SAPIA VIEWPOINT ON BIOFUELS INDUSTRIAL STRATEGY FOR THE RSA Presentation to the DME Parliamentary Portfolio Committee 19 th March 2008 Presented by: Connel Ngcukana Director of SAPIA

SAPIA believes that it is in the best long-term interests of South Africa that a world class, economically viable, environmentally sustainable Biofuels Industry be established for South Africa.

Contents  Background  Broad overview of strategy  Biofuels options  Economic & practical considerations bioethanol  Way Forward

SAPIA supports the need for an integrated approach which includes: –Farm to end-user (wheel) costs / benefits –Biofuels as part of the future fuels road map –Renewable Energy Strategy –Energy Efficiency –Energy security

SAPIA supports the recently finalised Biofuels Strategy as it sets out to address: –Job creation –Rural development –Feed stock selection –The link between the 1 st and 2 nd economy –The need to progress towards 2 nd and 3 rd generation processes –Cleaner fuels

SAPIA see benefit in changes that have been included in the final Strategy: –Pilot study concept –Voluntary nature of the uptake of biofuels –Continued BTT involvement in implementation phase –Support offered to growers and producers of biofuels –Contract mechanisms between growers and producers to ensure continuity of supply

However SAPIA believes that the Strategy has failed to address the following: –The practical and economic issues of integrating biofuels into the fuels supply chain

SAPIA see fewer problems with the up take of biodiesel –Biodiesel can be readily easily used in Industrial Applications –Biodiesel can be blended up to 5% into road diesel and industrial fuel without any significant issues –There do not have to be any process unit changes at the Refineries to accommodate biodiesel –However, quality assurance is essential for road fuel. The quality of biodiesel is inherently difficult to maintain and is aggravated where many small producers are involved. Europe has seen some very bad experiences with sub standard Palm Oil ester.

SAPIA see the following options for the uptake of ethanol –Use of E100 as an industrial fuel for dedicated markets, eg Eskom power generation (Increases RSA fuel volume) –Use of E85 only in captive fleet is worthy of detailed study. (Increases RSA fuel volume) –Blending into existing petrol pool – E2 max (No increase RSA fuel volume) –Blending into existing petrol pool – E10 max (No increase RSA fuel volume) –Ethanol as refinery ETBE (ethyl tertiary butyl ether) feedstock – involves high capital cost, provides limited ethanol uptake and reduces LPG make. Each of the above options, can individually meet the target of the strategy (2%)

The following practical considerations need to be taken into account for taking up ethanol in petrol: –The objectives of the draft Vehicle Emissions Strategy together with the overall aims of the Air Quality Act need to be met –Biofuels implementation in South Africa should be tailor-made to local conditions taking into account RSA fiscal, environmental, social, climatic and technical requirements which may vary from other countries.

The following practical product spec considerations need to be taken into account for taking up ethanol in petrol: –Adding ethanol to petrol raises volatility, even at low levels (Raised volatility affects vehicle performance eg vapour lock, rough idle especially at altitude and high temperatures) –Refineries must remove light components to accommodate ethanol (i.e. need to produce a special “blendstock for oxygenate blending (BOB)”. This has capital investment, foreign exchange and loss of volume implications –Motor Octane Number specification needs to be reviewed so that it does not prejudice ethanol (RON-MON=10 all petrol)

The following practical distribution considerations need to be taken into account for taking up ethanol in petrol: –Ethanol is very soluble in water If water is present in tanks or pipelines containing petrol ethanol blends, ethanol dissolves into the water and separates from the from the fuel, making the remaining petrol blend off-spec eg Octane. –Need to upgrade infrastructure to operate a dry distribution system if petrol has more than 2% ethanol. (tankage, shipping, pipeline & transport) –Petrol with up to 2% ethanol (E2) can be transferred in the same pipeline as jet fuel. –Petrol with more than 2% ethanol, eg E10 cannot be transferred in the same pipeline as jet fuel. –Logistical constraints may dictate that Refineries produce BOB and ethanol blending occurs at depot level.

Additional practical considerations that need to be taken into account for taking up ethanol in petrol: –Where ethanol is blended into BOB at depots in the event that either local ethanol or BOB is not available security of supply is compromised imported ethanol will likely contain water BOBs if available to import will probably not be to RSA spec. Logistics and fungability of of imported finished product –Ethanol has a lower energy value than petrol which means vehicle consumption will increase with increase in % ethanol. –Need to denature ethanol so it can’t be drunk – how, where, when, cost ? –Changes to petrol additive packs –Extra tanks required for blendstocks and ethanol –Quality Assurance and testing capacity needs to be developed. –Ethanol due to its chemical nature needs new fire fighting equipment.

The following economic considerations need to be taken into account for taking up ethanol in petrol: –Capital investment is required at Refineries to ensure constant volatility of petrol ethanol blends. Process changes for taking out certain light components to achieve BOB Volume loss by taking out these components – export - where to? Additional storage tanks required

The following economic considerations need to be taken into account for taking up ethanol in petrol: Capital investments in the primary distribution systems –Changes to equipment to ensure materials (eg rubberised seals) are compatible with ethanol. –Additional storage and receiving facilities, fire fighting, quality control, drying distribution system, etc. –Tank domes to be fitted –Filters at retail sites etc as required Mechanical and engine tuning changes to ensure end-user vehicles are compatible with ethanol blends.

The overall cost implication for taking up ethanol in petrol are: Estimates based on the capital spent on overseas manufacturing and supply chains and operating cost estimates amount to an additional 10 to 15 cpl on national petrol and diesel sales BIOFUELS INTRODUCTION IN THE REST OF THE WORLD HAS BEEN DEPENDENT ON LARGE GOVERNMENT SUBSIDIES

Way forward Sapia strongly recommend that: –That Expert Working Groups be set up to address key issues, involvement of all relevant stakeholders, including Oil Industry is critical. –Groups should identify possible alternatives and decide on ways to address each of these complex issues. –Successful implementation of the biofuels strategy is dependent on the engagement with Oil Industry in this manner.

Thank You