ETHANOL IN ARMENIA
Kendrick Wentzel
Ethanol Producer Magazine
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May 4 2009
The Renewable Resources and Energy Efficiency Fund of Armenia recently
commissioned a feasibility study to determine the possibility of
producing ethanol in Armenia. The study, financed by World Bank as a
grant from the Global Environment Facility, was conducted by Enertech
International Inc. and BBI International in cooperation with DHD
Contact LLC of Armenia.
As a land-locked country without any significant deposits of crude oil,
Armenia is 100 percent dependent upon fuel imports to meet a growing
demand for gasoline. Increases in world crude oil prices are being
passed on to and reflected at retail gasoline outlets, and prices
for gasoline in Armenia are expected to increase at an even more
rapid rate in the future, as long-term import contracts lapse and are
renegotiated at higher market prices. Natural gas prices from Russia
are expected to increase making compressed natural gas (CNG) more
expensive and causing upward pressure on gasoline prices as well. Such
trends will make alternative motor transport fuels such as ethanol
more competitive in the market. Finally, ethanol for blending as a
motor transport fuel has the potential to reduce imports of gasoline
through displacement, reduce foreign exchange drains, increase energy
security of supply in a traditionally unstable region of the world,
create value from domestically grown ethanol feedstocks on surplus
lands, create jobs in depressed rural areas, and improve local air
quality particularly in congested urban areas.
Feedstocks One of the key factors for determining the overall success
of a biofuels program is the availability of appropriate feedstocks at
attractive prices. Corn and sugarcane serve as the major feedstocks
for current ethanol production throughout most of the world, but
virtually any feedstock with high sugar or starch content can be
utilized for ethanol production.
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Armenia’s climatic conditions are not suitable for sugarcane
production; however, there are several alternative crops suitable
to Armenia’s climate for cultivation on available agricultural land
that is not intended for the production of food crops. In particular,
Jerusalem artichoke has been identified as a crop with great potential
as a feedstock for ethanol production in Armenia in the near to midterm
future. It can be cultivated on land that is currently fallow and
it possesses relatively high carbohydrate content, especially in
its root tuber, thereby making it extremely suitable for ethanol
production. Farmers grow Jerusalem artichoke for their own use,
but there is no large scale production due to the small market for it.
Similarly, feed corn for livestock and poultry is a suitable crop
for the soils and micro climates found in several parts of the
country. Utilizing a dry mill corn fractionation process, feed corn
can be processed in such a manner as to extract all of the starches
contained in the feedstock corn for conversion into ethanol while
at the same time producing important animal feed co-products. The
byproduct will have a higher percentage of protein, fats and
carbohydrates than that found in unprocessed dry corn, which is
currently the principal animal feed used by livestock and poultry
producers in Armenia. Similar byproducts can also be produced using
Jerusalem artichoke.
SOURCE: AREG GHARABEGIAN
Presently there is no large scale feed corn production in Armenia,
but the Ministry of Agriculture has developed a program of increasing
production to reduce the import and to develop a local market
for feeding livestock. The goal is to have 14,826 acres of corn
production in Tavush Marz in northern Armenia. The program has seen
limited success.
Where farmers use good techniques, the yields have been satisfactory,
but in many cases the yields have been far below what would have
been expected.
The preliminary feasibility study suggested developing two very
different types of ethanol plants: one based on an inulin extraction
process for Jerusalem artichoke to be situated in Syunik Marz; and
a second plant based on a dry milling process with fractionation
utilizing feed corn grown in Tavush Marz. These two regions have high
rural unemployment rates and microclimates suitable for the production
of the identified feedstocks.
There are a number of advantages and disadvantages that should be
recognized from the outset when considering a decision on whether
or not to implement a nationwide ethanol program. With respect to
advantages, ethanol can be produced from domestic renewable feedstock
sources, helps to stimulate agricultural employment in depressed
rural areas, and can provide farmers and ethanol processing plant
owners with a dependable revenue stream. In addition, ethanol can
lower air emissions in major metropolitan areas when combusted as a
motor transport fuel, can reduce overall greenhouse gas emissions,
and can reduce foreign exchange drains on the Armenian economy.
