You are on page 1of 11

CO16_final

POTENTIAL FOR FUEL ETHANOL IN THE GUYANA SUGAR


INDUSTRY
HAROLD DAVIS, LAWRENCE STUART and PAUL BHIM
Guyana Sugar Corporation Inc. HaroldD@Guysuco.com

Keywords: molasses, anhydrous alcohol, co-generation, gasohol

Sugar cane in Guyana is cultivated along the Atlantic Coast on some 50 000 ha. Annual production is
between 320 000 to 350 000 tonnes from 8 mills. Domestic consumption is 35 000 tonnes. The industry
is, as a consequence, heavily dependent on exports. The industry is only profitable at the preferential
prices at which the major proportion of its production is currently sold.

The industry has embarked on a number of initiatives aimed at improving productivity of sugar production.
These include a programme of modernisation of plant and modest area expansion, which is expected to
increase production to 475 000 tonnes by 2010. Central to this plan is the construction of a new 8400
TCD sugar factory that will replace a 2200 TCD mill. The new project will include an appended refinery
and a rum distillery. There is no plan for the other units of the industry apart from more efficient
production of raw sugar.

This study is directed at exploring various options for the potential of sugarcane as a source of energy
and sugar in a production unit extending over 10 000 ha and with a milling capacity of 4600 TCD.
These include co-generation for electricity and production of anhydrous ethanol for fuel.

The production of anhydrous alcohol from molasses for gasohol containing up to 10% ethanol is
potentially advantageous for the Guyana sugar Industry, given the low prices currently paid for
molasses, likely lower prices received for raw sugar production above 300 000 tonnes, and the fact that
all petroleum products are imported

Introduction:

Sugarcane has been cultivated along the Atlantic coast of Guyana for well over
300 years. This industry, by the amalgamation of smaller units, today extends
over 50 000 ha on 8 production units on the coastal areas of Demerara and
Berbice. The majority of the area cultivated to sugarcane is owned and farmed
by a state owned company, the Guyana Sugar Corporation Inc. The Corporation
manages its lands as plantations extending in area from 3400 ha to 10 000 ha.
Approximately 10% of the sugarcane supplied to the mills is from private cane
farms. Each plantation has a sugar mill. These are small units with milling
capacities between 2200 TCD and 4100 TCD.

Guyana is a country with a very small population estimated at 750 000 relative to
its area – 216 000 km2. The economy is dependent on the production of primary
minerals and agricultural commodities. The production of raw sugar for export
has been historically a major industry and, over the past 10 years, has been the
principal earner of foreign exchange for the country, which benefits from the
lucrative ACP-EU Sugar Protocol for a significant proportion of its sales. The
country is also heavily dependent on imported petroleum products for all its
energy needs. No exploitable petroleum deposits have been discovered, nor has

1
there been any demonstrated commitment to developing hydropower, for which
the country has considerable latent potential. Guyana’s annual importation of
gasoline is 113 M litres per annum. Ethanol could be substituted for up to 10% of
this quantity with no requirement for modification to petrol engines.

The market for sugar has been changing significantly from the dominance of
preferential trade arrangements, and appears to be gradually moving towards a
greater emphasis on the competitive free market. Under the present trade
agreements with Europe, countries like Guyana, which were formerly colonies of
European countries, are allowed access for raw sugar into European refineries at
prices linked to those received by beet sugar producers in Europe. Guyana’s
share of this market is 167 000 tonnes. Guyana also benefits from an additional
market access to Europe at preferential prices, for an additional 30 000 tonnes
under what has been termed the Special Preferential Sugar Agreement that
developed following Portugal’s joining of the European Union. This market for
Guyana’s sugar will come to an end in 2006, as Europe provides access to more
disadvantaged Third World Nations under the Everything But Arms Trading
Agreement. The third preferential market is access to the United States market
under a trade quota. These trading advantages will be tested over the coming
decade as challenges to preferential trading agreements come under further
scrutiny under WTO rules.

