Asia-Pacific Environmental Innovation Str ategies (APEIS)
Research on Innovative and Str ategic Policy Options (RISPO)
Good Pr actices Inventor y
Success in the Gasohol Business:
Case Study fr om the Bangchak Petr oleum Public Co. Ltd.
Summar y of the Pr actice
Keywords: Gasohol, Bangchak, ethanol, cassava
Strategy: Promotion of biomass energy
Environmental areas: Climate change, urban environment, air pollution
Critical instruments: Awareness/capacity building, Economic instruments, Self-regulation,
Partnerships, Technologies
Country: Thailand
Location: Bangkok, Nonthaburi, Prathumtanee, and Samutprakarn
Participants: Pornwilai International Group Company Limited and Thai Ethanol Company
Limited
Duration: 2001–present
F unding: Self-funded
Background:
A gasohol project in Thailand began in 1985, after His Majesty King Bhumibol expressed
concern over the country’s dependence on imported fuel, while local agricultural products were
unfavourably priced. His Majesty initiated a royal project at the Chitralada Palace to study the
use of sugarcane as a raw material for ethanol production. The ethanol is then mixed with
gasoline to produce gasohol. Experiments have been conducted with vehicles as part of the
project since 1994. Experiments in both light and heavy engines yielded good results in the
laboratory and in road tests. Unfortunately, during that period, the production cost of gasohol was
still higher than market prices for gasoline. Thus, the gasohol project was not commercially
viable at the time.
Since 2000, however, the grim fact became apparent that the world’s petroleum reserves are
limited, while, at the same time, petroleum consumption continues to rise. In Thailand, gasoline
retail prices have risen sharply and unexpectedly. Accordingly, with concern about this situation,
the Thai government has begun to pay more attention to alternative fuels to replace imports, as
shown below.
1. The Thai government, led by the Cabinet and the Ministry of Industry, agreed to establish the
Office of the National Ethanol Committee (ONEC) in 2000 as an official centre for ethanol
studies and production. ONEC has since played a critical role in the establishment of a longterm strategic plan and ethanol fund, setting up regulations and amendments according to the
governmental policy, as well as carrying out the strategies.
2. According to a governmental agreement in December 26, 2000, many related agencies were
assigned to take action in supporting the use of ethanol: (1) The Ministry of Finance was
assigned to prepare a tax exemption to improve the competitiveness of ethanol. (2) The
Department of Business Development was assigned to set up specifications on gasohol
quality. (3) The Ministry of Agriculture was assigned to study the availability of agricultural
products or ethanol source materials in Thailand. (4) The Ministry of Industry was assigned
to establish experimental studies and work on the ethanol mixture proportion in gasohol. (5)
The Petroleum Authority of Thailand (PTT) was assigned to lead the drive to promote
gasohol production and distribution. (6) Finally, general governmental agencies were
assigned to help promoting the use of gasohol by using it in their own vehicles.
3. Ethanol and gasohol market development has been facilitated through various supporting
measures, including regulatory development and creating a favourable market environment.
At the beginning, however, even though these critical measures were established, their
effectiveness was not obvious and gasohol production seemed not to be commercially viable.
Figur e 1:
BCP logo
The Bangchak Petroleum Public Co. Ltd. (BCP), known as the first Thai oil
refinery established by the Ministry of Defence in 1964 with the aim of
maintaining energy security for the Thai people, is really the only oil refinery
that has been interested in gasohol since the beginning. With strong motivation
and vision, the BCP first realised the significant market potential of gasohol and
initiated a study of large-scale production and distribution, which benefits
farmers as well as maintains energy security for the country. Finally, the BCP
officially decided to produce gasohol. This marked the first milestone of
“Gasohol 95” market development in Thailand.
Source: http://www.bangchak.co.th
Objectives:
Procure ethanol from various sources to produce enough gasohol in order to secure a supply.
Sustain gasohol security for Thailand and nearby countries.
Lead the energy market in sustainable business along with environmental concerns.
Add value to local agricultural products.
