Report Highlight

Colombia's biofuel mandates remain unchanged resulting in little incentive to increase production or consumption. The lack of clarity of the Government of Colombia (GOC) on maintaining or adjusting blend mandates has also created concern in the biofuels industry. Even though ethanol production capacity increased to 1.65 million liters.

Executive Summary

The fuel market in Colrs per day in 2015, Colombia is unable to meet its current E8 blending mandate.

Execombia is highly controlled by the Government. The Ministry of Mines and Energy (MME) establishes the biofuels blend mandate and also regulates fuel and biofuel prices. Moreover, in May 2015, the MME issued a methodology to calculate the need to import ethanol based on resolution 9-0454 of April 2014, which authorizes imports only if the blend mandate cannot be satisfied with domestic production. In addition to regulating imports, the MME sets technical regulations on biofuel standards.

In 2015, Colombian sugarcane-based ethanol production capacity increased to 1.65 million liters per day, a 32 percent increase from 2014. This increase was primarily due to a new ethanol plant in the Cauca river valley. Even though this new plant increased domestic capacity, it was not enough to meet the E8 blend mandate. Demand for domestic gasoline increased because of the closure of the border with Venezuela, which limited fuel contraband. In addition, a new plant owned by the state-oil company should come online in 2017, adding about 100 million liters a year of ethanol to national capacity.

Colombian palm oil-based biodiesel production capacity remained at 590 million liters per year, slightly below the necessary production to meet the current biodiesel blend in diesel fuel mandates of B8 and/or B10, depending on the region of Colombia. Even though there are no official figures on the actual volume of biodiesel blend demand, biodiesel production and diesel consumption data suggest that the average biodiesel blend in Colombia reaches about 7.9%. The expansion of palm area planted and palm oil production in Colombia shows the potential for an increase in palm oil-based biodiesel production. However, GOC policies supporting the sector remain unclear, therefore production capabilities remain unchanged. According to the National Biofuels Federation of Colombia, two new facilities will come online in 2017, adding 110 million liters to domestic capacity.

Gasoline and Diesel Market

The state-owned Colombian Petroleum Enterprise is responsible for managing all aspects related to the petrochemical industry. There are five petroleum refineries in Colombia but 98-percent of all refining capacity is accounted by two facilities: Barrancabermeja and Cartagena. The current demand for gasoline and diesel is supplied by ECOPETROL. Countrywide demand for gasoline is source by domestic production, while around 55-percent of diesel demand is provided by imports.

Fuel distributors have increased in the recent years to fifteen, but the market is dominated by three major distributors: Terpel, Exxon, which operates Esso and Mobil, and Chevron, which operates Texaco.

In 2015 the demand for local gasoline increased by 2 million liters to 17.0 million liters a day due to the closing of the border with Venezuela. The price of Venezuelan gasoline is much cheaper than Colombian, which represents an incentive for contraband. The closing of the border reduced the availability of the black market fuel, which meant that Colombia's largest refiner, ECOPETROL, had to supply gasoline in border Departments where consumers had been using the illegally obtained fuel.

Colombia has approximately 4.8 million motor vehicles, according to the Ministry of Transportation. In terms of type of fuel used, 48 percent of vehicles use diesel and 52 percent use gasoline. MME established temporary fleet efficiency goals for new vehicles in 2012, but that policy was eliminated shortly after its announcement due to domestic auto industry complaints. According to vehicle manufacturers, the World Wide Fuel Charter states that the maximum amount of ethanol to be blended in gasoline-powered vehicles is 10-percent (or E10), and the biodiesel to be used in diesel-powered vehicles is five-percent (or B5). The Colombian Vehicle Manufacturers Association only supports voluntary blends above E10 and B5. However, tests performed in Colombia show that vehicles can run on E15 and higher blends. The current regulation establishes blend mandates of E8 and B8 or B10, depending on the region.