Introduction – present strategy:

In recognition of these trends, the Guyana Sugar Corporation has taken


deliberate measures over the past five years to improve productivity of its cane
lands and reduce cost of production. These efforts have resulted in an increase
of normal production capacity from 250 000 tonnes in the 1990s to over 300 000
tonnes today. Table 1 highlights productivity trends over the past 4 years:

Table.1 Guysuco production and cost – 2000 to 2003


Production 2003 2002 2001 2000

Mt - Sugar 302 378 331 053 284 475 272 303

T sugar/ha 6.59 7.34 6.18 5.72

T cane/ha 72.75 80.45 67.17 62.25

Cost/kg 40 ¢ 37¢ 40¢ 39¢

(18¢/lb) (17¢/lb) (18¢/lb) (18¢/lb)


Ann. rainfall 1525 1773 1377 2348
(mm)

2
The Corporation has also made a strategic decision to continue its focus on
increasing productivity of its land, modernise existing plant, modest land
expansion in the drier eastern part of the coast, in conjunction with the
construction of a new 8400 TCD factory that would replace one of the smaller
mills. The new factory would have an annexed refinery. Co-generation and sale
of electricity (10 MW at firm power) will add income to the new entity. An alliance
with a Distiller has also been made for the construction of a rum distillery
annexed to the new complex. Following the completion of this project it is
anticipated that the markets for the Corporation’s sugar will change as follows:

Table 2 – Current and Projected Medium–Term Sales – Guysuco

Market - 2002/2004 Projected Sales - 2010

Production – 320 000 Mt Production – 476 000 Mt

EU Protocol – 167 000 Mt EU Protocol - 167 000 Mt

SPS Europe - 22 000 Mt USA - 12 000 Mt

USA - 12 000 Mt Caribbean raws - 93 000 Mt

Caribbean raws - 83 000 Mt Domestic - 25 000 Mt

Domestic - 24 000 Mt Refined – Caribbean - 110 000 Mt

Remainder - World Remainder - World

The projected scenario will see the Corporation dependent for a larger
share of its sugar revenues from world sales. Added to this is the likelihood of a
decrease in unit price for the critical sales to Europe. The anticipated cost
reductions from productivity increases are unlikely to sustain the industry if the
primary focus continues to be solely on the production of sugar. The new factory
project envisages a more integrated approach with the major additional revenue
coming mainly from power sales. The revenue from the rum distillery makes a
relatively small contribution, as the Corporation is a minority shareholder in the
venture.

Objectives:

3
This study examines the possibilities for re-engineering one of Guysuco’s
production units situated on the East Coast of the Demerara region. This unit at
present consists of three contiguous plantations extending over a gross area of
12 280 ha. Cane is delivered to two mills with a combined capacity of 5040 TCD.
This cultivation is the closest of the Corporation’s property to the country’s major
urban centre. There is, as a result, more competition from other industrial and
commercial employers for labour. These plantations suffer from periodic
shortages of manpower at critical stages of the crop duration and, as a
consequence, are the most costly to run. On the positive side, the fields in these
plantations can be adapted to mechanised agriculture faster and at lower cost
than any other production centre. As most of the country’s better schools are
located in this region, these estates will have more access to the skilled
manpower necessary to effectively operate a mechanised production system. It
has been determined that mechanisation effectively implemented would have the
potential of reducing agricultural unit production costs by 25%. These estates are
also closest to potential users of power and, should the options of co-generation
and power alcohol be pursued, these would be most readily integrated into
commercial use from this production centre.

Study methodology:

This paper discusses the impact on proceeds and potential profitability from a
strategy involving changing the emphasis of production from raw sugar as the
main output to that of a more integrated product inclusive of electrical power from
co-generation, anhydrous alcohol for blending with gasoline and/or hydrated
alcohol for export/industrial use, and raw sugar. The options under consideration
are:

1. Continue operating 2 mills, produce raw sugar and final molasses

2. Consolidate production in one mill at 4560 TCD, with equipment from both
and modernisation where necessary, produce raw sugar and final
molasses. Co-generation of electricity would be an opportunity for this
configuration.

3. As (2) but with annexed distillery utilising final molasses for alcohol.

4. As (3) but sugar from primary juice, alcohol from molasses and secondary
juice

For each option, it is assumed that the planned improvements in agricultural


productivity will be implemented and cane would be produced at the lowest cost
consistent with the operating environment.
Income and cost implications:

4
The current operating environment in East Demerara would suggest the best
option for significantly reducing the cost of agriculture would be to mechanise
field operations (Weekes, 2004). Rainfall will limit the duration of the operating
period. Investigations conducted over the past 10 years have suggested that a
30 week crop period could be sustainable for mechanised agriculture in East
Demerara (2001). It is also assumed that commitments for molasses sales to
rum distilleries within Guyana, including the joint venture at Skeldon, will be met.