Description of the activity:
“Gasohol 95” is a mixture of gasoline and ethanol. The virgin alcohol (99.5 percent
concentration) has characteristics generally equal to 95 percent octane gasoline, but the price is
cheaper by 50 satang per litre (100 satang=1 baht).1
At the beginning of the “Gasohol 95” project in 2001, the BCP started testing consumer response
at four gasohol stations in Bangkok with the campaign “ Quality 95 but saving by Price 91” to
distribute the first lots of “Gasohol 95” and to study consumer behaviour. Consequently, the BCP
found that people are very interested in the product, but the production cost of gasohol at the time
was still higher than conventional gasoline, due to a lack of supportive policy, no tax exemption,
and a shortage in ethanol supply. Therefore, the BCP had to stop distribution and wait for the next
step of commercial gasohol production and distribution.
1. Conversion: 41.4571 baht=1 U.S. dollar (31 July 2004)
Since 2003 the retail price of gasoline has been rising rapidly. This allowed the BCP to proceed to
the second step, which is to reach for appropriate economies of scale in gasohol distribution. With
full support from the Thai government, the BCP decided to expand gasohol consumption by
producing and officially distributing “Gasohol 95” at 99 BCP gas stations in December 2003.
For the ethanol supply to serve the commercial production of “Gasohol 95,” the BCP negotiated
with the Pornwilai International Group Co. Ltd.—known as the first manufacturer in Thailand,
producing 99.5 percent ethanol from cassavato purchase 15,000 litres of ethanol per day. This
meant that the BCP could produce 150,000 litres of gasohol to serve daily fuel consumption as
well as play a role in securing ethanol demand. There are now 146 gasohol stations established in
Bangkok, Nonthaburi, Prathumtanee, and Samutprakarn. With excellent provision and good
consumer acceptance, “Gasohol 95” sales are growing by approximately 15 percent per month.
Figure 2: Gasohol storage tank at BCP
Photograph by Pataitat Indradat
Even though “Gasohol 95” distribution from
the BCP was very popular among the public,
it had to realise that the major obstacle was to
have the automotive industry acknowledge
the quality of the product. In order to get this
approval and acceptance, the BCP had to
work hard to improve gasohol quality and
identify the specific requirements of
automotive
producers,
especially
in
improving vapour pressure and lowering
corrosiveness, as well as to certify its product.
Recently, these improvements have just been
acknowledged by an official statement from
many automotive manufacturers in support of
gasohol as an alternative fuel.
Accordingly, due to the supportive
government policy, the ethanol supply from a number of new ethanol producers will be
increasing. Thus, in the fourth quarter of 2004, the BCP was planning to purchase more ethanol
from new producers such as the Thai Ethanol Co. Ltd., a subsidiary of the Sang-Som Group, for a
daily supply of 70,000 litres of ethanol. Moreover, in 2005, with a secured ethanol supply, the
BCP plans to be the market leader in gasohol distribution and officially produce 91 percent
octane gasohol, “Gasohol 91,” to serve consumers as well as to retain the major part of the supply
share before the phase-out of carcinogenic methyl tertiary-butyl ether (MTBE) in 2006.
Cr itical Instr uments
Overview
Recently, gasohol has become popular as an alternative fuel in Thailand. The success of
promoting gasohol in the domestic market is largely due to a combination of critical instruments,
namely, awareness/capacity building, economic instruments, self-regulation, partnerships, and
technologies, as detailed below.
Awar eness/capacity building
Initiating exper imental testing and pr omoting the wide-ranging benefits of gasohol
The BCP had been interested in exploring the market opportunities of gasohol. Thus, knowledge
has been developed within the organisation, including technical market aspects. The BCP
conducted research studies with emphasis on not only gasohol properties or availability of
agricultural residues but also on commercial distribution, market trends, and environmental
impact. As a result, the BCP has been recognized as the gasohol guru, the so-called “ Mr.
