On the Brink of Sweeping Change

Russia plans to tap into bountiful resources to expand ethanol production
By Eugene Gerden | June 10, 2011

The Russian government is considering the implementation of a state program to develop a biofuel and ethanol industry in Russia.  Amid dwindling hydrocarbon reserves and the ever-rising costs of oil exploration and production, the increase of production and use of ethanol may provide alternative sources of fuel to Russia in the near future.

Currently about 9 percent of the world’s land resources suitable for growing crops is in Russia. Most of this land is not used, which means that the country has a huge potential for the production of ethanol. Until recently, however, the industry had not been developed due to the presence of large reserves of conventional energy sources and administrative barriers.

As part of the federal program, the government partnering with private investors plans to complete reconstruction of existing ethanol plants and construction of up to 30 new facilities, with a goal of increasing domestic ethanol production up to 2 million tons per year (670 MMgy).  According to the plan, production capacity of an average Russian plant is expected to reach at least 150 million liters per year (40 MMgy). At the same time, construction of  plants with a production capacity of less than 70 million liters per year is considered economically inadvisable. The payback period for such projects is expected to be four and a half to seven years, depending on capacity. The investments in plants with a 250 to 1,000 metric ton capacity is expected to be between  €100 million to €130 million ($140 million to $180 million), taking 18-24 months to complete.

One such recently announced project is being planned by OAO-Nafis Cosmetics. One of Russia’s largest producers of household chemicals, it plans to start construction of the country’s largest ethanol plant, with a processing capacity of more than 1 million tons of wheat per year, producing up to 350,000 tons of ethanol and 120,000 tons of protein annually. If successful, the company may establish  similar plants throughout Russia.

Small and Uneconomical
During the Soviet times, ethanol production in the USSR was mostly based on the hydrolysis of plant biomass. The country had more than 40 hydrolysis and biochemical plants, which used waste products from wood processing and the pulp and paper industries, as well as agricultural residues, as raw materials.

At present, the annual production of ethanol in Russia is estimated at 700 million liters, most of which is used in the production of vodka. There are nearly 140 plants in Russia, with a total  capacity 1.5 billion liters. Only 10 to 12, however, utilize modern ethanol production technologies at industrial sites.  Most of the existing distilleries, due to their small size, low level of automation and high energy consumption,  are unable to produce ethanol at an acceptable cost. In addition, a high excise duty on ethanol production limits its production for the domestic market. At present, ethanol is still not considered a component of motor fuel in Russian tax legislation, but only an alcohol-containing product subject to a high excise duty of 8 cents, which makes its production unprofitable in Russia.

The government is currently considering abolishing that excise duty on ethanol, which is considered one of the most important steps for a significant increase in ethanol production and could reduce the cost of ethanol by almost 30 percent. “If the government decides to abolish the excise tax on ethanol, its production will become highly profitable,” says Alexei Ablaev, president of the Russian Biofuel Association. “The cost of ethanol produced from domestic grain is about 10 rubles (30 cents), while the cost of high-octane gasoline is more than 20 rubles.”

Another measure being considered is stimulating the production of gasoline with improved characteristics, with the possibility  of  a 5 percent ethanol blend mandate. In addition, the government may establish new fuel and engine standards and require oxygen-containing additives in fuel. According to estimates of the Russian Ministry of Agriculture, a 5 percent ethanol mandate is expected to boost the demand for ethanol in Russia up to 1.25 million tons per year.

The Russian government believes that creating favorable conditions for an increase in ethanol production will bring most current Russian ethanol plants to full capacity. Also, the production of 1.5 billion liters of ethanol a year will require about 2,400 tons of grain or sugar beet molasses, which, in turn, could benefit local agricultural producers financially.

According to Ablaev, other measures that could be implemented to boost domestic ethanol production would be the adoption of fuel standards requiring at least 2 percent oxygen in automotive fuel; providing tax incentives and duties for ethanol producers for up to eight years, as well as developing export infrastructure, in particular port terminals. Subsidies to producers of ethanol feedstocks would also boost domestic production.

Abundant Potential
Russia currently has the resources for the production of both first- and second-generation ethanol. The government is considering creating conditions for a gradual shift from the further use of outdated cellulosic ethanol hydrolysis technology, to an active use of other raw materials such as molasses, potato starch, sweet sorghum and others.