A recent consultant’s examination of options for the two east Demerara factories
(Worthington and Keegan, 2004) concluded that the Enmore factory would be the
most feasible site for a single factory because the LBI mill is built on a cellular
foundation that is at the end of its nominal design life. Secondly, the installed
equipment in Enmore is newer than that at LBI. The mill train at Enmore is
capable of achieving a grinding rate of 190 TCH and the capital required for the
upgrade would be substantially lower than for the LBI mill. This study also
concluded that a single factory option would generate large quantities of surplus
bagasse and, consequently, recommended that should Guysuco consider this
option, cogeneration of electricity would be the preferred alternative to dealing
with the environmental problems posed by disposal of bagasse. The power
company has the infrastructure for accessing power in this region of the country.
There has been an expressed interest for the supply of units of 5 MW of power
from a cogeneration facility at this time.

Output and cost projections for the four considered options are outlined in the
tables following:

Table 3 – Output from factory options

Molasses Molasses Ethanol Energy


Option Cane (t) Sugar (t) (t) import (t) (Lx106) (Mwh)

1 882 000 80 182 32 073 nil nil nil

2 807 500 73 409 29 364 nil nil 25 200

3 807 500 73 409 nil (14 098) 11.3 25 200

4 807 500 56 283 nil nil 11.3 25 200

5
Table 4 Summary operating costs and revenue (US$ million) from each
option.
Op Cost Op Cost Op Cost Op Cost
Raw Sugar Ethanol Co-gen Revenue
Option Agriculture Plant Plant Plant

1 14.1 6.2 nil nil 19.4

2 12.9 4.8 nil 1.0 19.7

3 12.9 4.8 2.9 1.0 22.9

4 12.9 3.5 2.7 1.0 19.0

It is assumed that agricultural operating costs will attain the level of $16 per
tonne cane projected for a mechanised operation under the Guysuco Agriculture
Improvement Plan. Factory operating costs would improve from 7.7¢ per kilo in
the separate factory option to 6.6¢ per kilo in the single factory option. In the
option of using secondary juice for alcohol, process steam savings of 15% are
estimated for sugar and 60% for alcohol (Prockner, 2004; Seeman, 2004). This
would translate to a processing cost of 6.2¢ per kilo. In all cases, it is assumed
that the price of sugar at project completion would be the Caricom price at 2010.
This translates to 22.9¢ per kilo on the assumption of an average 30% tariff on a
world market price of 17.6¢ per kilo. Selling price of ethanol is estimated at 40¢
per litre. This compares with the selling price at the pump in Guyana of 58¢ per
litre. The estimated cost of production of ethanol from the installed plant would be
24.6¢ per litre. This cost considers the current acquisition cost for molasses of
$45 per tonne. For molasses brought in from another factory as in option 3, $7.00
per tonne is added for transport. The production limit of 11.3 M litres has been
set because this would satisfy a 10% substitution of gasoline. This production
would be met by a distillery operating at 60 000 litres per day over a 210 day
crop period. The parameters for this are outlined in Table 5. Income from co-
generated electricity is estimated at 6.4¢ per kwh (Guyana Power & Light,
personal communication).

6
Table 5 Ethanol plant production parameters (ex model Paturau, 1989)

Production Component Estimated Cost ( $/hlL)

Molasses $17.31

Steam & Electricity $1.96

Chemicals $3.03

Wages $0.97

Maintenance $0.82

Other Fixed Costs $0.51

Total $24.61

Table 6 Estimated operating cost of the Cogeneration plant (ex Skeldon


Modernisation Project Study)

Production Component Estimated Cost

Maintenance $440 000

Boiler chemicals $19 000

Oil and lubricants $6000

Bagasse handling $370 000

Salaries $165 000

Total $1 000 000

Capital requirements for agriculture will include the cost of converting fields to
layouts suitable for mechanisation. This is a programme estimated to take 10
years. Estimates are also made for harvesting equipment, including modifications
to the water transport vessels and equipment for planting and crop maintenance.
Combine harvester numbers are estimated on a modest annual productivity of 40

7
000 tonnes per machine. The derived cost estimates for the single factory and
two factory options are highlighted in Table 7.

Table 7 – Estimated capital (US$millions) - Agriculture

Activity 2 Factory Single Factory

Land conversion 3.9 3.5

Harvesting 9.0 8.0

Planting 0.6 0.6

Crop maintenance 0.4 0. 4

Total 13.9 12.5

Ann Depreciation 0.9 0.9

Capital for the various factory options are summarised in Table 8. The indicated
capital for maintaining two factories is $6.9m of which the major proportion $4.0m
would be spent on equipping the boilers in the LBI factory to cope with the
increased mud load anticipated to arise from increased mechanised handling of
cane. The Enmore factory boilers will cope with the predicted mud levels without
adjustment. The capital requirement for the single factory options would include a
new punt dumper and cane preparation equipment for the Enmore factory,
installing electric drives to the mills and expansion of the process house.
Estimates of distillery costs including molecular sieve technology for dehydration
were obtained from Brazilian and Indian sources (Shriram and Jothi, 2003 ). The
co-generation plant capital includes a new 80 t/h boiler and an 8 MW turbo-
alternator.

