"What we don't know is if there will be enough supply at the right place at the right time," said Joanne Shore, senior analyst that the US Energy Information Administration, a wing of the Department of Energy. "There is the potential for regional gasoline supply issues."

President Bush said in his State of the Union address in January that renewable fuels like ethanol and biodiesel will help the United States end its dependence on foreign crude oil.

The vision came as the US oil industry was already preparing to boost its use of ethanol as an alternative to gasoline additive MTBE, a suspected carcinogen banned in several states for polluting ground water.

Additives like ethanol and MTBE are used in cleaner-burning reformulated gasoline blends, required in mostly urban areas where smog is a problem. They are also used in some premium gasoline blends to boost octane.

COSTLY PROBLEMS

The problem, experts said, is that farmers may have trouble meeting the sharp increase in demand for ethanol as the oil industry phases out MTBE. Fuel suppliers may also have a hard time getting the ethanol to market because it cannot be shipped in pipelines.

Demand for ethanol is expected to jump by 130,000 barrels per day, or nearly 50 percent, once the oil industry completely removes MTBE from gasoline this year, and consumption could rise further as flexi-fuel vehicles become more popular.

"We expect that demand will remain well ahead of supply through 2006, supporting strong prices," investment bank Friedman, Billings Ramsey said in a research note Monday. US ethanol producers are scrambling to boost capacity but could take years to catch up, the note said.

In the meantime, a 2.5 percent tariff on ethanol imports to protect US business is discouraging shipments from major producers like Brazil -- a factor that could leave the United States forced to pay up for foreign supply.

"The spotlight is on ethanol, how much there is and where it is going," said Bill Ferer, president of investment firm W.H. Reaves & Co.

Transporting ethanol, which is eventually blended into gasoline, is another major challenge, experts said. Ethanol can not be moved through pipelines like other fuels because it absorbs water.

"More rail cars, barges and trucks need to be lined up. The system is getting much more complex," said EIA's Shore. "We would not be at all surprised to see temporary supply-demand imbalances resulting in price surges."

The prospect of higher prices in places that use reformulated gasoline strikes an odd contrast against the backdrop of soaring stockpiles of regular gasoline - the conventional blend sold at most gas stations.

US gasoline inventories are running at their highest in about seven years, according to government data, and analysts are anticipating that domestic production and imports from Europe will keep running strong.

But prices are sharply higher than where they were in 1999 because the concern over the ethanol blend has futures traders hedging against potential disruptions.