"However, progress so far has been patchy because of rising raw material costs and inconsistent government policies. Despite this, bio-fuels for the transport sector offer an attractive way of boosting domestic energy supplies for many nations in the area. The region is rich on agricultural produce especially molasses and sugar cane. Fuel ethanol production and its use is expected to rise strongly, pushing up production for bio-ethanol in Asia, especially in Thailand, Indonesia and the Philippines," she said.
She added that the bio-ethanol market is currently at its early growth stage, where participants are likely to build product awareness and develop the market for bio-ethanol. A strong product branding, quality standards and ownerships such as patents and trademarks are usually obtained to secure their positions.
"At this stage, product distribution and promotions are done based on selective customers, like Pertamina and early adopters or locals, at least until customers show acceptance of bio-ethanol. Bio-ethanol exhibits a lot of potential as the next generation of energy fuel, and is gaining popularity among foreign and local producers within Indonesia," she continued.
Balasingam also added that while fossil oil is still considered a primarily source of fuel, the market share for bio-ethanol is gaining in terms of blended fuel. The most important value bio-ethanol delivery is the ability to offer competitive pricing in comparison to fossil oil in the future.
In terms of revenues, the bio-ethanol is forecast to grow at a compound annual growth rate (CAGR) of 48 percent from $ 160.5 million in 2008 to reach $ 2.5 billion by 2015. In terms of volume, market demand is forecast to grow at a CAGR of 50 percent to reach 3.5 million MT per annum by 2015.
Thus, competition is strong in this market. It is also expected that foreign and local participants may enter the market in the future, leading to a revamp of the competitive structure and market share in Indonesia. Mergers and joint ventures would help local players to gain access to global markets. Players are expected to keep up in terms of technology and quality to maintain high output and better margins.
Solid regulation and legal framework practiced by the government through their National Energy Policy is expected to boost the market further. "The government's Village Energy Self-Sufficiency Program (DME) launch in 2007 is seen to increase local demand for bio-ethanol. The program aims to open rural job opportunities, reduce poverty and promote rural development by increasing national bio-fuels production from a regional standpoint," added Balasingam.
She also added that producers are faced with the uncertainty in the price of raw material, where many of them are currently seeking cheaper resources and new entrants are looking at the potential of high productivity cassava as a replacement from the current source of molasses. Recent drop in fossil oil price is seen to dampen the growth in the market, as producers may show lack of commitment towards reaching the goals of the National Energy Policy.
"However, it should be emphasized that the current situation may also be a window of opportunity for big producers to plan their future off takes vis-a- vis the US economy state. Current prices of fossil oil may take a turn in 2010 when stocks are well adjusted from current position; supply is overwhelming in the market today due to recent price hikes," she said.
Indonesia wants to see bio-ethanol replace 10 % of its fossil fuel transport consumption by 2010. However, current economic and fossil oil price uncertainties may turn down the replacement rate to 5% bio-ethanol and 95% gasoline. To achieve this target, Indonesia may have to look into the potential of utilizing bio-mass as a feedstock to produce bio-ethanol.
"In 2008, the country has managed to achieve a replacement rate of 0.2% bio-ethanol and 99.8% gasoline on a national average. Liaisons with foreign player and technology sharing will boost production for bio-ethanol. Government plans and policies will help boost the market for bio-ethanol. Government funding and incentives to the industry is seen as a driver for producers," says Balasingam.
In April 2008, the World Bank reported bio-fuels have caused world food prices to increase by 75 percent. Production of bio-ethanol was benchmarked as the cause for increase in food prices. The demand for sugar cane and cassava has had a rippling effect on sugar and many cassava-based products. Cassava price have sky rocketed from Indonesian Rp 300 per kg in 2007 to Indonesian Rp 450 per kg in 2008. Whilst prices of molasses have risen from Indonesian Rp 630 per kg in 2007 to Indonesian Rp 950 per kg in 2008 making it less viable to be used as a raw material than cassava.
"The government hopes to control prices through execution of best practice for selection of the right raw material which can be converted to bio-ethanol based on their conversion ratio and proper agronomy practice would lead to maximum output," says Balasingam.
Bio-ethanol will fare better as a gasoline additive than an energy fuel. A standard electronic fuel injection gasoline engine would typically tolerate up to 10% ethanol and 90% gasoline. Larger-volume fuel injectors or an increase in fuel rail pressure is required to deliver equal the energy content of pure gasoline should higher ethanol ratios be used. Engine modification and alteration made to existing vehicles may dampen the growth of this segment in coming years. However, the factor is not applicable to new hybrid and fuel-flex or multi-fuel engines.
