Engineering News

Fight Over Ethanol Blend To Last Another Round
December 01, 2009

Wet weather has left a fifth of the U.S. corn crop unharvested--and it's likely to remain so until U.S. regulators and domestic refiners decide on the future of ethanol blending.

The Environmental Protection Agency on Tuesday delayed a decision on whether to raise the cap on corn-based ethanol's use as a fuel additive from 10% to as high as 15%.

The EPA said it would decide by the middle of next year on the petition for an increase made by major ethanol producers, citing the need for more testing.

However, the agency signaled it was open to an idea pushed by an industry that has already been through one boom and bust. What is unclear is whether refiners will go along with it.

Auto makers and oil marketers have expressed concern that higher ethanol content may harm engines, particularly in older models, leaving a big bill to honor vehicle warranties. Some leisure boat owners - who already use a higher blend - are already suing fuel suppliers. Refiners could choose to buy credits to meet the government's renewable fuels mandate instead of blending more ethanol into their mix.

"Before this move is made there must be thorough testing and research, to ensure there are no negative impacts to the current vehicle fleet or small engines," said Marathon Oil Corp. (MRO) spokesman Robert Calmus.

The delay sets up another fierce round of lobbying in a nascent sector that is already one of the most voracious consumers of spin dollars in Washington D.C.

It also underscores how the nation's path towards freedom from fossil fuels is likely to be long, tortuous and follow the sway of competing interests.

The request to the EPA was made earlier this year by Growth Energy, a trade group that has already riled the energy sector.

Gulf war veteran and retired Army general Wesley Clark, a leading figure in the group, has successfully garnered strong political support. But other ideas such as food-style country-of-origin labeling on gas pumps have raised eyebrows among energy executives who view them as populist and impractical.

The agribusiness sector has scented a rebound from the deep industry trough that saw ethanol prices collapse and shuttered plants and construction plans across the Midwest heartland.

"Even if it does not respond to go all the way to 15%, it's our expectation or hope that E12 on the way to E15 is one of the likely outcomes so that would be next year," Pat Woertz, chairman and CEO of Archer Daniels Midland Co. (ADM), said in August.

Woertz, a former oil executive, heads one of the nation's largest ethanol producers. The unit had been a big profit driver in recent years but has lost money over the past 12 months.

If the EPA opts next year to move to a 15% blend or even a to halfway house of 12%, some refiners said there is no certainty more that ethanol will end up in the tank. Refiners have never been required to blend ethanol but can instead buy credits, or offsets to meet the government's renewable fuel standard, which increases yearly.

Not that refiners are entirely against ethanol. Many who have recently snapped up ethanol plants on the cheap should relish the idea of adding more corn fuel to their mixes. The economics of ethanol production, which were challenging as the cost of food rose last year, have improved markedly this year as corn prices have abated. And government subsidies have helped make ethanol blending cheaper than buying credits. Blending demand is up 15% year-on-year to 4 million barrels a day, according to Deutsche Bank. Valero Energy Corp. (VLO), the largest independent refiner in North America, has said its fledgling ethanol business has been a bright spot in a dismal year for refining profits.

Source: Dow Jones Newswires

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