011: Fuel Type January February March Quarterly Total Premium 4,411,461 4,203,162 4,348,398 12,630,021 Regular 8,733,858 8,316,650 9,130,624 26,181,132 Diesel 16,589,964 15,593,761 18,337,085 50,520,810 Monthly Total 29,735,286 28,113,573 31,816,107 89,331,963 Source: Ministry of Economy Trade Salvadoran Central Bank (BCR) data show that ethanol exports derived from imported raw materials (sugarcane) reached US$ 3.3 million in 2010. This product was exported to the U.S. market under the CAFTA-DR quota assigned to El Salvador for ethanol produced from imported raw materials and also to the Netherlands. There are no records of ethanol imports. Ending Stocks N/A Supply and Demand Tables Biodiesel - Conventional & Advanced Fuels (Mil. Liters) Calendar Year 2006 2007 2008 2009 2010 2011 2012 Production, Total N/A N/A N/A N/A N/A N/A N/A Advanced Only N/A N/A N/A N/A N/A N/A N/A Imports N/A N/A N/A N/A N/A N/A N/A Exports N/A N/A N/A N/A N/A N/A N/A Consumption N/A N/A N/A N/A N/A N/A N/A Ending Stocks N/A N/A N/A N/A N/A N/A N/A Production Capacity - Conventional No. of Biorefineries 0 0 0 1 1 1 1 Capacity (Mil. Liters) 0 0 0 22.5 22.5 22.5 22.5 Capacity Use (%) 0 0 0 0 0 0 0 Production Capacity - Advanced No. of Biorefineries 0 0 0 0 0 0 0 Capacity (Mil. Liters) 0 0 0 0 0 0 0 Capacity Use (%) 0 0 0 0 0 0 0 Feedstock Use - Conventional (1,000 MT) Feedstock A N/A N/A N/A N/A N/A N/A N/A Feedstock B Feedstock C Feedstock D Feedstock Use - Advanced (1,000 MT) Feedstock A N/A N/A N/A N/A N/A N/A N/A Feedstock B Feedstock C Feedstock D Ethanol - Conventional & Advanced Fuels (Mil. Liters) Calendar Year 2006 2007 2008 2009 2010 2011 2012 Production, Total N/A N/A N/A N/A N/A N/A N/A Advanced Only N/A N/A N/A N/A N/A N/A N/A Imports 274 235 344 76 7 N/A N/A Exports 271 217 288 121 4 N/A N/A Consumption 0 0 0 0 0 0 0 Ending Stocks 0 0 0 0 0 0 0 Production Capacity - Conventional No. of Biorefineries 2 2 2 2 2 2 2 Capacity (Mil. Liters) 239 239 239 239 239 239 239 Capacity Use (%) 0 0 0 0 0 0 0 Production Capacity - Advanced No. of Biorefineries 0 0 0 0 0 0 0 Capacity (Mil. Liters) 0 0 0 0 0 0 0 Capacity Use (%) 0 0 0 0 0 0 0 Co-product Production - Conventional only (1,000 MT) Product Y N/A N/A N/A N/A N/A N/A N/A Product Z N/A N/A N/A N/A N/A N/A N/A Feedstock Use - Conventional (1,000 MT) Feedstock A N/A N/A N/A N/A N/A N/A N/A Feedstock B Feedstock C Feedstock D Feedstock Use - Advanced (1,000 MT) Feedstock A N/A N/A N/A N/A N/A N/A N/A Feedstock B Feedstock C Feedstock D Ethanol Used as Other Industrial Chemicals (Mil. Liters) Calendar Year 2006 2007 2008 2009 2010 2011 2012 Production N/A N/A N/A N/A N/A N/A N/A Imports N/A N/A N/A N/A N/A N/A N/A Exports N/A N/A N/A N/A N/A N/A N/A Consumption N/A N/A N/A N/A N/A N/A N/A Ending Stocks N/A N/A N/A N/A N/A N/A N/A Production Capacity Capacity (Mil. Liters) N/A N/A N/A N/A N/A N/A N/A Capacity Use (%) N/A N/A N/A N/A N/A N/A N/A Advanced Biofuels: There is no production or commercialization of advanced bio-fuel production in El Salvador at this time. Notes on Statistical Data: According to El Salvador?s Customs Administration, ethanol is traded as ?ethyl alcohol?. There is no equivalent to the U.S. Harmonized Tariff Code (HTC) 9901.00.50, which defines ethyl alcohol or mixtures with ethyl alcohol to be used as fuel or in producing fuel. Instead, local Customs authorities only use the following HTC?s: 2207.10 ? Undenatured ethyl alcohol, of an alcoholic strength by volume of 80 percent vol. or higher. 2207.20.00 ? Ethyl alcohol and other spirits, denatured, of any strength. CIF duty of 5 percent.
Posted: 17 July 2011, last updated 17 July 2011