India advances gasoline's ethanol blending target in push towards energy transition

India has brought forward its target of blending gasoline with 20% ethanol by five years, in its efforts to accelerate the push towards renewables and make the overall energy basket cleaner, Prime Minister Narendra Modi said.

Speaking on the occasion of the World Environment Day over the weekend, Modi said the country would now aim to achieve the target of 20% blending by 2025, instead of 2030, a move that will not only prepare the country for energy transition but also aim to support the livelihood of farmers in the country.

"The focus on ethanol is having a better impact on the environment as well as on the lives of farmers," a government statement quoted Modi as saying.

He added that until 2014, on an average, only 1.5% of ethanol could be blended in India. But this has now reached about 8.5%, adding that the multi-fold increase had benefitted the sugarcane farmers of the country.

Modi said India has placed a lot of emphasis on building the necessary infrastructure for the production and purchase of ethanol in the country. The ethanol manufacturing units are mostly concentrated in four to five states where sugar production is high. And now, the government was speeding up the process of establishing food grain-based distilleries as well as setting up modern technology plants to make ethanol from agricultural waste.

"India is also aware of the challenges that are being faced due to climate change and is also working actively," Modi said.

Market implications

India is expected to produce around 875,000 b/d of gasoline in 2021, rebounding from 825,000 b/d produced in 2020, but still below the 902,000 b/d output in 2019, according to latest data from S&P Global Platts Analytics.

While India's ethanol blending target has been brought forward, Asia's gasoline industry participants remain confident of the growth in domestic demand for the motor fuel.

"We have to see a large increase in India's capacity to blend ethanol into their gasoline first, before we will see a real dent in gasoline demand growth," one Singapore-based source said.

"Domestic refiners just completed their upgrades for the move to Euro-6 equivalent gasoline last year. They will likely not be in too much of a rush to do another round of massive upgrade works so quickly," added a second gasoline source.

India's gasoline demand hit the highest in more than 23 years in March, rising to 2.74 million mt, the highest since 1998, data published by the Petroleum Planning and Analysis Cell showed. Gasoline demand subsequently fell 12.97% in April to 2.38 million mt due to lockdowns because of the second wave COVID-19 lockdowns.

Some analysts said the move could help reduce dependence on imported oil in the longer term, although the near term impact would be minimal.

"This is a much needed step for a country which imports around 85% of its crude oil needs," Rajat Kapoor, managing director for oil and gas at AWR Lloyd, told S&P Global Platts.

"A 20% blending will help to bring down the amount of crude that the country needs to import on an annual basis to satisfy its domestic demand for petrol and diesel. A substitute for imported crude, with domestically produced ethanol, will somewhat help rectify the trade imbalance and provide for increased energy security in today's unpredictable world," he added.

Renewable energy capacity growth

Other than the gasoline blending target, Modi also said the country's capacity for renewable energy had increased by more than 250% in the last six to seven years, making India one of the top five countries of the world in terms of installed renewable energy capacity. He added that capacity for solar energy had increased by about 15 times in the last six years.

India is working with a holistic approach through the National Clean Air Programme to curb air pollution. Modi said the work on waterways and multimodal connectivity would not only strengthen the mission of green transport, but also improve the logistics efficiency of the country.

Modi spoke about a project which is underway to develop Kevadiya in the western state of Gujarat as an electric vehicle city. He said necessary infrastructure is being made available so that only battery-based buses, two-wheelers and four-wheelers will run in Kevadiya in the future.

He also said that the government had identified 11 sectors which could potentially make good use of resources by recycling them using modern technology.