Indonesia Gearing towards Bio-ethanol – Next Generation Energy Fuel and its

Challenges?

Ratneswary Balasingam, Research Analyst

Chemical, Materials and Food11 November 2008

2

Focus Points

4

5

3

1

2 Cassava & Molasses : Sustainable Feedstock

Benchmarking Indonesian Bio-ethanol :Market Size and Projections

Key Drivers , Trends & Initiatives

Key Challenges

Conclusion: Achieving the Ultimatum

3

Benchmarking Indonesian Bio-ethanol

Market Size and Projections

4

BIOETHANOL Next Generation Energy Fuel…

� The idea of using bio-ethanol or ethyl alcohol, based on starch and

sugar, to power cars and other vehicles is not new to the market. As predicted by Henry Ford in 1925, "the fuel of the future is going to come from fruit like sumac...or from apples, weeds, sawdust - almost anything. There is fuel in every bit of vegetable matter that can be fermented. There's enough alcohol in one year's yield of an acre of potatoes to drive the machinery necessary to cultivate the field for a hundred years."

� Nowadays with the uncertainty in price of crude oil, increasing concern for the environment and global warming, and the likelihood that exploitable oil reserves will come to an end.

BIOETHANOL Next Generation Energy Fuel…

5

Indonesia Gearing towards Bio-ethanol

� Effects of high petroleum and natural gas prices, decline in production of crude

fossil oil due to aging oil fields has led Indonesia to seek opportunities in bio-

fuel production (bio-ethanol and bio- diesel).

� "Mandatory Bio-fuel Policy" which states the use of a 1-5 percent blend of bio-

ethanol and 99-95 percent of gasoline for transportation will become

mandatory in 2010.The program started in 2006 developed in stages.

� This study cover the 3 main categories/grades

� Bio-ethanol (hydrous ethanol) – technical/raw spirit/industrial grade.

� Bio-ethanol (hydrous ethanol) – high quality food and beverages

grade.

� Bio-ethanol (anhydrous ethanol/ dry ethanol) – fuel grade ethanol

(FGE)

6

Indonesia Gearing towards Bio-ethanol

� Over 10 factories have invested in bio-ethanol production in 2008.However:

� In-sufficient to meet the requirement at 5% of FGE in 2010 under current

production methods.

� Investment to setup a 8 kilo liter per day bio-ethanol plant is estimated

around USD7.38 million in 2007. ( small holders)

� Looking into technologies based on cellulose derived from crop residues

or bio-mass (baggase, rice straw etc). Bio-ethanol is mostly derived using

C molasses method in Indonesia.

7

Market Revenue and Projection

Market Size by Revenue (2005Market Size by Revenue (2005--2010)2010)

► Bio-ethanol Market is valued at USD160.5 million in 2008

• Competitive Market with an average of 10 active market players.

• Market Revenue is estimated at USD160.5 million in 2008 and is

expected to grow to USD 244.8 million in 2010.

• CAGR from 2008 to 2010 is estimated to be 23.51%, compared to CAGR

from 2005 to 2008 is 6.97%.

• Competitive Market with an average of 10 active market players.

• Market Revenue is estimated at USD160.5 million in 2008 and is

expected to grow to USD 244.8 million in 2010.

• CAGR from 2008 to 2010 is estimated to be 23.51%, compared to CAGR

from 2005 to 2008 is 6.97%.

Va

lue

(U

SD

Mill

ion

)

Year-

50

100

150

200

250

300

2005 2008 2010

Increase in CAGR is

estimated, as

production for fuel

grade bio-ethanol

increases

CAGR : 23.5%

CAGR : 6.97%

8

Market Volume & Projection

Market Size by Volume (2005Market Size by Volume (2005--2010)2010)

► Bio-ethanol Market is volume at 205,753 tones in 2008

Vo

lum

e (

MT

‘000

)

Year-

50

100

150

200

250

300

350

2005 2008 2010

• Market Volume is estimated at 205,753 tones in 2008 and is expected to

grow to 330,851 tonnes in 2010.

• CAGR from 2008 to 2010 is estimated 26.8 % compared to CAGR from

2005 to 2008 is 7.4%.

• Market Volume is estimated at 205,753 tones in 2008 and is expected to

grow to 330,851 tonnes in 2010.