On the other hand, a nationwide ethanol program could face several
hurdles and challenges. Ethanol has a lower energy content value
compared to gasoline and could face an initial public acceptance
hurdle. In addition, ethanol blends greater than 10 percent are
not compatible with existing non-flexible fuel vehicles, pipeline
infrastructure, distribution systems, or tanks and pumps at retail
outlets. If the imported gasoline is not of a high quality or contains
moisture, there will be performance and maintenance problems with
automobiles that are operated on fuels mixed with ethanol, and the
program will in all likelihood be perceived as a failure by the
consumer public. In addition, no markets currently exist in Armenia
for useful animal feed by-products from ethanol conversion processes.
Potential Ethanol Market Size Table 1 (shown above) forecasts the
ethanol production needed annually to achieve the 5 percent blending
levels, by volume, with gasoline.
These projections formed the basis of the decision to develop 14,000
metric tons per year of ethanol production capacity by 2014. Therefore,
the recommended capacity sizes for each of the two proposed plants is
7,000 metric tons per year based on the assumption that the Armenian
government would mandate 5 percent blending of ethanol by volume with
gasoline by the year 2014.
Construction of a 7,000 metric ton per year ethanol plant would cost
$17 million to $19 million (2008 dollars) depending upon specific
conversion technology chosen by the developer. The major variables
for the financial analysis of a biofuel project are ethanol price,
feedstock price, co-product price and energy costs.
Due to the lack of reliable price information for the proposed
feedstocks (Jerusalem artichoke and corn), the financial analysis
was necessarily conducted by setting an acceptable rate of return
on investment and solving for the cost of the feedstock that would
generate this return over time. A variety of scenarios was analyzed
to assess the sensitivity of the projected results to the different
assumptions.
If yields are around 40 to 45 metric tons per hectare, pricing for
Jerusalem artichoke is expected to be approximately $50 per metric
ton as farmers move towards more modern production practices. The
financial model showed that the processing plant can pay up to $88
per metric ton for Jerusalem artichoke and still achieve a return on
investment of 15 percent.
The 2008 price for imported feed corn into Armenia was approximately
$400 per metric ton. This price is significantly above the world market
price of corn, likely at least in part due to high transportation
costs and small trading volumes. Results of the analysis indicate that
while higher yield seeds are now being used by local farmers, the
upward pressure on corn production costs especially from the higher
cost of fertilizers, weed suppressants, and diesel fuel for tractors
is offsetting enhanced revenues from higher crop yields. Farmers
will have to beat this price if they hope to enter into long-term
contracts with an ethanol processing plant. However, given that
the financial model was set to achieve a minimum ROI of 15 percent,
financial projections indicated that the processing plant could only
afford to pay up to $393 per metric ton for feed corn and still remain
attractive to potential investors.
Based on these results and competitive guidelines, either plant
could provide sufficient economic returns. The risk is perceived to
be greater with Jerusalem artichoke due to the lack of commercial
production experience, cost data regarding cultivation and harvest,
and historical pricing data in the commercial marketplace. However,
in the final analysis, such risks are common to any new dedicated
energy crop.
Land Availability for Feedstock Production On average, only 70 percent
of tillable land in Armenia is presently being used. Guiding principles
for identifying suitable land during conduct of the ethanol program
assessment were to:
Focus on surplus lands only
Consider lands from the Soviet era that are not presently being
utilized for food production and unlikely to ever be brought back
into useful production
Primarily concentrate on marginal lands between 1,000 and 2,400 meters
in elevation or else saline soils that cannot be utilized for food
production regardless of elevation
Rule out lands that are not accessible by mechanized farm equipment
or include endangered species of plants or animals
An extensive study was conducted to determine the best locations for
growing acceptable feedstocks from the perspective of prevailing
climatic conditions, soil suitability, elevation constraints and
possible access to irrigation. It is anticipated that the local
farmers, not agri-businesses, would be responsible for planting
and growing feed corn. Harvested feed corn would then be stored in
humidity-controlled storage containers or buildings for use throughout
the season. A study of available land for corn growing shows there
is the capability to produce the required amount within 50 km of the
proposed plant.