Gasohol.” Consequently, the Thai government assigned the BCP to be the information provider
to inform customers about the benefits of gasohol. Fortunately, because of unstable retail gasoline
prices and governmental policy that supports renewable energy, gasohol has become more
attractive to consumers. Moreover, the general public has paid more attention to this new
alternative. Thus, it has resulted in an increasing growth of “Gasohol 95” consumption and a
more secure national energy supply.
Economic instr uments
Waiving of contr ibution and ethanol tax exemption
Table 1: Price structure of petroleum products as of 31 July 2004 (baht per litre)
Gasoline 91
Gasohol 95
13.4327
12.9667
13.2824
Excise tax
3.6850
3.6850
3.3165*
Municipal tax (10% of excise tax)
0.3685
0.3685
0.3317*
Oil fund
0.5000
0.3000
0.2700*
Energy conservation fund
0.0400
0.0400
0.0400
Price fixation
-1.4547
-1.5364
-1.1364
Wholesale price
16.5715
15.8238
16.1042
Marketing margin
1.5500
1.5500
1.5500
Value added (7%)
1.0460
0.9806
1.0013
19.39
18.59
18.89
Index
Ex-refinery price
Retail price
Gasoline 95
Related Web site: http://www.eppo.go.th/petro/price/pt-price-st-2004-07-31.html
* Due to the Government’s scheme to promote the use of Gasohol, tax differentiation has been applied.
The retail price of “Gasohol 95” was reduced in order to provide a competitive advantage price.
The Ministry of Finance was considering an exemption on the excise tax and municipal tax of 10
percent (0.40535 baht/litre). Moreover, the Committee on National Energy Policy had already
reviewed waiving the contribution to the Oil Fund requirement, affecting a 10 percent reduction
in the retail price (0.0300 baht/litre).
Self-r egulation
Business cultur e and environmental concer ns
According to the business strategy pursued by the BCP, “ The sustainable development of
business, the environment and society,” it has long been interested in gasohol. In fact, it can be
said that the major force driving the BCP to play a significant role in the gasohol market is the
company’s ethic of a green business culture and social responsibility. Furthermore, the strong
social and environmental awareness within the organisation, especially at the executive level, is
the real force contributing to the development, as the company has looked beyond business
success to the social and environmental benefits for the country.
Par tner ships
Negotiating with newcomer ethanol pr oducer s to ensur e public gasohol secur ity
According to the limited availability of the ethanol supply, the BCP is not producing “Gasohol
95” at full capacity. At the beginning, even though there was only one ethanol producer in
Thailand, the BCP was still interested in gasohol and did not hesitate to make a contract with the
Pornwilai International Group Co. Ltd. for a purchase of a 15,000 litre per day ethanol supply.
Hence, it can be said that the BCP has had a good business relationship with the Pornwilai
International Group Co. Ltd., the major ethanol supplier, since the start. Consequently, because of
the good credit gained from “Gasohol 95” distribution, the BCP is now the first priority customer
of new ethanol producers. Currently, the BCP is negotiating with the Thai Ethanol Co. Ltd. to
purchase 70,000 litres of ethanol to increase the gasohol supply in the fuel market and finally
hold the major market share. Furthermore, in 2005, the BCP is planning to purchase more ethanol
from other ethanol producers. Accordingly, it seems that the BCP still plays a supportive role in
environmental concerns and gains high credit from many ethanol producers—along with the
strengthened loyalty of customers, investors, and the public—to secure the supply chain of
gasohol, both upstream and downstream.
Technologies
Adjusting gasohol specifications to meet the octane 95 fuel standard
According to the substitution of gasoline with gasohol
for use as a conventional octane 95 fuel, it was
necessary to adjust some specific properties that
would be harmful to engines and not meet vehicle
specifications. Generally, the two most significant
problems are vapour pressure and corrosiveness.
Known as a volatile and highly corrosive substance,
ethanol can adversely affect engines, causing vapour
lock in the combustion chamber and corrosiveness in
certain parts of the engine. Thus, in the mixing
procedure, the BCP solved this problem by preparing
a low vapour pressure petroleum base before mixing,
Figur e 3: Ethanol Storage Tank at BCP
and then installing a blending machine for mixing
Photograph by Pataitat Indradat
additives, such as an anti-corrosive, to lessen
corrosiveness. Accordingly, “Gasohol 95” produced by BCP has been approved by the
Department of Business Development and the EURO 2 standard. Thus, it can be used in most
vehicles. However, the BCP does not guarantee that “Gasohol 95” can be used effectively in the
carburetor type of engine.
