Washington (Platts)--26Jan2009

Expanded loan guarantees for the US ethanol industry will be a key Obama
administration tool to help the struggling biofuels industry survive lean
times, US Agriculture Department Secretary Tom Vilsack told reporters Monday.

"The ethanol industry is under particular strain," Vilsack said in a
conference call with reporters.

Loan guarantees for the industry, distributed by the USDA as part of the
2008 Farm Bill, "can help more of these companies stay in business," Vilsack
said, though he warned that "there will be a premium on ethanol producers who
can stay efficient," a clear warning that there is overcapacity in the US
industry.

Vilsack expected more aid to the industry would be forthcoming in a later
energy package, though he said that aid from the Farm Bill provisions for the
ethanol industry "would be the first step in stimulating the economy." The
grant program guarantees loans up to $250 million, the USDA said.

Bankrupt US ethanol maker VeraSun said earlier this month it plans to
sell seven plants at auction as part of an agreement for new debt financing.
Only four of VeraSun's 17 plants are operating.

The ethanol industry must also move beyond corn-based sources for
biofuels, said Vilsack, with USDA providing research funds for farmers to
convert more of their products into biomass that can be used for fuel. About
11.1 billion gallons of biofuels will be required under the federal Renewable
Fuel Standard, which calls for 36 billion gallons to be used by 2022. About a
third of the US corn crop currently goes to ethanol production.

"We have a serious challenge, we're going to have to figure out a way to
incorporate more ethanol into the fuel system, (while) we expand the use of
ethanol other than corn," Vilsack said.

Earlier this month, Poet Energy began producing cellulosic ethanol at its
Scotland, South Dakota, research plant. The plant, an $8 million research
project, will produce about 20,000 gal/year of ethanol, a precursor to the
company's $200 million effort in the commercial production of cellulosic
ethanol, which it said would begin in 2011.

--Daniel Goldstein, daniel_goldstein@platts.com