Nearly 7 billion litre of ethanol without a market: Why India is looking for buyers

India’s rapid expansion of ethanol production has left producers with a growing supply problem, with nearly 7 billion litres of capacity currently without a clear market, The Economic Times reported.

Installed ethanol capacity in the country has reached around 20 billion litres and another 4 billion litres is expected to be added this year. But demand remains much lower. The E20 blending programme needs around 11 billion litres a year, while sectors such as liquor, pharmaceuticals and chemicals consume another 3-3.5 billion litres.

As a result, ethanol plants are operating at roughly 60% capacity. Industry officials expect utilisation to remain between 65% and 75% over the next three years. Maharashtra alone is estimated to have a surplus of about 2.77 billion litres.

For the 2025-26 ethanol supply year, suppliers had delivered 8.95 billion litres to oil marketing companies by August, against contracted volumes of around 10 billion litres.

Higher blending may not offer immediate relief

The surplus has pushed the industry to look beyond petrol blending for additional demand. The government has put an immediate move towards higher blending targets such as E25 or E30 on hold amid concerns raised by consumers over E20.

The existing roadmap remains capped at E20 until October 31, 2026. The Centre has also told the Supreme Court that the longer-term impact of the programme would become clearer only by 2027.

Ravindra Utgikar, chief sales officer at Wilo India, suggested a different approach to blending.

“Instead of mandating a single blend for all, we should move to differential pricing for different ethanol blends — E10, E20, E85,” Utgikar told The Economic Times.

He said such a system, used in the US and Brazil, could allow vehicle owners to choose fuel according to vehicle age, technology and compatibility.

Exports and new uses emerge as options

Exports could offer some relief, although first-generation ethanol exports remain restricted. India has allowed exports of second-generation ethanol since September 2025.

Small quantities of non-fuel ethanol are already being shipped to Tanzania, Angola and Kenya. The Grain Ethanol Manufacturers Association is also discussing possible supplies to Nepal, which plans to introduce a 10% ethanol blending mandate but lacks sufficient feedstock and distillation capacity.

The industry is also exploring uses beyond petrol, including ethanol-derived products for diesel blending.

Ashish Gaikwad, managing director of Praj Industries, said the company's bio-isobutanol technology was ready for commercialisation and scale-up.

“With diesel demand far larger than petrol, bio-IBA blending could become a significant milestone in India’s biofuels journey,” Gaikwad told The Economic Times. He added that even a 2% bio-IBA blending mandate in diesel could create project opportunities worth more than Rs 3,000 crore.

Non-fuel demand remains important

Outside fuel blending, undenatured ethanol used by liquor, pharmaceutical and laboratory industries accounts for nearly 18.7% of overall demand.

The related extra neutral alcohol market stood at around 3.80 billion litres in 2025 and is growing at about 5% annually, supported by changing consumer preference from country liquor towards Indian-made foreign liquor (IMFL).