Impacts
The substitution of gasoline with ethanol contributes to environmental protection.
Combustion of “Gasohol 95” produces lower amounts of hydrocarbons, carbon monoxide,
and carbon dioxide than general octane 95 gasoline, and it also reduces levels of black smoke,
aromatic hydrocarbons, and dust emissions in exhaust gases.
Utilising agricultural products as the raw material for ethanol production has brought about a
reduction of imported MTBE, lessened the balance sheet deficits of the country by about
3,000 million bath, helped spread local investment, and provided jobs in rural areas,
especially for farmers, so that they can sell their products at higher prices. At the global level,
it will conserve limited gasoline supplies. Using ethanol mixed with gasoline will reduce
gasoline consumption by 10 percent, or 25–30 million litres per month.2
The development of the gasohol market has attracted other gasohol producers to get involved.
Consequently, this competitive situation will provide more of a market initiative for ethanol
producers and, thus, raise the supply security of gasohol and satisfy the demand for gasohol
in the future, while drawing public interest to the greener alternative.
Lessons Lear ned
Being the first player in the new market brought about business risks in terms of technical
and marketing issues. The BCP had to carefully focus its activities on the performance of
gasohol, while market research was also carried out to study the issues of concern, such as
customer behaviour, demand and supply balance, and price forecasting. Making the first
move, however, gave the company an enhanced competitive advantage and brought it to a
strategic position in the fuel market. The BCP won high recognition and a good image from
the stakeholders’ point of view, not only among related governmental agencies but also
among ethanol producers, customers, and the general public.
Technology modification is one of the major factors to consider in product innovation. In
producing gasohol, the BCP needed to modify its production process. Employing a simple
refinery technology, not a complex one like other large refineries, gave the company more
flexible to become a pioneer in gasohol distribution from both the environmental and
business aspects.
2. In 2003, consumption of Gasoline 95 and 91 was, respectively, 255 and 375 million litres per month on
average, or 8.5 and 12.5 million litres per day (based on a summary report from the Department of Energy
Business).
Potential for Application
Even though the actions of the private sector played a critical role in initiating the gasohol market,
it cannot be denied that the supporting measures of the government have been the most crucial
factor in the success of wide-spread gasohol distribution, including the restructuring of ethanol
taxes and the national agenda to ban the use of MTBE in 2006, as well as an emergence of
ethanol producers and related agencies. Accordingly, the “Gasohol 95” project will enhance rural
economics and the nation’s power supply security in the face of the oil crisis. Generally, it can be
emphasized that this project is suitable for any agricultural country that has a significant
availability of appropriate agricultural products, because more agricultural supply leads to more
ethanol producers, which can then supply ethanol for gasohol production as well.
Moreover, a supporting framework from the government, as indicated in environmental policy,
energy policy, and economic policy, is also considered necessary. Lack of government support,
however, will lead to the confusion in gasohol supply planning and potential for application.
Contact
Dr. Anusorn Sangnimnuan
Acting Senior Executive Vice President
Bangchak Petroleum Public Company Limited
210 Sukhumvit 64, Phrakanong, Bangchak, Bangkok 10260
Tel: +66-2335-4999
Fax: +66-2335-4009
Services Center: Ph: +66-2745-2440-4
Web site: http://www.bangchak.co.th/en/
E-mail: [email protected]
Refer ences
Standing Committee on Energy, the House of Representatives
(www.parliament.go.th/energy)
Office of the National Ethanol Committee of Thailand (www.ocsb.go.th/ethanol)
Ethanol Thailand Project (www.ethanol-thailand.com)
Case reviewer: Pataitat Indradat, Research Assistant, Thailand Environment Institute (TEI)
E-mail: [email protected]
Information date: 30 July 2004