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Bush Pushes Biofuels in State of the Union

 

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President George W. Bush again took the opportunity to tout biofuels in his annual State of the Union Address this year. Ethanol demand soared last year thanks to his "addicted to oil" comment. He again called for a dramatic increase in domestic alternative fuel use, however, his goal of 35 billion gallons by 2017 may be less achievable than last year's comments.

Bush called for an almost fivefold increase in the production of ethanol and other alternative fuels to supplement gasoline over the next decade. If realized, his proposal would cut gasoline consumption by 20% over the next 10 years and cut total imports by the equivalent of 3/4 of all the oil now imported from the Middle East.

He outlined a few ways to achieve his "Twenty in Ten" goal. This includes the Administration's Farm Bill proposal with more than $1.6 billion of new funding over ten years for energy innovation, including bio-energy research, energy efficiency grants, and $2 billion in loans for cellulosic ethanol plants.

Congress is already in a "love fest" of who can support biofuels more, and several proposals meet or exceed the President's goal.

His speech called for a dramatic shift in 10 years, and corn-based ethanol will make up the lion's share of the 35 BGY.

Tim Hannagan, analyst for Alaron, explained that if cellulose technology is not ready in the next 10 years and all of the 35 billion gallons comes from corn ethanol, it would take 12.72 billion bushels of corn to produce the ethanol usage for the year as compared with last year's total corn production at 10.535 billion bushels and 2.15 billion bushels used to produce ethanol for the 2006/2007 season.

Logan Caldwell, Houston BioFuels Consultants LLC, explains that although the White House alternative fuels standard includes ethanol, butanol, biodiesel, methanol, hydrogen and other alternatives, ethanol is the most established market and able to grow quickly. He estimates 87% (30.5 BGY) of the alternative fuel will be ethanol and 13% (4.5 BGY) will be biodiesel. This biodiesel figure is a large jump from the estimated 250 MGY of demand in 2006, Caldwell said.

Where's cellulose? Mark Schultz, vice president and chief analyst at Northstar Commodity, warned that depending on how long it takes cellulose plants to perfect their process it may be 2011 before plants begin widespread construction and another two years before they come online.

Caldwell added that it's very unlikely for more than a few hundred million gallons a year of cellulosic ethanol production in the U.S. by 2017. "I would be extremely shocked if there was as much as 1 BGY," he said. "So if we want to use 30 BGY of ethanol that is pretty insignificant. Maybe by 2027 there could be 1 to 10 BGY of cellulosic ethanol production in the U.S., but I think this is pretty doubtful too.

"As much as we may want to make ethanol from biomass, there are many, many issues to be resolved.  It is like finding a cure for cancer. It is something we need and want and someday there will be a cure, but not soon, except for certain forms. It's the same with cellulosic: we need and want a solution. Someday it will be generally available, but in the meantime on a few niche plants will get built," Caldwell said.

Increasing usage

Today, ethanol is currently blended in 46% of the nation's fuel supply with the majority of the fuel blended with 10% ethanol. In many city and states, such as Atlanta, Memphis and Tampa, consumers currently do not have access to purchase even a 10% ethanol blend.

Some states have already started mandating ethanol blend levels. Schultz said a national mandatory blend of 10-12% benefits refiners compared to the current state mandates because it provides consistency across state lines.

The ethanol industry hasn't backed any specific mandate proposal. Renewable Fuels Association President Bob Dinneen explained the Renewable Fuels Standards (7.5 BGY) wasn't necessary to drive ethanol into the marketplace since ethanol demand is already surpassing mandated levels.

The Ethanol Promotion Information Council (EPIC) stated if all consumers have the option to purchase a 10% ethanol blend by the end of 2009, the U.S. can anticipate offsetting the need for 14.5 billion of gallons of gasoline.

Currently, the ethanol industry is producing 5.4 billion gallons of ethanol and is rapidly ramping up. It is estimated that within the next two years, the ethanol industry will be producing nearly 13 billion gallons per year, moving us 37% to our nation's energy security goals by the end of 2009, EPIC said.

Proceed with caution

Livestock groups were the first to warn against the price impact of greater demand for ethanol after the address.

Talking to workers at a DuPont plant in Delaware, the day after his speech President Bush recognized the challenges facing hog and poultry farmers from the rapid rise in ethanol production. "We've got hog growers and chicken growers that need corn to feed their animals. And therefore, it's going to be kind of a strain, at some point in time, on the capacity for us to have enough ethanol to be able to make us less dependent on oil,•bCrLf the President said.

Poultry producers have felt the greatest squeeze as a result of increased corn demand for ethanol production. William P. Roenigk, senior vice president and chief economist for the National Chicken Council, said the wholesale price per pound of chicken has increased six cents. "If government continues to push corn out of livestock and poultry feed and into the energy supply, the cost of producing food will only increase." 

Like many livestock groups, NCC supports the development of alternative fuels. "The fact remains that corn is the most popular feedstock for ethanol, and increasing the demand for ethanol will put additional pressure on the cost of both corn and food," Roenigk said. "The supply of corn is not unlimited."

Weighing in:
Editorial: Temper optimism over ethanol with "sobriety"
The White House's new push for ethanol production is "rooted more in hope and self-interest than science or logic," The Wall Street Journal writes. It says the policy, which includes an emphasis on cellulosic ethanol, is a "public gamble" that may lead to a day when the U.S. yearns for a return to oil.       
NCGA Rebuttal: Very, Very Big Corn
The recent Wall Street Journal editorial "Very, Very Big Corn" went to new extremes in distorting information to denigrate the ethanol industry and U.S. corn producers. NCGA's rebuttal interjects facts to the debate.
Editorial: Bush alternative energy plan questioned
The New York Times says that while President George W. Bush's plans for alternative energy and more efficient autos would provide marginal gains, he "offered no specifics on where these 35 billion gallons in alternative fuels are going to come from." The newspaper says corn ethanol could meet less than half the need before driving up food prices, and cellulosic ethanol has no commercial refinery in operation.

In future discussions, I'll take a look at some of the proposals on the floor for increasing biofuel production.

 

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