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Ethanol production remains dormant, but not imports

Published:Friday | June 15, 2012 | 12:00 AM

Steven Jackson, Business Reporter

The Petrojam Ethanol Limited (PEL) processing plant will remain shuttered for this year and probably until 2014 because of ethanol shortages, but it will continue to import and distribute the fuel for cars.

PEL hopes that market conditions will eventually normalise allowing it to produce ethanol following the shutdown of its 40-million gallon hydrous or wet-alcohol processing plant in November 2009 after its partnership with Brazilian company Coimex ended and its supply source dried up.

The state-owned energy company does not expect the current "unfavourable market conditions" to change during this fiscal year, according to disclosures to Parliament.

"Specifically, the unpredictability of viable supplies of hydrous ethanol for processing is not anticipated to improve, hence the company will not pursue the production of anhydrous ethanol," said the Jamaica Public Bodies report produced by the Ministry of Finance.

Operators of the energy plant did not return calls for comment.

The sale of sugar cane to ethanol producers carries an opportunity cost for sugar producers. But as sugar prices spike on the world market, it has been increasingly difficult for fuel processors to maintain secure supplies of raw material or feedstock.

Sugar commodity prices have doubled over five years to US$0.20 per pound in May 2012 compared with US$0.09 in May 2007.

These market changes resulted in eroding the profit margin for production and left PEL without cheap raw material.

"With the unfavourable price differential for Caribbean Basin Initiative producers, it is now expected that stability will only be realised in another one to two years," said the Public Bodies report. Jamaica's fuel enter the US market duty-free under the Caribbean Basin Economic Recovery Act or CBERA.

PEL intends to capitalise on opportunities to process ethanol under toll processing arrange-ments if they arise in the current financial year.

Even without manufacturing fuel-grade ethanol, the plant expects to double its profit from ethanol sourced from the United States - projected at J$43 million net profit this fiscal year from J$22 million last year. The profit projection rests on hitting a target of J$4.01 billion or 30 per cent increase in revenue. But it is still below earlier profit levels nearly three years ago when the plant was pumping out fuel-grade ethanol for export.

PEL will mainly import denatured anhydrous ethanol from the US to satisfy the local demand for E87 and E90 gasolene processed and sold by oil refinery Petrojam Limited. Ethanol was added to the fuel mix in November 2008 to save on cost and replace a less eco-friendly additive to gasolene.

PEL was formerly owned directly by Petrojam but was restructured in 2008 as a subsidiary of Petroleum Corporation of Jamaica, which is now parent to both energy operations.