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Philippines' DOE says bioethanol blending program to continue amid reports of suspension

Highlights

No Official Directive for Suspension of E10: DOE

Market participants ponder E10's future

Singapore — The Philippines' Department of Energy, or DOE, said there is no official suspension of the country's bioethanol blending program with gasoline products after local media reported that the Independent Philippine Petroleum Companies Association is supporting the possible suspension of the mandate to divert the production of ethanol for hand sanitizers.

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"The DOE has no official issuance or directive regarding suspension of the 10% bioethanol blend mandate," said a DOE official May 20 in response to S&P Global Platts queries on a possible suspension of the E10 blending mandate.

Market participants in the Philippines over the week ended May 16 were discussing about a possible downgrade or suspension of the E10 blending mandate.

Record low oil prices have made blending bioethanol increasingly costly.

Currently, the Philippines mandates a blending of 10% bioethanol on all gasoline products sold across the country through the Biofuels Act of 2006.

"There is stronger support for suspension due to low oil prices and low demand," said a market participant.

Any move to suspend the program is expected to be welcomed by some oil companies that have traditionally paid higher prices for domestic ethanol.

The Philippines' domestic bioethanol reference price was pegged at Philippines Peso 60.47/l ($1,120/cu m) in April, down 5.5% month on month, showed latest data released by the Sugar Regulatory Administration. In contrast, the average imported fuel ethanol price remained less than half of locally produced ethanol prices at $357.51/cu m CIF Philippines in April, showed Platts data.

Slumping molasses prices as a result of COVID-19, which has left swathes of the country under a lockdown, accounted for much of the fall in domestic ethanol costs. For the month of April, Negros molasses slumped 11.09% from a year earlier at Peso 11,837.75/mt, which resulted in an equivalent feedstock cost at Peso 50.15/l ($1/l).

Meanwhile, a source at a local oil company said: "It is up to the President to decide at the moment, which could turn the suspension into reality," adding:

"I could import foreign ethanol to blend if that is still allowed, as the cost of gasoline is around Peso high-20s/l with taxes while imported ethanol is around Peso 18s/l, making blending feasible."

The possible move to suspend E10 may also prove profitable for some of the local ethanol companies that will enjoy higher profit from anhydrous bioethanol products to make ethyl alcohol for disinfectant products, which are around Peso 90s/l versus Peso 60s/l for fuel ethanol, although there could be technical issues to resolve for producers to make the switch, said the same market participant.

Existing stakeholders voiced opposition to the suspension. A spokesperson for the Ethanol Producers Association of the Philippines, or EPAP, said: "Any move to suspend the E10 mandate will be opposed by EPAP members and our stakeholders (suppliers) in the industry. Why would our government aggravate the current health and economic crisis by suspending the mandate? In fact, amidst pandemic, local monthly allocations, or LMA, compliance should even be tightened to keep the economic activities in respective local host communities (where our plants operate) – ensuring economic stability during this uncertain time."

The DOE sets LMAs for domestic ethanol production, and the country's oil companies are required by law to fulfill their domestic allocations before importing cheaper fuel-grade ethanol.

Local LMAs were set at 79,700 cu m for the third quarter, according to a DOE document seen by Platts. This was lower than 91,100 cu m in Q3 2019.

On the trade front, the US customs data showed that exports of undenatured ethanol to the Philippines fell to 17,578 cu m in March from 26,187 cu m in February, while denatured exports were pegged at 950 liters in March as the country went into lockdown.