Tuesday, May 23

Impending Ethanol Shortage?: Update

On May 9th I documented that we are most likely headed for an ethanol shortage. After all, Brazil is the world leader in ethanol production and all of the news reports were wishing that only if the US could produce ethanol like Brazil. As I noted, we ALREADY produce about the same amount of Ethanol as Brazil. Check out the chart:

You can see that the only real potential source of foreign ethanol is Brazil, and as we all know, they use their ethanol as a replacement for imported oil. They are not likely to have that much to sell to us, especially when you take into consideration our potential demand for ethanol. If all gasoline used in the US was required to contain 10% ethanol, current US ethanol production would have to triple, assuming that 100% of the ethanol produced was used for blending with gasoline. Even if all of Brazil’s current ethanol production was imported, we would still be about 50-70 million barrels short to meet the 10% goal and as we all know, there are other uses for ethanol. See the graph below:

Currently, about 13% of all corn grown in the US goes to ethanol production. It is now estimated that approximately, 20% of all corn grown in the US this year will be used for ethanol production.

WASHINGTON, May 12 (Reuters) - The booming ethanol industry will consume 20 percent of this year's U.S. corn crop, the government forecast on Friday, and soy-based biodiesel also is taking off. Biofuels will bolster corn and soybean prices, the Agriculture Department said in its first look at this year's crop harvest. Voracious demand for corn from ethanol makers will help cut the corn (maize) surplus in half by fall 2007, or 1.14 billion bushels. - Reuters

The article also notes that the amount of corn used for ethanol production this year is up 34% from previous years. Currently there is a surplus of corn, but I wonder how long that will last. As it is, the demand for corn to produce ethanol has resulted in near decade highs for corn prices as exports are also up according to the article. At some point in the near future I suspect that we may face a tough choice of what to do with our corn harvest, use it to feed or to fuel. This will most likely harm international food programs, such as the World Food Program, as excess food can easily be converted to fuel for profit instead of giving it away as in the past. There is also the question of what do we do if the crop has a bad year?

Just today, we have Senator Clinton calling for a massive increase in ethanol usage.

Clinton is calling for the creation of a $50 billion "Strategic Energy Fund" paid for by increased profits of the big oil companies. She had urged the creation of such a fund last fall when hurricane damage in the Gulf Coast sent the price of gas soaring.

She is also calling for a massive expansion of ethanol, a corn-based fuel additive and substitute, which is currently only available at a small percentage of gas stations in the United States.

President Bush and other elected officials have called for a greater expansion of E-85, a fuel made of 85 percent ethanol that can be used in vehicles built to run on both regular unleaded gasoline and E-85.

Clinton's speech calls for accelerating the spread of E-85 to half of the nation's gas stations by 2015 by offering a 50 percent tax credit for station owners who install ethanol pumps. - Yahoo News

As I noted in my previous post, the US would need over 279 million barrels of ethanol a year to replace just 10% of current gasoline consumption with E-85. This year the US is expected to produce 107 million barrels of ethanol, less than half of what would be needed.

Fortunately, there are plans to produce 'cellulose ethanol' from sources other than corn, like switch grass, as well as agricultural (farm) waste. So instead using the corn, you can use the corn stalks. Hopefully, these new processes will be available in time to meet the increased demand.

Impending Ethanol Shortage? - 09 May 2006
BIO ETHANOL AS A TRANSPORT FUEL (PDF) - Fonterra (source of Charts above)
UPDATE 1-Ethanol, biodiesel eats into US corn stockpiles - Reuters
Ethanol: Myths and Realities - Business Week


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