8
Table 8 – Estimated capital (US$millions) – model production options

Ann. Depreciation
Component 2 Factory Single factory (single factory)

Sugar 6.9 13.9 0.9

Ethanol nil 3.5 0.2

Co-generation nil 10.7 0.7

Discussion:

Table 9 – Projected economies of the various production options


(US$millions)

Option Operating cost Cost + Dep. Revenue Income

1 20.3 21.7 19.4 (-2.3)

2 18.7 21.2 19.7 (-1.5)

3 21.6 24.3 22.9 ( -1.4 )

4 19.1 21.8 19 (- 2.8 )

Table 9 presents in summary the potential for economic feasibility of the four
production options under consideration. None of these options show a positive
return when depreciation is taken into consideration. The price obtained for sugar
is the single most important driver for income. The option of maintaining the
status quo with improvements to agricultural productivity and factory efficiencies
does not offer much scope for growth or opportunity for innovative change. This
option may probably not be achievable, as it will require approximately 11 000
hectares of land in order to guarantee the required supply of cane to the mill. It is

9
unlikely that this area of land will be available as, under national development
plans, a new highway is projected to traverse the western section of the
cultivation, effectively limiting the boundaries for cane development. The required
land availability for the single factory scenario is more secure.

The largest potential surplus of revenue over operating expense is from option 3,
a single factory with ethanol. This is followed by the single factory option No.4
producing raw sugar and energy only. Co-generation of electricity is a
component of all the single factory options. The option for diverting sugar
from the production stream does not appear feasible under the production
parameters set, despite savings in process energy for both the raw sugar and
ethanol plants.

The potential benefits of fuel alcohol to the energy-poor Guyana economy


cannot, however, be ignored. Apart from the immediate savings in import
substitution, fuel or industrial alcohol presents an opportunity for new Industrial
development and a foothold for marketing a product that is in a growth phase in
the global economy. Under the conditions of this study, alcohol is demonstrated
to add value to the molasses by-product. Fuel companies in Guyana could find
an E10 gasoline attractive at the ethanol price proposed if taxes are waived on
the ethanol component of the fuel. This would be consistent with similar
incentives offered by several States in order to stimulate national renewable
energy programmes.

Unfortunately, the economics of sugarcane production in this region and, by


implication, the rest of the Guyana sugar industry does not appear promising
even with these initiatives. The limitation is the high cost of agricultural
production in relation to sugar content of the cane. The main challenge to change
this result lies in the area of improving pol in cane by variety development.

Co-generation of electricity from sugar is an unrealised potential for the Guyana


sugar industry. At the low price of 6.4¢ per kWh quoted to the Corporation for
energy produced, the returns are very marginal for the investment involved.
However, analysis of the utility company’s position on this issue would suggest
considerable scope for negotiation as the current charge to domestic electricity
consumers in Guyana is 22¢ per kWh.

References:

Booker- Tate Ltd. (2000). Co- generation Feasibility study –Guysuco Skeldon II
Project.

Lavarack, B. and Broadfoot, R. (2003). Estimates of ethanol production from


sugar cane feedstock for Australian mills. ISSCT Co- products Workshop,
Piracicaba, Brazil.

10
Paturau, J. M. (1989). By-products of the cane sugar industry , an introduction to
their industrial utilisation, 3rd edition . Elsevier, Amsterdam. 435pp.

Procknor, C. (2003). Energy balance in combined production of sugar and


ethanol. ISSCT Co-products Workshop, Piracicaba , Brazil.

Seeman, F. (2003). Energy reduction in distillation. ISSCT Co-products


Workshop, Piracicaba, Brazil.

Shriram, A. and Jothi, M. (2003). Ethanol Production in India. Opportunities and


Technologies. ISSCT Co-Products workshop, Piracicaba, Brazil

Weekes, D. (2004). Agricultural cost reductions. Booker-Tate Consultant Report.

Worthington, P. and Keegan, P. (2004). Proposed factory considerations for


Demerara Estates. Booker- Tate Consultant Report.

11