India's Ethanol Blending Surpasses 15%, Despite Restrictions

Chennai: The rate of blending ethanol with petrol has been above the government’s target rate of 15 per cent since May, despite the restrictions on the use of sugarcane-based ethanol.

Ethanol demand for blending with petrol rose 19 per cent to 4.8 billion litres (BnL) in 9 months of supply year 2024, which starts from November and ends by October. The blending ratio of 13.3 per cent is higher than 11.6 per cent last year, it is lower than the government’s targeted rate of 15 per cent.

However, the blending rate has been above 15 per cent since May 2024 with an increase in production of ethanol through grains. India is likely to achieve a blending rate of around 14 per cent in 2024 supply year, despite the restrictions on the use sugarcane-based ethanol.

Based on the initial expectations of a fall in the gross sugar production to around 33.5mnt in sugar season 2024 from 37.2mnt in the previous year, the government restricted the diversion of sugar towards ethanol to 1.7mnt against 3.8mnt last year to increase supply and thereby reduce sugar prices.

India’s ethanol blending rate demand will continue to increase in 2024 despite the restrictions on the use of sugarcane-based ethanol. The reduction in supplies due to the restriction is likely to be offset by a jump in supply from grain-based sources led by maize.

“While the target of 20 per cent ethanol blending in petrol by 2026 still appears ambitious, given the feedstock availability and vehicle compatibility related challenges, the ethanol segment could witness double-digit growth even with a blending rate of 16-17 per cent. The over 200 per cent increase in the blending rate between 2020 and 2023 was largely driven by sugarcane sources, and growth over 2024-27 is likely to be led by grain-based distilleries.

Around 20 per cent blending will require 10BnL of ethanol by 2026. Even a lower blending rate of 16-17 per cent would translate into 8BnL by 2026.