"If ethanol supplies tighten, prices will rise and drivers will switch to gasoline ... the market will regulate the problem," said Alfred Szwarc, ethanol advisor to the Sao Paulo Cane Agroindustry Union.

The union represents some 220 sugar millers in Brazil's center-south, which grows 85 percent of the nation's cane.

Brazil blends its gasoline with 25 percent ethanol but also sells pure ethanol, known locally as alcohol, at any gas station.

After the 1989 supply crisis, sales of cars designed to run on pure ethanol sank to less than 1 percent of total sales in 2000, from 94 percent in 1984, Szwarc said.

But gasoline price hikes caused by rocketing oil prices and the arrival of flex-fuel cars, which owners say perform better than their older cousins, have now lured Brazilian drivers back to ethanol - some 40 percent cheaper than gasoline.

Launched in Brazil in March 2003, flex-fuel cars had grabbed 30 percent of new car sales by this September and are expected to take half the market next year, the National Association of Vehicle Manufacturers estimates.

Most major car manufacturers in Brazil already produce, or are planning to introduce, flex-fuel cars of various designs, with at least one analyst predicting that in three years flex-fuel cars would make up 100 percent of new car sales.

And, with gasoline prices soaring and air pollution from fossil fuels a growing concern, sales of those vehicles could spread to many parts of the world, especially in countries where sugar cane is grown.

ETHANOL EXPANSION PLANS

Analysts said that rising ethanol prices would encourage millers to produce more of the fuel and less sugar. "Ethanol production will increase more than previously thought, because the price is better than that of domestic sugar," said Plinio Nastari, president of Datagro consultants.

Growth is sustainable in Brazil because the center-south's production cost is cheaper than that of gasoline, Nastari said.

He added that Russia's ratification last week of the Kyoto Protocol brings into force the U.N. accord to combat global warming and will boost use of clean fuels such as ethanol.

Ethanol prices have tripled since May and export business has ground to a halt as a result. Soaring domestic and world purchases of the cheap, clean fuel has triggered fears of a possible supply shortage, especially if rising sugar prices tempt producers to crush more cane into sugar instead of ethanol.

But Szwarc, of the Sao Paulo cane industry union, said that, with plans to build 33 mills, Brazilian ethanol output would increase to some 23 billion liters in 2010, from an estimated 15.5 billion this year.

Exports, mainly to Japan and other Asian countries, are seen more than doubling to 5 billion liters in five years, said Tacilo Ricardo Rodrigues, director of the Bioagencia consultancy.

"Ethanol's time has come. It presents an exceptional opportunity," he said.

Exports will still absorb only about 20 percent of Brazil's total ethanol output. Szwarc said that Brazil would not become too dominant as an ethanol supplier because new producers, such as South Africa, Peru and Guatemala, were entering the market.

Analysts also say that countries would rely on Brazil to top up ethanol supplies if they integrate the alternative fuel into their energy supplies.

"The export scenario is favorable, with oil prices expected to stay high. The domestic market will also grow due to strong flex-fuel car demand," Julio Maria Borges, director of Job Economia consultancy, said.

CAR MAKERS RESPOND

Renault do Brasil is the latest car company to jump onto the flex-fuel bandwagon. At the Sao Paulo car show last week it announced plans to start selling flex-fuel versions of its Clio hatchback and sedan models next month. Peugeot and Citroen are due to launch flex-fuel cars in Brazil next year.

"Our 1.6 liter, 16-valve Hi-Flex engine is the first that can run on pure gasoline, which means that the vehicle can be sold throughout South America without a drop in performance," said Alain Tissier, Renault do Brasil's product director.

Other Brazilian models are designed to run on anything from local gasoline, which contains 25 percent ethanol, to pure ethanol or any blend of the two. But many local drivers fill their tanks with ethanol because of its attractive price.

In August, Generals Motors Brazilian unit launched a multi-fuel car that runs on natural gas as well as ethanol or gasoline or a combination of both.

Volkswagen, Brazil's biggest vehicle maker, also produces flex-fuel cars. Fiat, which produces various flex-fuel cars, is developing a model to run on diesel in addition to the other fuels.

Taxi driver Jose Naldo Goncalves, 34, bought a shiny yellow flex-fuel 1.3 liter Fiat Siena sedan three weeks ago.