Independent Pricing and Regulatory Tribunal
FACT SHEET
Review of ethanol supply and demand
April 2012
Background
The Biofuels Act 2007 imposes an ethanol mandate on major fuel sellers. They must
ensure that ethanol accounts for 6% of their petrol sales in NSW. However, in 2011 it
accounted for only around 3.6%. The Premier asked IPART to analyse ethanol
supply and demand.
What are our key findings?
Enough ethanol supply to meet the mandate
There is currently enough supply of ethanol in Australia to meet demand in NSW –
assuming demand in other States remains at current levels (see Figure 1).
Figure 1
Potential ethanol demand and supply in Australia (ML)
700
Potential supply from existing ethanol plants (APAC)
Potential supply from existing ethanol plants (producers' advice to IPART)
Ethanol demand - mandate met (6% NSW)
Ethanol demand - mandate met (6% NSW, 5% QLD)
600
500
400
2012
2013
2014
2015
2016
Note: Supply estimates are based on the production capacity of existing ethanol plants.
Data source: APAC Biofuel consultants, Australian Biofuels 2011-12, Taking Stock, November 2011, pp 34-35.
www.ipart.nsw.gov.au
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If other States do significantly increase their demand for ethanol (eg, by introducing
an ethanol mandate 1), this could put pressure on existing ethanol production
capacity. However, it could also encourage new producers to enter the market,
alleviating capacity constraints. 2
Concerns about ethanol supply reliability & prices
The market for ethanol supply is:

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highly concentrated: there are currently only 3 producers in Australia, and the sole
producer in NSW accounts for two-thirds of national production capacity
illiquid: competition from imported ethanol is unlikely, primarily because
Commonwealth Government grants effectively exempt domestic producers
from excise duty.
This can undermine supply reliability, and may result in higher ethanol prices than
would occur in a more competitive market. It also contrasts with other fuels, which
are relatively easy to import if local production is insufficient or interrupted.
Strong growth in ethanol sales over the last 6 years, but still below mandated level
In response to the mandate, major fuel retailers have rolled-out E10 3 to many petrol
stations across NSW, often in place of regular unleaded petrol. As a result:


E10’s sales have grown strongly since 2006, while regular unleaded petrol’s have
declined. That said, growth in E10 sales has slowed since the middle of 2010.
Sales for premium unleaded petrol have also increased. This suggests that – as
regular unleaded petrol is removed – many consumers are switching to
premium unleaded petrol instead of E10 (see Figure 2).
Despite the strong growth in ethanol sales, they are still below the mandated level.
E10’s market share in NSW was 36% in 2011, meaning that ethanol accounted for
only 3.6% of petrol sales. To meet a 6% mandate, the E10 market share needs to
increase to 60%.
1
2
3
A 5% ethanol mandate was to be introduced in Queensland, but has since been deferred. This
was to be 5% of regular unleaded petrol sales in Queensland, rather than 5% of all petrol sales.
There are 5 potential new ethanol plants at various stages of planning in the Eastern States of
Australia.
E10 is unleaded petrol (primarily regular unleaded petrol) containing up to 10% ethanol. It is
the most common type of ethanol-blended petrol sold in NSW. In this fact sheet, some of the
references to ‘E10’ also include other types of ethanol-blended petrol.
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www.ipart.nsw.gov.au
Figure 2
Monthly petrol sales in NSW
Note: NSW sales includes Australian Capital Territory sales. The vertical bars represent the ethanol mandate over time.
‘PULP’ is premium unleaded petrol, ‘RULP’ is regular unleaded petrol and ‘EBP’ is ethanol-blended petrol.
Data source: Australian Petroleum Statistics, Table 3B (www.ret.gov.au/resources/fuels/aps/pages/default.aspx).
Not enough demand for ethanol to meet the mandate
We think there will not be enough demand for ethanol to meet a 6% mandate. Based
on current market conditions 4, and the following assumptions:

regular unleaded petrol no longer being sold in NSW

E10 being rolled-out to every petrol station in NSW, and

E10 being sold outside of petrol stations (eg, direct to farms and mines),
we estimate that ethanol will account for only 5.8% of petrol sales at most.
Several factors affect demand for E10
We considered the factors affecting demand for E10, finding that:



4
the major fuel sellers’ decision to confine E10 to regular unleaded petrol,
excluding it from premium unleaded petrol, limits demand
the price difference between regular unleaded petrol and E10 is narrowing – likely
due to E10 replacing regular unleaded petrol and ethanol supply being highly
concentrated
the vehicle fleet is developing in favour of E10, with 73% of passenger and light
commercial vehicles now E10 suitable (rising to an estimated 84% by 2021)
We have assumed prevailing petrol prices, vehicle fleet composition, consumer perceptions and
trends in petrol sales. We have also assumed that E10 is primarily confined to regular unleaded
petrol.
www.ipart.nsw.gov.au
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
there is scope for better consumer education and information, which may see
some improvement in E10 uptake.
Market operation issues make it difficult to achieve the mandate


At least 25% of petrol stations in NSW are not required to comply with the
mandate, since the Biofuels Act 2007 exempts retailers with 20 or fewer sites from
it. This significantly reduces the number of sites required to offer E10, and may
also undermine the competitive position of petrol stations subject to the mandate.
It can be more expensive to supply E10 to regional areas compared to
metropolitan areas, limiting its roll-out. If E10 is rolled out to border zones at the
expense of regular unleaded petrol, it could undermine the competitive position
of NSW sellers relative to interstate sellers.
What are the Government’s options for administering the mandate?
We have identified several options for the Government to consider in administering
the mandate and balance the goals of having a viable ethanol industry, providing
fuel choice to motorists, and minimising increases in petrol prices. They include:

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Removing the exemption for retailers with 20 or fewer sites – this would
enhance the major fuel sellers’ ability to comply with the mandate. However, it
may also increase costs to some independent petrol stations and reduce the
availability of regular unleaded petrol.
Excluding sales of premium unleaded petrol from the petrol sales base – that is,
the mandate would be changed from 6% of all petrol sales, to 6% of regular
unleaded petrol sales. This would help ensure the mandate could be met (albeit
on a different base), while still allowing for the supply of some regular unleaded
petrol. However, it would require lower levels of supply from ethanol producers.
Excluding sales of petrol that occur outside of petrol stations (such as sales
direct to farms, mines and industry) from the petrol sales base – this would
assist in maintaining some sales of regular unleaded petrol and reduce costs of
transporting fuel to some regional, off-station, locations.
Excluding sales of petrol in some NSW border regions from the petrol sales
base – this would recognise the higher cost of transporting E10 to some border
regions but the border regions would need to be carefully defined and reviewed.
Strongly enforcing the mandate – this would mean that major fuel sellers would
have to consider options such as including ethanol in some premium petrol, and
expanding their roll-out of E10 to petrol stations across NSW.
The Final Report, along with further information on IPART’s review, is available at
IPART’s website <http://www.ipart.nsw.gov.au>.
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www.ipart.nsw.gov.au