• CAGR from 2008 to 2010 is estimated 26.8 % compared to CAGR from

2005 to 2008 is 7.4%.

Production is

expected to rise by

~125,000 tonnes,

charge up mainly by

the Mandatory Bio-

fuel Policy.

CAGR : 26.8%

CAGR : 7.4%

9

Key Industry Participants

Industry

Grade

55%

Fuel Grade

18%

Beverages

Grade

27%

PT Indo

Lampung

Distillery

20%

Others

37%

PT Molindo

Raya Industrial

24%

PT Indo

Acidatama

Chemical

19%

Market Share by Top 3 Players (2008)Market Share by Top 3 Players (2008)

Share by End Use Share by End Use

Application (2008)Application (2008)

Source: Frost & Sullivan,2008

Note :Others include :PT Rhodia Manyar,PT Medco Energi

Internasional Tbk,PT Madu Baru,PT Perkebunan

Nusantara XI, PT Basis Indah,B2TP,BPPT ,PT. Medco

Etanol Lampung

Note :

Industry grade (Ethanol 95-96% (hydrous ethanol) -technical/raw spirit used as spirits,

disinfectants and solvents - other industrial grade used as chemical solvents

Beverages Grade (Ethanol 95-96% (hydrous ethanol) -high quality beverages

Fuel Grade Ethanol (FGE) (Ethanol >99.5% (anhydrous ethanol/ dry ethanol) – fuel

grade and pharmaceuticals.

► Bio-ethanol Market is valued at 205,753 tones in 2008

10

Cassava & Molasses

Sustaining Feedstock

11

Introduction

� Feedstock used for producing bio-ethanol in Indonesia

�Sugar Cane

�Cassava

� Sugar Cane is a primary feedstock for sugar production in Indonesia.

Bio-ethanol is derived from molasses a by product of sugar product.

Indonesia is yet to be self sufficient in sugar production.

�Cassava is relatively new to be used as a feedstock in Indonesia.

Currently, focused feedstock for bio-ethanol production for rural areas in

Java.

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Planted Areas

Java>60% of Sugar Cane planted

Indonesia (2006)Sugar Cane: ~344,000 ha Cassava : ~ 650,000 ha

Sugar Cane- around 40 per cent of sugar cane in Java is grown on wet land so yields are low;- 50% of cane producers are small holders ,the average size is less than half a hectare- inefficient management practices and sugar mills are small and use outdated technology

Lampung>25% of Sugar Cane plantedOwned by sugar factory , new plant

Indonesia (2010)Sugar Cane: 750,000 ha Cassava : 1,500,000 ha

Cassava-2nd staple food, beyond SSL rate-Potential FGE production in 2007 - Producers are mainly small holders producing cassava chips while bigger players producer starch.- Currently yield level is 15-18 tons/ha, new variety will be introduced ,IDB Superior Cassava (ISC) yield level 150 tons/ha, introduced to Java.

Java~ 50% of cassava plantedIDB Superior Cassava (ISC) yield level 150 tons/ha, will be introduce to cover 90,000 ha

13

Processing Routes (Molasses)

Molasses is a thick, dark syrup produced by reducing juice from sugar cane. Bio-ethanol is

produced from molasses, however it can be produced through bagasses and sugar cane also.

Bio-ethanol Production from Molasses

Bagasses Sugar MolassesFilter Cake

Sugar Cane

Power Plant

Electricity

Bio- Compost/Feed Plant

Compost/ Feed

Fermentation

Distillation

Dehydration

Ethanol 99.5%

GASOHOL

24% 8% 63% 5%

Spent Wash

Ethanol is made from sugar cane

through the molasses method, the

sugar production of is not disrupted

14

Processing Routes (Cassava)

Cassava chips are produced by local smallholders.

Bio-ethanol Production from Cassava.

Cassava Chips Starch

Cassava Roots

Pellet /

Consumption

Modified Starch

Milling

Liquefaction by

alpha amylase

Saccharification &

Fermentation (Baker’s Yeast)

Filtration & Distillation Ethanol 99.5% GASOHOL

Sand Separation

+ CaO (calsium oxide)

*Total bio-ethanol produced from cassava is 16,986

tons in 2008.