According to analysts of the Ministry of Agriculture of Russia, there are more than 20 million hectares (50 million acres) of unused arable land in Russia. Bringing that land back into production is expected to produce about 1 billion cubic meters of biomass, similar to estimates for U.S. biomass resources. By adding cultivated acres and certain agricultural practices, Arkady Zlochevsky, the chairman of the Russian Grain Union, says Russia could increase production of corn and some grain crops fivefold—underscoring the huge potential for the increase of  production of bioresources for both the ethanol and food industries.  Revenues from ethanol produced from such a large number of raw materials could amount to almost $10 billion.

In contrast to Brazil and the U.S., corn and sugar cane are rarely used in the production of ethanol in Russia. Sugar cane is simply not grown, while most of the domestic corn crop is used in the production of animal feed. According to experts of the Russian Ministry of Agriculture, corn is currently more expensive than milling wheat in Russia. However the increase of its acreage, as well as more efficient production of other traditional crops, may provide conditions for a significant increase of their supplies for the needs of the Russian ethanol industry.

The most promising Russian crops for first-generation ethanol include sugar beet, sweet sorghum and potato. Potatoes are considered an ideal ethanol feedstock, according to Viktor Starovoitov, deputy director of All-Russian Potato Research Institute, due to the availability of specialized agricultural machinery and the vast potato production experience in Russia. About 10 kilograms of potatoes  produce 1 liter of ethanol at an approximate cost of  35 to 45 rubles per liter ($1 to $1.50).

Future Markets     
One way to make the Russian ethanol production more profitable at the initial stage of expansion is to develop exports, mainly to those countries already using ethanol as an additive to fuels and those that provide benefits to importers. According to some Russian experts, the EU and Japan could be considered potential destinations for Russian ethanol, with Siberian plants supplying Japan. 

Still some analysts warn that focusing on the production of first-generation ethanol could be a high-risk business for Russia, taking into account the likelihood of  intense competition not only with the U.S. and Brazil, but even with such countries as Ukraine and Belarus. Both of these countries are currently considering launching massive projects in the field of ethanol production, with the use of corn, potatoes and molasses as raw materials.

In this regard, some analysts of the Russian Ministry of Agriculture suggest it would be advisable for Russia to pay more attention to the production of second-generation ethanol, utilizing its huge forest resources. This, however, would require the development of modern cellulosic conversion technology. According to Vadim Yakovlev, a scientist of the Novosibirsk Institute of Catalysis, Russia currently harvests about 140 million cubic meters of timber annually from mature timber harvest and forest maintenance, which is expected to reach 200 million cubic meters in the next five to seven years. Forest waste accounts for more than half of the total harvested volume in the country. During forest thinning and maintenance, up to 60 percent  of the wood is considered low quality with no market value. The total volume of waste- and low-grade wood is projected to be greater than 40 to 45 million cubic meters a year, capable of producing at least 10 to 12 million tons of cellulosic ethanol. In addition, the use of crop residues and peat in Russia is also inefficient. The volume of crop residues, which are thrown to the wind, is at least 10 million tons per year, which is equivalent to 3.4 million tons of potential fuel.

At present, the Russian government is considering the implementation of certain projects in the field of production of second-generation ethanol, the details of which have not yet been disclosed. Payback periods of each of them are estimated at six to eight years.

Although there is a possibility that implementation of a national program to stimulate ethanol production will meet with stubborn resistance from the oil lobby, most Russian analysts predict a bright future for the Russian ethanol industry. Michael Sutyaginsky, an executive with the Titan Group, one of Russia’s largest producers of motor petrol components and chemical rubbers, predicts that 10 to 15 ethanol plants will be built in Russian during the next five to seven years. This is expected to result in oil companies shifting from the use of traditional fuel additives to environmentally friendly ethanol.

Author: Eugene Gerden
Freelance Writer
Gerden.eug@googlemail.com

 

Editor’s note: 
The author, Eugene Gerden, lived in Moscow for 10 years where he worked for the local association of grain and ethanol producers. He currently resides in Geneva and writes about the renewable energy industry.