July 14, 2010 / 12:30 PM / 9 years ago

Q+A: What's supplementing China's gasoline?

BEIJING (Reuters) - Nearly 3 million tonnes of methanol gets blended yearly into China’s rapidly growing gasoline market, replacing a slice of demand for the refined oil product, a trend largely unnoticed by the industry.

The alternative alcohol fuel, distinct from biofuel ethanol as it is made from natural gas and coal, is a key to explain why China’s gasoline consumption lags its ballooning fleet of new cars and why China remains a leading gasoline exporter in Asia.

The quiet expansion in methanol blending, partly due to the absence of official data, has been pushed by coal-rich provinces and aided by the country’s broader campaign for alternative energy.

But the country’s state refiners are vocally against it, worried that expanding methanol supply will erode their dominant market share of conventional gasoline.

China’s use of ethanol — made from corn, wheat and agricultural waste — in gasoline has been static at about 1.4 million tonnes a year, its growth impeded by Beijing’s concern for food security. State oil firms control most ethanol output.

The following examines the current situation of methanol gasoline supply and marketing; local government support for the alternative fuel and safety hazards that could stem growth, according to industry officials, analysts and government researchers.

HOW BIG IS METHANOL IN CHINA’S GASOLINE MARKET?

At 3 million tonnes a year, the estimated amount of methanol mixed into gasoline is equivalent to about 4 percent of China’s current implied gasoline demand of about 1.6 million barrels per day.

The volume amounts to nearly 60 percent of the incremental gasoline demand this year of some 5.2 million tonnes, as forecast by Chinese state refiner Sinopec, or the estimated total amount of gasoline China exported for the first half of the year.

The growth was also due to methanol’s cost advantage versus conventional gasoline, prices of which are near record highs under China’s 18-month-old system that links domestic fuel rates with global markets.

WHAT IS METHANOL MADE FROM IN CHINA?

Unlike many other countries, which mainly produce methanol from natural gas, China makes methanol from its abundant reserves of coal with intermediate production of synthetic gas.

Methanol can also be produced from biomass, an environmentally sustainable but higher-cost option.

China’s traditional methanol users, such as chemical and pharmaceutical industries, now face an overcapacity of methanol, so some producers are shifting to use it as a gasoline-blending component.

IS THERE A NATIONAL QUALITY SPEC FOR METHANOL GASOLINE?

In May 2009, China introduced national quality specifications for M85 — methanol gasoline with 85 percent methanol — and started using it last December, but consumption has been limited as it requires specially designed engines.

Few auto manufacturers make this kind of engine as China has yet to publish emission standards for the alternative fuel. M85 is used in racing cars in the United States and Europe.

Provinces including east China’s Zhejiang, coal-rich Shanxi and Shaanxi in the north have either established or are pushing for local quality standards for M15, gasoline blended with 15 percent of methanol that does not require much of a revamp of conventional gasoline motors.

These regional authorities and some Beijing-based government-linked industry researchers have since 2007 been lobbying for the central government to endorse national standards for M15. It has not yet won state approval.

WILL CHINA GIVE A BIG PUSH FOR M15?

Unlikely. The main opposition comes from the country’s powerful oil duopoly Sinopec Corp and PetroChina, both of which are against the supplement fuel to safeguard their conventional gasoline market share.

The other main concern is of quality and safety of the alcohol fuel, which will likely complicate the top energy giants’ efforts to maintain quality standards in their already taxing push for cleaner fuels and brand images.

For now, the main players are local firms and they supply methanol gasoline into independent service stations. In most cases, they are sold as conventional gasoline without any mark of methanol content.

WHAT ARE THE SAFETY ISSUES FOR METHANOL?

Methanol burns without any flame, making it difficult to detect when a fire occurs. That, plus the thick black smoke it produces are the key safety issues when blended with gasoline.

In combustion, methanol produces a lot of water in exhaust, which combines with formations of acid, increasing engine wear.

Methanol contains soluble and insoluble contaminants which increase engine corrosion.

Editing by Manash Goswami and Ed Lane

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