By Wang Yu (China Daily)
Updated: 2007-11-01 09:28

China's top oil company has taken over a major ethanol maker as it tries to expand in the renewable energy sector.

China National Petroleum Corp (CNPC) has signed a deal with Tianguan Group, based in Henan Province, to invest in the ethanol producer, Tianguan said yesterday.

Tianguan did not disclose the size of CNPC's stake. But according to China Business News, CNPC has taken a 55 percent share of Tianguan to become the controlling stakeholder.

"To further expand the production capacity of ethanol based on non-grain raw materials, large investments are needed. That's why CNPC's investment is important for Tianguan," an anonymous Tianguan source said.

Han Xiaoping, a senior analyst at energy website China5e.com, agreed.

"Producing ethanol from non-grain materials demands more complicated technology and more investment, which CNPC can offer. With CNPC's investment, Tianguan can overcome technology obstacles or conduct mergers and acquisitions to obtain the technology needed," said Han.

The deal also benefits CNPC, as the nation pushes energy efficiency and emissions reduction, Han said.

Traditional energy producers like CNPC could be told to roll out a percentage of renewable energy in the future, or a "green energy quota", which could be a factor behind the takeover, Han said.

CNPC said in September it would invest 10 billion yuan (US$1.34 billion) in renewable energy by 2020.

CNPC has built 88 ethanol-gasoline combining centers in nine provinces and autonomous regions. The firm also operates a 300,000-ton ethanol plant.

Combined with gasoline at a rate of 5 to 10 percent, ethanol can be burned at lower emission levels.

But the nation has issued stringent rules on ethanol production.

The National Development and Reform Commission, China's top economic planner, stipulates that ethanol fuel should be developed without occupying arable land, large-scale consumption of grain or causing damage to the environment.

The country will not approve new projects of food-based ethanol, and plants currently making ethanol from corn have been urged to switch to new sources.

Tianguan has already shifted 20 percent of its production from corn to cassava.

But producing ethanol from non-grain materials requires higher technology and more investment, as does capacity expansion of existing facilities, Han said.