*DME program produces 400 bio-ethanol liters per

day. 55 areas detected for smallholder production in

2006. Estimated >7,000 tons of bio-ethanol produced.

15

Sugar & Molasses : Availability

North SumatraSugar : 4,600ton/year

Molasses: 2,300 ton/year

Central JavaSugar : 2,288,300 ton/yearMolasses : 1,144,150 ton/year

West JavaSugar : 104,555 ton/year

Molasses : 52,300 ton/year

South SulawesiSugar : 490 ton/year

Molasses: 245 ton/year

West SumatraSugar : 17,670 ton/year

Molasses: 8,835 ton/year

LampungSugar :28,340 ton/yearMolasses : 14,170 ton/year

North SulawesiSugar : 460 ton/year

Molasses: 230 ton/year

East JavaSugar : 911,430 ton/year

Molasses :455,700 ton/year

Sugar & Molasses

Frost & Sullivan,2008IndonesiaSugar : 3,355,845 ton/yearMolasses : 1,677,920 ton/year

The current total annual domestic sugar

consumption is 3.8 million tonnes (per capita

consumption is 15kg), yet annual domestic production is estimated 3.3 million tonnes and

1.41 million tonnes from imports for 2008.

16

Cassava : Availability

North SumatraCassava: 412,000 ton/year

Central JavaCassava: 4,235,210 ton/year

West JavaCassava: 2,044,674ton/year

South SulawesiCassava: 607,000 ton/year

West SumatraCassava: 243,000 ton/year

LampungCassava:5,473,283 ton/year

PapuaCassava: 41,000ton/year

East JavaCassava: 4,769,662 ton/year

Cassava

Frost & Sullivan,2008Indonesia

Cassava: 20,794,929 ton/year

OthersCassava: 2,969,100 ton/year

The current total annual domestic food consumption is 13.9 million tonnes (per capita

consumption is 55.7kg), and annual domestic

production is estimated 20.8 million tonnes for

2008.

17

Cassava & Molasses : Conversion Ratio

1.3-1.2:1760-83010-20Bagasse

*Calculations are made for every 1000 kg of the raw material

4:1250450-520Molasses

15:167110Sugar Cane

12:190120-160Sago

2.5:1400600-700Corn

6.5:1167240-300Cassava

Conversion Ratio : Raw Material: Bio ethanolBio ethanol (L)Sugar Content (kg)Raw Material*

Cassava: 20,794,929 ton/year X0.5%

Molasses : 1,677,930 ton/year x 45% Bio-ethanol:188,767 ton/year

45% of molasses is used for Bio-ethanol production ,others goes into amino acid (glutamic acid & lysine) production and animal feed

Bio-ethanol:16,986 ton/year

Indonesia Bio-ethanol:

205,735ton/year in 2008

Rough Estimates For All Grades

Industry

Grade

55%

Fuel Grade

18%

Food/

Beverages

Grade

27%

Frost & Sullivan,2008

4:1

~0.5% of cassava is used for Bio-ethanol production, mainly for direct consumption and food

processing6.5:1

FGE Bio-ethanol:37,032 ton/year

18

Cassava & Molasses : For Fuel Supply

19,204,9002008

35,107,000 2015

22,348,6062010

17,459,0002005

Consumption for Transportation Gasoline (tones)Year

(2015) Fuel grade(99.5%):3,510,700ton/year

(2010)Fuel grade (99.5%):162,178 ton/year

(2008)Fuel grade (99.5%): 37,032 ton/year

(2008)19,167,868 ton/year

Bio-ethanol Blend (%)

Rough Estimates For Fuel Grade Supply

(2010) 22,153,526 ton/year

(2015) 31,596,300 ton/year

Crude Oil Bio-ethanol

Frost & Sullivan,2008

0.2%

0.7%

10%

GAP of ~1 million tons to achieve 5%

6Surabaya

14Jakarta

5BioPremium

E-3/ E-5

BioPertamaxE-3/E-5

Pertamina

Malang

No. Fuel Pump (2007)

BioethanolBlendsPrincipalRetail Area

* CAGR of 9% from 2008-2015

Production can go up to 1.25 million tons derived from raw materials of bagasse and sugar cane

Source; PT Pertamina(Persero),2008

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Key Drivers, Trends & Initiatives

20

Key Drivers

MediumHighRural Development and Diversification

of Rural Economy (DME program) -funding by government and local financial institution.

