BEIJING (Reuters) - China plans to roll out the use of ethanol in gasoline nationally by 2020, state media reported on Wednesday citing a government document, as Beijing intensifies its push to boost industrial demand for corn and clean up choking smog.
It's the first time the government has set a targeted timeline for pushing the biofuel, known as E10 and containing 10 percent ethanol, across the world's largest car market, although it has yet to announce a formal policy.
Mandates requiring that a minimum amount of biofuel must be blended into fuel for the nation's cars, similar to the United States and Brazil, are currently set at a provincial level.
"This news has greatly boosted confidence inside the industry," said Michael Mao, analyst with Sublime China Information, adding that without government support ethanol would likely be too expensive to survive in the market.
Shares in biofuel producers rallied on the news, with Shandong Longlive Bio-Technology Co Ltd surging 10 percent, on track for its biggest one-day gain since December 2015. Major producer COFCO Biochemical Anhui Co Ltd, a unit of state-owned grains trader COFCO, was up 6 percent.
A renewed effort to promote the nation's fledging biofuels industry will be a further blow to major oil producers. On Saturday, the government said it has begun studying when to ban the production and sale of cars using traditional fuels.
To implement the E10 plan, China will need to expand its biofuels industry on a major scale.
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The Xinhua report said the government aims to build an ethanol production base in the country's northeast, the main corn growing region, without giving further details.
Based on estimates by CNPC that gasoline demand will reach 150 million tonnes in 2020, the plan will require about 15 million tonnes of ethanol using about 45 million tonnes of corn each year, according to Reuters calculations.
China is the world's third-largest ethanol producer, but with output of about 2.1 million tonnes a year, production is a long way behind global leaders Brazil and the United States.
Still, the project has been in the works for a while as Beijing has struggled to whittle down mountains of ageing corn in state warehouses.
Late last year, the government said it would aim to double ethanol output to 4 million tonnes by 2020 as part of that effort.
China has state corn reserves estimated at about 200 million tonnes - equivalent to a year of demand - following a now discontinued government stockpiling scheme to support farmers.
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In initial responses to the news, some in the domestic oil industry were skeptical about the target and the practicality of implementing the plan without hefty government subsidies.
"2020 sounds an overambitious target, but 2025 may be more achievable," said Mao Jiaxiang, vice president of state-oil major Sinopec's Economic & Development Research Institute.
"The key to watch is the cost of making ethanol and how sustainable the government subsidies can be."
China's use of renewable-based fuel lags the rest of the world, with only 3 million tonnes consumption in 2016, or less than one percent of total fuel use, an unnamed official from the National Energy Administration was quoted as saying in the Xinhua report.
"Experts have proposed expanding production and consumption of ethanol to balance grain supply and demand and efficiently dispose of surplus grains," the NEA official said.
The government also aims to have large-scale domestic production of cellulosic biofuels, which are made from sources such as grasses, trees and crop waste, by 2025, it said.
(Reporting by Josephine Mason, Chen Aizhu, Dominique Patton and Hallie Gu; Editing by Richard Pullin)