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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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U.S. Abandons Renewable Fuels, China Picks up Slack

U.S. Abandons Renewable Fuels, China Picks up Slack

There’s stupid, and then there’s Washington.

The U.S. government is ending a three-decade-old policy of subsidizing corn ethanol, dating back to the Carter administration, which in the aftermath of the 1979 Islamic revolution in Iran pushed development of alternative fuels to lessen U.S. dependence on oil from the Middle East.

The tax credits are now 46¢ per gallon. Congress mandated that the United States produce 36 billion gallons of renewable fuel by 2022, of which nearly half must be corn-based ethanol, which had the ethanol lobby in ecstasy when it was introduced. Furthermore, many states now require gasoline to contain up to 10 percent ethanol.

The silver lining of the end of subsidies is that many analysts see the states’ requirement as sufficient to enable producers to get by without federal subsidies.

Try telling that to Iowa farmers recently stroked by the Republican caucus. In farming states, agricultural subsidies are effectively the “third rail” of local politics.

So, who’s left to fly the biofuel banner?

China.

Well, China don’t need no stinking subsidies, and Beijing is investing $1.78 billion in developing Nigerian biofuels.

The project, the first in Africa, would cover a total landmass of 3250 square miles of Nigerian territory.

Nigerian Minister of Trade and Investment Olusegun Aganga stated that the project is expected to create a total of 120,000 direct and 750,000 indirect jobs in addition to linking the 15 federal states to inexpensive biofuel generated electricity. Construction work on the pilot plant, which will be established in Ekiti State, will begin immediately with a completion date by the end of the year. An additional 14 plants are scheduled to be established  in 14  other states  after the completion of the pilot project in Ondo, Osun, Kwara, Kogi,Benue,  Gombe, Bauchi, Zamfara, Kano, Kaduna, Nasarawa and  Plateau states.

The projected cost for the initial pilot plant is $108 million, with full-scale plants are expected to cost $183 million apiece. According to Global Biofuels, 70 percent of the financing will come from the Chinese government and the remaining 30 percent will be provided  by NEXIM Bank, ECOWAS Bank for Investment and Development, Africa Finance Corporation; Fond Gari, and First Bank of Nigeria.

Global Biofuels Limited Managing Director and CEO Felix Obada said, “The project is an agro-industrial project which will use sweet sorghum as raw materials to produce ethanol.

Nigeria is one of the largest producers of grain sorghum in the world. Approximately 7.8 million hectares is under cultivation by small holder peasant farmers. Sorghum belt exist across latitudes 7° and 14°, north of the equator. Sorghum yield per ha is approximately 90 tons of biomass and can be harvested twice a year without irrigation. Sorghum biomass decomposition, if not properly controlled, is capable of releasing several billions tons of methane (CH4) into the atmosphere. Nigeria is signatory to the Kyoto Protocol which demands that we should blend 90 per cent gasoline with 10 per cent ethanol for transportation. Since that Protocol was signed, Nigeria has not done much towards actualizing it. However, this is the opportunity for us to make the desired impact.”

When the project is in full production, it is expected to achieve, production of 1,950,000 tons of grains per annum, producing 72 million liters of ethanol from sweet sorghum.

The Chinese-Nigerian biofuel deal underlines a number of reasons why China is advancing its business interests into Africa, moving ahead of Western concerns.

First, China is willing to go into risky markets that have caused Western interests, preoccupied as they are with quarterly returns, to avoid.

Secondly, China studiously avoids criticizing local governmental and business practices, in stark contrast to many Western governments and firms. China deals with all the local realities on the ground, including corruption, which, from Western concerns, usually elicit lectures about superior business practices even as backroom deals attempt to secure the best terms.

Last but not least, devolving from the point above, china thinks beyond quarterly balance sheets, and becomes involved for the long term.

So, as Washington becomes mired in an election year over the political fallout from the withdrawal of ethanol subsidies, the world’s leading export nation invests in the world’s leading continent providing raw materials.

While nothing is certain, given China’s interest in Africa’s potential, it would seem more than possible that in short order Chinese-underwritten African ethanol production will give both the U.S. and Brazil a run for their money – or, yuan.

By. John C.K. Daly of Oilprice.com




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Leave a comment
  • Brenda Steiger on January 05 2012 said:
    The truth is that the idea of using corn as a bio fuel is not economical is any way. It is way too expensive because of the costs of replanting. The use of switch grass, for example, would be much more economical. It is indeed a WISE decision, on the part of Washington, to not allow any more subsidies into this futile venture. Putting the monies to a better venture than that of using corn ethanol is NOT stupid.
  • Fred Banks on January 06 2012 said:
    You've probably got it right there, Brenda. Of course, it may be possible to economically produce a small amount of corn-based ethanol in a country as large and as technologically advanced as the U.S., though some of the early ambitions dealing with this topic made no sense at all.Speaking of ambitions, let me tell you mine. ABSOLUTELY no reduction in the amount of electricity produced by nuclear, and as much renewables and alternatives as possible. I also occasionally think about personally doing some serious analytical work dealing with those renewables and alternatives, but then I sober up and turn on the TV.
  • sherry T on January 08 2012 said:
    I agree with not continuing the corn ethanol production. there are better choices for producting it as Brenda mentioned. Also its lowering production of corn as a food crop. My husband has mentioned sugar beets as a better choice as well.
  • stevie leese on February 08 2012 said:
    ha ha.I wonder how much food will go up when turning crops into fuel instead of food becomes more economecly viable?

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