Fuel prices are controlled by the Regulatory Commission of Energy and Gas (CREG) and the MME. The MME periodically issues regulations on gasoline and diesel prices according to a pricing structure based on four components: Producer income, maximum wholesale distributor price, maximum retailer price and consumer price. The international prices of gasoline and diesel are taken as the reference price for producer income, then taxes, transportation and marketing fees, margin and evaporation loss are added to determine distributor, retailer and consumer prices.

Policy and Programs

Since 2001 the Government of Colombia has promoted the production and use of biofuels aimed at

diversifying their sources of energy by reducing its dependency on fossil-fuels, using environmentally friendly fuels to mitigate greenhouse gas emissions, and also developing the Colombian agro-industry to encourage employment in rural areas. The GOC identified identified sugarcane and palm oil as the most likely crops for producing ethanol and biodiesel, respectively.

The legal instruments that originated the Colombian biofuels strategy were two laws issued by the MME: Law 693 of 2001 for ethanol, and Law 939 of 2004 for biodiesel. The biofuels policy and corresponding blend mandates were primarily developed to support additional revenue streams for the sugarcane and palm oil industries. In addition, biofuel production facilities receive a special tax designation as an industrial free trade zone and therefore pay zero taxes on revenues. Biofuel sales are also excluded from paying a 16% value-added-tax. Ethanol sales are exempt from regional Departmental taxes. However, biodiesel sales are levied a Departmental tax of US$0.15 per gallon.

The current mandate for biodiesel blending in diesel fuel is either B8 or B10 depending on the region of the country. For ethanol, the blend mandate was previously either E8 or E10 depending on the region of Colombia. The MME increased the gasoline blend mandate to E10 on October 31, 2013 to stimulate domestic production, but resulted in record levels of U.S. ethanol exports to Colombia. Three months later on January 31, 2014, the GOC reduced the mandate back to E8. The reduction in the blend mandate was followed by MME resolution 9-0454 on April 2014 that limited trade access for imports if the blend mandate could be satisfied with domestic production. Trade abruptly fell to zero as the MME delayed for about one year the publishing of a methodology to determine the necessary import volumes.

Colombian domestic ethanol production has never been able to meet the E8 blend mandate without some imports. The lack of domestic capacity to supply the ethanol blend mandate was evident on April 30, 2015, when the GOC suspended MME Resolution 4-052, removing the blend mandate entirely for a month due to a shortage of domestic ethanol production. Removing the blend mandate was necessary due to excessive rains and harvesting challenges in the primary sugar-producing region of Colombia, limiting feedstock availability for ethanol. On July 8, 2016, the MME issued Resolution interrupting the ethanol blend mandate due to transportation protests held in June and July, 2016, which limited the availability of ethanol. On July 26, 2016, MME's Resolution reestablished the blend mandate. Therefore, during several weeks in 2015 and 2016 Colombian gasoline was blended with little or no ethanol.

The regulatory measures removing the blend mandate showcases the inconsistent and insular nature of GOC biofuel policies that cater to domestic industry concerns with competition, as opposed to meeting blend mandate goals through domestic production and, if necessary, imports. This insular focused approach applies to biodiesel as well, even though GOC trade protectionist measures are not as overt as with ethanol. Post calculations also indicate that Colombia cannot fulfill the biodiesel blend mandate with only domestic production.

Monthly prices that fuel distributors or blenders must pay to domestic producers of biofuels. The MME applies a price formula for gasoline and diesel fuel that includes a mandated price that must be paid by blenders to domestic biofuels producers. The most recent MME mandated price for a liter of ethanol was approximately $0.68. For biodiesel, the most recent MME mandated price per liter was about $0.96. Imported biofuels, however, are not subject to MME mandated prices creating opportunities for imports.

Ethanol

Production

Post forecasts ethanol production to reach 465 million liters in 2016, increasing further to 565 million liters in 2017 as a new ethanol facility owned by ECOPETROL begins operation. Colombian ethanol production is derived entirely from sugarcane. Sugarcane production sufficiently exceeds local demand creating a production surplus for ethanol and sugar. The sugarcane feedstock neither competes with the food supply nor takes land from alternative food crops. Ethanol production has displaced 41 percent of sugar for exports with little impact on domestic sugar prices and consumption, which has remained around 1.5 MMT during the last 10 years.