3

HighHighMeeting Euro Bio-fuel Standards2

HighHighEnergy Security Issues ,Policies and

Government Incentives

1

3 - 4 Years1 - 2 YearsDriverRank

Source: Frost & Sullivan,2008

21

Key Drivers

Source: Frost & Sullivan

Policy and Regulations• President Decree No : 5/2006, January 25, 2006.– Policy Of National Energy• President Decree, No : 1/2006, January 25,2006.– Supply and uses of Biofuels for alternative fuel• President Decree No 10/2006, July, 24,2006– Establishment of Biofuel’s NationalCommittee for acceleration of poverty removal and reduction of unemployment

Product Standards• Minister of Energy and Mineral Resources Decree No: 3674 K/24/DJM/2006, March,17, 2006– Standard and Quality ( Specification) Gasoline Fuel which marketed locally.– Usage of ethanol enable up to maximum 10% volume• Minister of Energy and Mineral Resources Decree No; 3675 K/24/DJM/2006, March,17, 2006– Standard and Quality ( Specification) Diesel Fuel which marketed locally– Usage Of FAME enable up to maximum 10% volume• Minister of Energy and Mineral Resources Decree No: 13483 K/24/DJM/2006, September,26, 2006– Standard and Quality ( Specification) Biodiesel as Alternate Fuel which marketed locally.• Minister of Energy and Mineral Resources Decree No: 051/2006, October,10, 2006– Procedures for Commercial Trading of Biofuel as Alternate Fuel.– Article 9.1 : Security of Supply of Biofuels for domestic demand.– Exporting and or Importing Biofuels have to get recommendation from The Minister of Energy

Source: Minister of Energy and Mineral Resources, Indonesia, 2008

Coal

33%

Gas

30%

Oil

20%

Others

7%

Biofuels

5%

Geo

thermal

5%

Targeted Energy MIX (2025)Targeted Energy MIX (2025)

Others include: Nuclear, Biomass, Hydro, Solar, Wind, Liq. Coal

22

Trends & Initiatives

Option of ‘C’ and ‘B-Heavy’ molasses routes, SSF?

Use Cassava (150 ton/ha // 14-17 ton//ha)

Need to achieve SSL for Sugar production

Lack of raw material hampers amount produce

4

Developing and improving output / technology

Example: RNI// PT Choi Biofuel Indonesia,RNI// PT PSA Aotu-matika, Mitsubishi Corp // Medco EnergiInternasional.

Liaison with foreign company and technology transfer

3

Utilization bio-fuel to reduce import.

Implementation of policies.

Policy and meeting international standards (2006- 2025) plan, refer slide 21

2

Carbon emission reduction?, bio-ethanol replacing fossil fuel

Improving ABGC* linkage, waste management, increasing yield, agronomy practices

Global warming and environment issues

1

InitiativesTrendsRank

Source: Frost & Sullivan,2008

*ABGC- Academician, Businessman, Government and Community

23

Indonesian Bio- Ethanol Production Stages

Source: Minister of Energy and Mineral Resources, Indonesia, 2006

24

Key Challenges

25

Major Challenges

HighHigh/MediumDriving home industry producers to

supply bio-ethanol

3

HighMediumImplementation of Cellulosic production

of ethanol - SSF technology

2

HighHighMeeting Raw Material Requirement1

3 - 4 Years1 - 2 YearsChallengesRank

Source: Frost & Sullivan,2008

26

Conclusion: Achieving the Ultimatum

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Conclusion: Achieving the Ultimatum

�Indonesia wants to see bio- ethanol replace 5 % of its fossil fuel transport

consumption by 2010. To achieve this target, Indonesia may have to look into

the potential of utilizing bio-mass (bagasse & other crop waste) as a feedstock to

produce bio-ethanol.

�In 2008, Bio-ethanol in Indonesia has an annual production of 205,753 tonnes.

With current price of bio- ethanol of USD 0.7-0.9 per liter, revenues are

estimated at USD 160.5 millions.

� 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.

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