Houston (Platts)--10May2007
The seemingly bright future of the ethanol industry could be a "dot-corn" bubble waiting to burst amid forecasts that supply of the renewable fuel will far outstrip demand in the coming years, speakers at a Platts conference said Thursday. Those attending Platts' 3rd annual Ethanol Finance and Investment Conference heard generally upbeat assessments about the near- and long-term future of renewable fuels, with a fair amount of caution mixed in. That caution stems from expectations that supply will seriously outpace demand, a bearish indicator for producing margins that are nowhere near what they were one year ago. By 2012, the US government-mandated demand for ethanol will be 7.5 billion gallons per year; by many estimates, the US will be able to produce at that rate by the end of this year. Monte Shaw, executive director of the Iowa Renewable Fuels Association, told the conference that some estimates for this year show that total US ethanol production capacity could increase to 8.5 billion gal per year. That figure compares to current government-mandated demand of 4.8 billion gallons in 2007, or the expected demand of about 5.5 billion gallons. With the need for more demand obvious, Shaw outlined a strategy, the first step of which would be to renew tax breaks put in place to help the industry. That includes renewing the 51 cents/gal rebate given at the retail level for ethanol blended gasoline, and the 54-cent/gal import duty on most imported ethanol. The next step would be to find a way to increase use of ethanol. One speaker suggested putting a 10% blend of ethanol into the most US grades of gasoline in every state, which would put the domestic demand for ethanol at 14 billion gallons per year. The current push for E-85 (85% ethanol) is good, Shaw suggested, but given the lag time in manufacturing enough cars to create demand for that fuel, and the need for more retail stations to sell it, E-85 does not seem to be a quick enough fix. --Robert Sharp, robert_sharp@platts.com
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