All of Colombia's ethanol production is supplied by six ethanol distilleries near the city of Cali in south central Colombi. The ethanol distilleries are clustered within larger industrial sugar production and milling facilities. In August 2015, a new plant owned by the Riopaila-Castilla sugar mill started operation adding about 400,000 liters a day, supporting an increase in the average domestic production to 1.65 million liters a day. Despite the increase in ethanol production capacity, the shortfall in sugarcane supply due to the weather phenomena “El Niño" has caused the ethanol production to remain stagnant during the first semester of 2016. Post forecasts ethanol production will increase by 2% at the end of 2016.

A new distillery managed by ECOPETROL is scheduled to begin operations in early 2017 and will have a capacity of 500,000 liters a day, 160 million liters a year. This new distillery located at the Meta's Department will source sugarcane from 14,000 hectares established near the area. This plant will process sugarcane for ethanol production only and it will be the first ethanol facility in Colombia not linked to the sugar industry.

Currently, Colombian ethanol capacity is unable to fulfill the E8 blend mandate. Post estimates of ethanol demand are based on total Colombian gasoline consumption.

Consumption

Post estimates that 2016 ethanol consumption will reach 482 million liters. Since late 2015, ethanol consumption has been driven by an increasing demand of local gasoline due to the closure of the border with Venezuela. Post estimates that 2017 ethanol consumption will increase to 570 million liters driven by an expected higher mandate for ethanol use.

The blend mandate changes across the country primarily along with the ethanol industry growth and imports supply. In the southern, central and most of the northern area of the country close to E8 is met, but in the border Departments with Venezuela no blend mandate has been reached due to smuggling issues. However, the current closure of the Venezuelan border has increased the demand of local gasoline and ethanol.

As a result of trade protectionist policies, Colombian ethanol consumption is almost entirely dependent on domestic ethanol production to fulfill the E8 blend mandate. There is no official data on the blend demand volume. However, Post calculations based on annual ethanol production and gasoline consumption show that the sugarcane-based ethanol industry is unable to supply the country with enough biofuel to reliably meet the current E8 blend mandate. The new ethanol plant that is expected to come online at the beginning of 2017 will support national production likely meeting the E8-E9 blend mandate. The national industry is planning to promote higher mandates for ethanol use.

Trade:

Currently ethanol imports are subject to a MME's prior authorization given the resolution 9-0454 that restricts free access to the Colombian market. Regulatory restrictions notwithstanding, smaller volumes of ethanol imports, primarily from Ecuador, continued until early 2016.

Consumption:

Colombia biodiesel consumption is entirely dependent on local production to meet the GOC blend mandate. Blend levels are B8 for blending facilities near Bogota and the Department of Guaviare and B10 for the Caribbean and Pacific coasts, and the central part of the country. Biodiesel consumption is currently B10 in the most populous regions of Colombia, covering 85 percent of the total population. Some remote areas along the eastern plains and border regions only blend between B2 and B8. Biodiesel consumption in 2015 reached 585 million liters. Post forecasts that biodiesel consumption will remain stagnant for 2016 and will probably increase up to 700 million liters in 2017 as new facilities may yet be ramping up operations.

Trade

Colombia neither imports nor exports palm-based biodiesel. The biofuels industry aspires to export biodiesel as palm area continues to expand, improving the potential for more biodiesel production.

Stocks

Colombia does not have programs to encourage storage or long-term stocks of biofuels. However, gasoline and diesel fuel regulations require stocks to adequately supply the market at 10 days of total fuel demand.

Biomass for Heat and Power

Most Colombian ethanol plants are energy self-sufficient and generate surplus power that is sold to the national electric grid. They use bagasse to generate energy needed for processing and surplus. The sugar sector capacity for electric power generation is at 237 megawatts (MW), of which 147 MW is for supporting self-sufficient plant operations with the remaining amount sold to utilities for public consumption.

