As part of ambitious clean energy transition and energy security goals, from June 1, petrol will need to contain a minimum of 5 percent ethanol. This may, however, not be the boon biofuels firms are hoping for.
From June 1, it will be mandatory in Vietnam for fuel suppliers to add ethanol to petrol, a policy that has become all the more central in public discourse on the back of energy security weaknesses brought to the fore by the war in Iran.
This isn’t, however, the first time this has been tried, with past biofuels policies failing to match up with economic realities.
Indeed, the Government of Vietnam first started moving toward biofuels in 2007 with a Prime Minister’s Decision approving the Biofuels Development Plan.
The goals under the plan were to see the country producing 250,000 tonnes of ethanol by 2015, about 1 percent of its total fuel supply, moving toward 1.8 million tons by 2025, about 5 percent of its fuel usage.
This saw a significant investment in biofuel production, including seven biofuel plants, with six completed, boasting a combined capacity of 520 million litres (410,000 tonnes) of ethanol annually.
The seventh, the Phu Tho Bioethanol Plant, was marred in corruption allegations and subsequently hasn’t been finished. If it is, it will add an additional 100 million litres (79,000 tonnes) to the total supply.
However, support policies promised in the plan — preferential loans, land use fee discounts, and tax breaks — were slow to materialise, and by 2011, early biofuel investors were struggling.
As the industry pushed for greater support, the Vietnam Biofuel Association was established to provide training, establish standards, and promote the benefits of biofuels to consumers.
The industry then took a further step forward in 2012, when a roadmap for blending biofuels with traditional fuels was approved.
This set a deadline of December 1, 2014, for major cities to switch to E5 petrol, with the rest of the country to make the switch a year later.
This was then to be followed by a move to E10 from December 1, 2016, for Vietnam’s biggest cities, with the rest of the country to follow suit by December 1 of the following year.
On the back of this policy initiative, the biofuels sector saw a resurgence in interest.
The problems that had plagued the sector, however, persisted, with both deadlines missed and interest in the sector once again waning.
Moreover, there were problems securing feedstock, from planting the wrong varieties of some plants, to the prices of others, particularly cassava, that were too high to make the resulting biofuel economical.
Biofuel producers were also competing in a global marketplace against much better-established agricultural-producing countries — Brazil and the United States, for example.
By contrast, Vietnam’s agricultural sector was (and still is) largely fragmented and built around smallholder farms that made product consistency difficult.
Add to that, a slow consumer take-up largely driven by a distrust of the new fuel and its higher cost, and the chips were stacked against it.
As a result, by 2016, PetroVietnam alone had three factories online with a combined capacity of 300,000 cubic metres (237,000 tonnes) a year, but Vietnamese drivers were consuming less than ten percent of that at 24,000 cubic metres (18,900 tonnes) of E5 fuel annually.
Faced with a significant oversupply that fuel producers were struggling to sell, the Ministry of Industry and Trade stepped in and announced that from January 1, 2018, the most common fuel used in Vietnam, RON92, would be mixed with 5 percent ethanol, becoming E5 RON92.
However, whereas this did become a reality, many consumers simply shifted to the premium, slightly more expensive, RON95.
That said, from June this year, RON95 will be mixed with 10 percent ethanol, making it much more difficult for consumers to avoid.
This, however, looks set to see a shortage of supply, with estimates that current biofuel capacity can only meet 40 percent of the expected demand.
Add to that expectations that feedstock supply issues are likely to persist, and expectations of a smooth transition seem optimistic.
It is, however, becoming a popular policy in light of the energy security risks that conflict in the Middle East has brought to the fore. Specifically, Vietnam’s Nghi Son refinery has traditionally relied entirely on Kuwaiti crude (though notably it did process its first batch of non-Kuwaiti crude earlier this year).
As a solution to this problem, however, its impact seems limited.
The supply challenges will mean large volumes of refined biofuels will still need to be imported, the only real benefit being diversification of its fuel sources outside of the Middle East.
Counter to that, it’s worth noting that many of the issues that have plagued the industry, in relation to feedstock in particular, to date, do not seem to have been resolved.
That being the case, mandating biofuel use has the potential to exacerbate these existing challenges and create more problems than it solves.
Conversions: 1 litre ≈ 0.000789 tonnes; 1 cubic metre ≈ 0.789 tonnes