Vietnam biofuel market yet to take off

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A car is being filled with biofuel at a gas station in Hanoi

A gasoline station in Hanoi’s Thai Thinh Street has several pumps for A92-RON gasoline, but only one for biofuel. Customers line up for the popular variety, but the latter has no takers.

“I often use A92-RON gasoline, and don’t know about biological fuels. I have never used it,” Nguyen Thu Nga, one of those waiting to fill up, said.

Despite being sold commercially since August 2010, the fuel containing low levels of ethanol and made from cassava is known or used by few people.

Nguyen Van Duc of Dong Da District said: “I have heard about the (ethanol) gasoline, but not used it. I don’t see many people using it.

“The fuel is not widely sold. Stations in Hanoi mostly sell the common (A92-RON) gasoline.”

At gas stations selling the ethanol-blended fuel, very few people ask for it.

The use of biofuels is being encouraged in Vietnam since vehicles using ethanol-blended gasoline emit fewer pollutants than normal. Besides, the country, which produces only 30 percent of its gasoline needs, is expected to rely less on imports once it switches to domestically-made ethanol.

But biofuels remain unknown to most people since a distribution network has yet to be developed and their prices are nearly high as that of A92-RON.

Hoang Xuan Duc, who runs the station in Thai Thinh, said the fuel accounts only for 10 percent of total sales.

According to the Vietnam National Oil and Gas Group (PVN), the country has some 175 stations selling gasoline with 5 percent ethanol, known as E5, in 34 cities and provinces, including Hanoi, Hai Phong, Hai Duong, Da Nang, Hue, Ho Chi Minh City, and Can Tho. Vietnam has 13,000 filling stations in all.

Only PV Oil and Saigon Petro make ethanol-blended gasoline. The biggest gasoline trader, Petrolimex - which accounts for half of the market share - has not invested in distribution of the biofuel.

A Petrolimex spokesperson said setting up an E5 distribution channel requires huge investment, and the firm’s financial capacity is still limited.

Nguyen Phu Cuong, deputy chief of the Department of Science and Technology, said most retailers are reluctant to spend money on creating storage space and setting up pumps for E5.

Concurring with him, a deputy general director of PVN said the government offers incentives for the production of the biofuel, but does not support its distribution or trade, and the development of cassava growing zones.

None of PVN’s proposals to the government on incentives have been approved, he said.

Pham Anh Tuan, deputy general director of PV Oil, said the volume of E5 sold is too small compared to A92-RON gasoline, the most popular gasoline variety in the country. A medium-sized filling station selling E5 often has only one pump for the biofuel, while it has three to five for A92-RON.

The sale of the biofuel is not increasing partly because the company cannot continue to keep its price low as before, he said.

“Earlier E5 cost VND500 (2.4 US cents) per liter lower than A92-RON gasoline, so it was bought by more customers. But the price was lower than production cost, causing losses to us.

“We could not bear bigger losses from E5, so we had to raise its price.”

The biofuel’s price now is only VND100 per liter lower than that of A92-RON.

Under a plan approved by the government, from December only gasoline with 5 percent ethanol will be used in the five centrally-administered cities of Hanoi, Ho Chi Minh City, Hai Phong, Da Nang, and Can Tho, and the provinces of Quang Ngai and Ba Ria-Vung Tau.

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From December 2015 it will be the only fuel sold nationwide.

Only E10 fuel, which has 10 percent ethanol, will be used in the seven localities from December 2016, and nationwide a year later.

Struggling

Low demand for the biofuel has made retailers uninterested in selling the product. Some gas stations have even stopped selling ethanol-blended gasoline. Low supply is another reason for the traders not expanding sales of the product.

The head of a gasoline retail firm said the biofuel is not always available to traders.

“Producers are also worried about slow sales, so they do not produce it in large volumes,” he explained.

He said his firm still has four filling stations with pumps for ethanol-blended gasoline, but sales of the product have fallen by some 50 percent over the past two years.

E5 buyers are mainly taxi drivers, for whom the marginal difference in prices is good enough.

Gasoline traders now have to seek ways to boost export of the biofuel, mainly to China, the Philippines, and Canada, but the export prices are too low to break even.

Phung Dinh Thuc, chairman of PVN, said the cost of producing ethanol is around VND15,000 per liter while the export price is VND13,000.

But PVN has to export it despite the low price.

“Even if they do not produce biofuel, machinery and equipment continue to depreciate. Earnings from exports, even if small, are better than no production.”

Low domestic demand and losses from exports have caused the country's six producers to temporarily close down, stop construction, or cut back on production.

They had invested in the field hoping the biofuel market would develop after the government in 2007 unveiled its plan to develop biofuel in Vietnam. However, the delayed compulsory use of ethanol-blended fuel until late 2014 has hampered demands. The market therefore has been sluggish, failing to meet investors’ expectations.

Thuc said the government should take more drastic measures to develop the market.

Ethanol-blended fuel is popular in around 60 countries.

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