Potential Coproduct Markets The sale of coproducts from a planned
ethanol plant is essential to ensure the economic viability of such a
project, especially if no direct financial subsidies will be provided
by the government to guarantee an ethanol program’s success over
time. Potential coproducts from a Jerusalem artichoke plant include
pulp to be used as a high carbohydrate animal feed as well as feedstock
for combined heat and power systems. Potential coproducts from a
corn fractionation plant include DDGS and corn oil. In addition,
both processing plants are expected to produce dry ice and liquid
carbon dioxide as coproducts.
Anticipated Developmental Impacts Rural development is another
important driver for worldwide support of biofuels. Since feedstocks
are grown on agricultural land, increasing demand results in
increased economic development in rural areas; however, biofuels
policies have faced increased scrutiny in recent years. The two most
controversial topics are the food versus fuel issue, and the actual
level of environmental benefits accruing from ethanol programs. In
Armenia, only unused marginal lands or surplus will be utilized and
only non-food feedstocks will be grown for conversion into ethanol,
unlike major ethanol programs in the United States, Europe and Brazil.
Moreover, the proposed projects are expected to have significant
and positive developmental impacts and benefits to Armenia. The most
important benefits include:
Stimulation of Employment in Depressed Rural Areas. An ethanol
feedstock production program of this magnitude will have an instant
and measurable positive economic and job creation impact upon the
two most depressed parts of Armenia.
Human Capacity Building. Most of the construction work would be
provided by local Armenian contractors- overseen by an international
contractor with experience in ethanol plant construction. New jobs
would be created both directly and indirectly. These jobs will require
new skills and training to operate and maintain the two plants.
Technology Transfer. There has been little experience with ethanol
processing plants for Jerusalem artichoke on a major commercial
scale. Only small demonstration facilities using Jerusalem artichoke
have been implemented to date. In a sense, this project will create
a whole new industry in Armenia.
Economic Development Benefits. Substantial tax revenues would be
generated, as well as money spent in local rural economies.
Environmental Impacts Considering all of the potential ethanol fuel
cycle environmental aspects, it can be concluded that the project
will have a favorable impact on the environment in Armenia. The main
positive aspect of the proposed project will be the reduction of
air pollutions. With a nationwide program goal of 5 percent ethanol
blending, it is anticipated that carbon dioxide emissions will be
reduced by 3,300 metric tons per year or by at least 15 percent of
the level of such emissions in 2007. Considering a projected increase
in the number of vehicles that will be added to the current stock in
the future, this anticipated emissions reduction will have a tendency
to increase over time.
Other environmental concerns are mostly related to land use changes
triggered by higher agricultural product prices. By historical
averages, current prices for commodities such as corn and soybeans are
high. The higher prices provide an incentive to increase production,
which in many cases means expanding the amount of land used for
agriculture. If the expansion land is currently forested, turning it
into arable land will require deforestation resulting in environmental
harm which will likely outweigh the benefits of biofuels for many
years. However, ethanol production as envisioned for Armenia will
result from greater utilization of unutilized crop lands or marginal
lands and not result in reductions of forested lands.
Suggested Policy Measures for Consideration Suggested government
energy and transportation policy measures to stimulate ethanol market
development in Armenia include the following:
Develop a fuel standards program by 2009
Mandate a minimum fuel blending program at 5 percent by volume by
2014 coupled with an excise tax on imported ethanol in an effort to
create a new industry
Increase mandated blending requirement to 10 percent by volume by 2020
Classify ethanol as a motor transport fuel for tax purposes rather
than as ethanol for use in alcoholic beverages
Institute vigorous enforcement of fuel quality standards testing at
fuel depots and retail outlets
Treat ethanol as a renewable energy resource
Develop and implement a nation-wide public awareness program to
introduce and promote the production and use of ethanol