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  Yahoo News 10 Jun 07
Growing US ethanol market may not be able to absorb supply
by Isabelle Tourne

Government-encouraged efforts to ramp up US ethanol production, part of a bid to diversify American energy supplies, are succeeding, but some analysts fear a glut may be developing for the biofuel.

The boom in ethanol production, fueled by a government tax breaks and a desire to develop home-grown fuel supplies, has caused some industry analysts to wonder if the market is a bubble in the making.

Some energy analysts like Antoine Halff at Fimat are asking if it could be the "end of the honeymoon" for ethanol.

Investment in ethanol-producing plants has increased dramatically in a market still in its infancy in the past year, helped by attractive margins and cheaper costs compared to oil refineries.

Changes in environmental safeguards governing the composition of gasoline has also required refineries to start boosting output of ethanol to replace MTBE (methyl tertiary butyl ether).

Ethanol output has also been encouraged by sharp spikes in gasoline prices, which have breached 3.00 dollars per gallon (80 cents per liter) in most of the United States.

According to the Renewable Fuel Association, there are 120 ethanol "biorefineries" operating across the United States with a capacity of some 23.4 billion liters (6.2 billion gallons) per year. Seventy-seven new biorefineries are currently under construction, with eight plants being expanded, which is expected to double overall capacity by 2009.

But the infrastructure, for drivers to fill up their cars at an ethanol-supplying fuel pump for example, is not keeping pace with the supply side, analysts say.

"Under current logistical conditions, the US ethanol market may be nearing saturation," Halff said. Other analysts agreed.

"You don't have a large enough market at the service stations," said James Williams, an energy market analyst at WTRG Energy. Market observers say that ethanol accounts for over five percent of all US gasoline output.

"The US market capacity to absorb fast-rising ethanol production is limited, and supply appears set to catch up with demand," Halff said.

Analysts also point out that most of America's ethanol production is heavily concentrated in rural Midwest farm states, but that a lot of the nation's gasoline demand is based along the heavily populated east and west coasts.

"Because ethanol-blended gasoline cannot be shipped by pipeline, the marketing of ethanol faces great transportation constraints," Halff said, adding that new distribution networks would need to be created.

Pressure from industry to boost demand of less polluting fuels, however, is mounting. In March, the chief executives of the "Big Three" US automobile groups, General Motors, Ford and Chrysler, urged President George W. Bush to put in place measures that would help foster a biofuel marketplace, including for ethanol.

They noted that only 1,100 service station pumps exist for E85, a vehicle fuel with an 85-percent ethanol mix among some 170,000 gasoline stations.

"It's profitable today to produce ethanol with the tax breaks, but will it be profitable in a year?" Williams added.
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