Oil firms bar ethanol from sugar for blending in fuel

Why in the News

India’s ethanol programme has moved from drawing on both sugar based and grain based ethanol to a supply year in which sugar diversion for ethanol is to be reduced to zero. The 2026-27 procurement tender of the oil marketing companies (OMCs) bars ethanol made from sugarcane juice, sugar syrup and B-heavy molasses, after poor rainfall in Maharashtra and Karnataka raised fears for domestic sugar supply and prices.

What is ethanol blending, and why does the sugar feedstock matter?

1. What it is: Ethanol is an alcohol made from sugarcane or grains. Blended with petrol, it replaces part of the fossil fuel, like stretching each litre of petrol with a farm-grown fuel.
2. Why it was introduced: The Ethanol Blended Petrol Programme aims to cut crude oil imports and vehicle emissions. India has adopted E20, petrol containing up to 20% ethanol, as the nationwide standard.
3. Two kinds of molasses: B-heavy molasses is drawn off midway through sugar making and still holds recoverable sugar. C-heavy molasses is the final residue, with little sugar left to extract.
4. Food versus fuel: Diverting sugarcane and sugar to fuel competes with the supply available for food, so the conflict sharpens whenever cane output falls.
5. The takeaway: Ethanol from sugar saves oil imports, but in a weak cane year every litre of it is sugar taken off the market.

What does the 2026-27 tender change?

1. Sugar feedstocks barred: The tender cites a government direction to cut sugar diversion for ethanol to zero. It invites no offers for ethanol made from sugarcane juice, sugar, sugar syrup or B-heavy molasses.
2. Permitted feedstocks: Bids are open for ethanol from maize, broken rice, surplus rice procured by the Food Corporation of India (FCI), and C-heavy molasses.
3. Tender size: Bharat Petroleum Corporation Ltd (BPCL) issued the tender on behalf of all OMCs. It seeks about 11 billion litres for the supply year beginning in November, to meet 20% blending.
4. Maize incentive cut: The extra amount paid for each litre of maize based ethanol falls to Rs 2.79 from Rs 5.79.
5. Lower maize price: As a result, the price OMCs pay for maize ethanol drops to Rs 68.86 a litre from Rs 71.86.

Why does the shift matter?

1. Sugar supply protection: Poor rainfall in key sugar producing States has raised the risk of lower cane output. India is the world’s largest sugar consumer, so a shortfall quickly lifts domestic prices.
2. Energy security balance: The tender keeps the blending programme running. It also holds back enough sugar to keep food supply adequate and prices in check.
3. Grain becomes the mainstay: With sugar feedstocks out, grain based distilleries must supply most of the ethanol. Grain supply, OMC prices and distillery capacity now decide whether the blending target is met.

Challenges

1. Food versus feed: Heavier grain demand for fuel competes with maize used as poultry and cattle feed. Eg. India imported maize in 2024 as distillery demand rose.
2. Idle sugar based capacity: Distilleries that sugar mills built to run on cane juice and B-heavy molasses lose their main raw material for a whole year.
3. Weaker incentive: The lower maize price cuts grain distillers’ earnings just when the programme needs more of their output.
4. Uncertain rice stocks: Surplus FCI rice exists only when procurement exceeds public distribution needs, so it is an unreliable feedstock.

Way Forward

1. Second generation ethanol: Scale up ethanol from crop residue under the Pradhan Mantri JI-VAN Yojana to reduce reliance on food crops.
2. Output linked diversion: The Department of Food and Public Distribution should allow sugar diversion each year only after cane output estimates confirm a surplus.
3. Maize productivity: Raise maize yields and area so that fuel demand does not eat into feed supplies.
4. Stable feedstock pricing: OMCs should announce feedstock prices several years ahead so distillers can plan capacity.

Conclusion

India’s blending programme now rests on grain for a year, trading a sugar supply risk for pressure on maize and rice. Whether grain distilleries can fill the whole tender at a lower maize price will decide if the blending standard holds through the supply year.

Matching Previous Year Question

“[2013] With reference to the usefulness of the by-products of sugar industry, which of the following statements is/are correct? (1). Bagasse can be used as biomass fuel for the generation of energy. (2). Molasses can be used as one of the feedstocks for the production of synthetic chemical fertilizers. (3). Molasses can be used for the production of ethanol. Select the correct answer using the codes given below. (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2, and 3 ANSWER: (c)”