New York (Platts)--13Jun2007

A 10% ethanol gasoline blend, or E10, will be effectively mandated for
the state of California by the California Air Resources Board on Thursday,
analyst Eric Brown at Bank of America predicted Wednesday.

     The current average blend is 5.7%, but CARB is scheduled Thursday to
review amendments to the California reformulated gasoline predictive model
used by refiners to meet emissions standards.

     One option the agency is giving refiners to meet the new model is to
develop an alternative fuel formula. "Using this approach will likely
require the use of a very low sulfur content and ethanol amounts approaching
10% by volume," CARB said in a statement on its upcoming hearing.

     Almost all gasoline marketed in California contains ethanol, according to
CARB.

     "Based on our discussions with several members of the CARB, we anticipate
that the new model will be approved during the June 14 meeting," said Brown.
He said implementation of the rules, leading to E10 use, would spur "roughly
700 million gal/year of incremental ethanol demand."

     Brown noted that the changes, if approved, would not be required until
December 31, 2009. "However, we expect higher ethanol utilization in winter
gasoline blends later this year," he said.

     Despite the anticipated demand boost, Brown said he remained cautious on
ethanol stocks.

     "[E]ven with the adoption of the new predictive model, California will
only blend an incremental 700 million gal of ethanol annually versus the 7
billion gal of ethanol capacity currently under construction," he said.

     "Further, even assuming passage of the most aggressive new federal
legislation, mandated blending levels will likely fall short of industry
production capacity."

		--Beth Evans, Beth Evans, beth_evans@platts.com