Thailand : A Prudent Approach to Ethanol Blending

Pic 1 - Price comparison 

I recently visited Thailand after almost two years.  One of the first things I noticed was the signage at the petrol pump announcing the price of E85 (Petrol blended with 85% Ethanol). This came as a pleasant surprise to me.  I was aware that Thailand blended up to 10% Ethanol with Petrol (with plans to go up to 20%) and had been doing so for more than 6 years. The jump to an 85% blend meant that Thailand was now at the forefront of Ethanol blending, world-wide. But what was even more significant was the transparency in the prices of Gasoline (Petrol) of various blends and grades. The price of crude oil was displayed, along with taxes and duties, and also advertised in newspapers on a daily basis by the Petroleum Company, which is state owned. This goes a long way in adoption of Ethanol blending by the consumers, because they can clearly see the cost benefit of Ethanol blending. Additionally, consumers can also see that the benefits of any drop in international crude oil prices are directly transferred to them.

Pic 2 - Transparency in prices

The introduction of E85 follows successful implementation of 10 and 20% blending, where they replaced the higher octane Petrol with Gasohol.  This ensured that consumers were getting the same quality of fuel in terms of energy, at lower prices (see pic 1 for price comparison).  The Government of Thailand has also announced tax concessions for flex fuel cars (cars which run on E85) thereby addressing all the pain points in adoption of alternative fuels by the public.  With this, Thailand is only the fourth nation in the world, after US, Brazil and EU, to adopt flex fuel cars and E85, and the first country in Asia to do so.

This made me think how Thailand succeeded in implementing an Ethanol Blending Program, while countries like India continue to struggle.  Both India and Thailand are democratic countries. Both have oil Companies which are largely state owned. But Oil Companies seem to have completely embraced the program in Thailand, where they regulate the price of ethanol as per the policy.

What is so special about Thailand’s Ethanol blending policy?

It is a policy which is based on taking all stakeholders on board, be it the Oil Companies or the consumers, with particular emphasis on the consumers.  If you see pic1 and pic2 you will notice the transparency in the information shared with the public. The consumers know how the final price of Gasoline is determined, based on International crude price, taxes and duties. They know the relationship between the oil barrel price and Gasoline. Also, it is evident that they will end up paying much lesser if they choose Gasoline with a higher percentage of Ethanol.

At the back end, the purchase price of Ethanol is determined by the import parity price of Petrol and the price of imported Ethanol.  From April 2013 onwards, the price of Ethanol will be determined by the input cost which will ensure steady supply through better viability for Ethanol producers.  Apart from that the Agriculture Ministry is also ensuring that adequate feedstock is available for local ethanol producers through efficient cultivation of cassava and sugarcane, from which ethanol is derived.  This is indeed very pragmatic where the entire chain of input and output is made viable, so that everyone derives benefit from the program.

Incidentally, Thailand is a large producers and exporters of chemicals.  At this point, there seem no resistance from the chemical manufacturers or automobile companies.

Where did a nation of 66 million people get the courage to lead the alternative fuels program?  As a nation of 1200 million with an oil import bill of US$ 140 Billion , it has taken India a fairly long time to get to 5% blending, which is scheduled for June 2013 (after a long hiatus).

Perhaps it is time for us to really see the woods for the trees?