The palm oil sector capacity for electric power is estimated at 340 MW. Palm oil producers generate energy from biomass and/or biogas to support self-sufficiency. Currently, there are only 3 palm oil plants that generate surplus, but there is no comprehensive information on quantity. The palm and ethanol industries claim to be capable of generating more power resources to sell to local utilities. However, without any further GOC subsidies there is little incentive.

The source of production data for biofuels is FEDEBIOCOMBUSTIBLES, which receives information from the Colombian National Association of Sugar Producers (ASOCAÑA) for ethanol and the National Federation of Oil Palm Growers (FEDEPALMA) for palm oil and biodiesel. The National Department of Statics (DANE) is the primary source for trade data. Fuel consumption data is source by the MME's Unit of Mining and Energy Planning.

Ethanol Used as Fuel and Other Industrial Chemicals (Million Liters)

Calendar Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Beginning Stocks

5

9

12

8

11

12

15

11

10

10

Fuel Begin Stocks

5

9

12

8

11

12

15

11

10

10

Production

256

327

291

337

370

388

406

456

465

565

Fuel Production

256

327

291

337

370

388

406

456

465

565

Imports

30

32

70

55

89

138

98

108

100

70

Fuel Imports

4

4

6

7

8

21

18

7

17

5

Exports

Fuel Exports

0

0

0

0

0

0

0

0

0

0

Consumption

281

356

365

390

457

523

508

566

565

635

Fuel Consumption

256

328

301

341

377

406

428

464

482

570

Ending Stocks

9

12

8

11

12

15

11

10

10

10

Fuel Ending Stocks

9

12

8

11

12

15

11

10

10

10

Total BalanceCheck

0

0

0

0

0

0

0

0

0

0

Fuel BalanceCheck

0

0

0

0

0

0

0

0

0

0

Production Capacity

Number of Refineries

5

5

5

5

5

5

5

6

6

7

Nameplate Capacity

378

378

378

378

412

412

412

465

542

652

Capacity Use (%)

68%

87%

77%

89%

90%

94%

99%

98%

86%

87%

Co-product Production (1,000 MT)

Co-product A

Co-product B

Feedstock Use for Fuel (1,000 MT)

Sugar-cane

3,667

3,416

4,350

4,405

4,480

4,450

4,450

4,600

5,100

6,215

Feedstock B

Feedstock C

Feedstock D

Market Penetration (Million Liters)

Fuel Ethanol

256

328

301

341

377

406

428

464

482

570

Gasoline

4,373

4,402

4,519

4,748

4,908

5,155

5,502

6,144

6,278

6,502

Blend Rate (%)

5.9%

7.5%

6.7%

7.2%

7.7%

7.9%

7.8%

7.6%

7.7%

8.8%

Biodiesel (Million Liters)

Calendar Year

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Beginning Stocks

0

0

5

4

5

6

3

8

6

5

Production

26

185

384

503

557

572

589

583

580

680

Imports

0

0

0

0

0

0

0

0

0

0

Exports

0

0

0

0

0

0

0

0

0

0

Consumption

26

180

385

502

556

575

584

585

581

680

Ending Stocks

0

5

4

5

6

3

8

6

5

5

Balance Check

0

0

0

0

0

0

0

0

0

0

Production Capacity

Number of Biorefineries

1

2

5

5

6

6

6

6

6

8

Nameplate Capacity

68

204

525

525

590

590

590

590

590

700

Capacity Use (%)

38.0%

90.8%

73.1%

95.9%

94.3%

96.9%

99.8%

98.8%

98.3%

97%

Feedstock Use for Fuel (1,000 MT)

Palm Oil

41

163

337

443

490

505

505

510

510

595

Feedstock B

Feedstock C

Feedstock D

Market Penetration

(Million Liters)

Biodiesel, on-road use

26

180

385

502

556

575

584

585

581

680

Diesel, on-road use

5,662

5,909

6,084

6,547

6,745

6,879

7,056

7,389

7,626

7,860

Blend Rate (%)

0.5%

3.0%

6.3%

7.7%

8.2%

8.4%

8.3%

7.9%

7.6%

8.7%

Diesel, total use