supply on track to exceed demand, complicating
By Jeff Tollefson and Catherine Richert, CQ
Staff, CQ TODAY – ENERGY
March 1, 2007
Increases in ethanol production over the
past year could soon lead supply to exceed
demand, the government’s chief energy analyst
told a Senate panel.
“We’re looking at a relatively soft market
for ethanol this driving season,” Guy Caruso,
who heads the Energy Department’s Energy
Information Administration, told the Energy
and Natural Resources Committee on Thursday.
Refiners are blending ethanol into gasoline
at levels of 10 percent or less. U.S. ethanol
usage, which exceeded 5 billion gallons last
year, is on track to exceed the mandate in the
2005 energy law (PL 109-58) of 7.5 billion
gallons annually by 2012.
Ethanol prices may fall in the short term
as supply exceeds demand, but the biofuel is
likely to remain more expensive than gasoline
in the long run, Caruso said. He said his
agency projects biofuel production of about 12
billion gallons annually by 2017 —
significantly less than the 35 billion gallons
of alternative fuels that President Bush
called for in his State of the Union address
Democrat Jeff Bingaman of New Mexico, who
chairs the Senate Energy and Natural Resources
panel, seized on the numbers to raise the
possibility of increasing the ethanol-usage
requirements. “I have not heard anybody
explain how you can get 35 billion gallons by
2017,” Bingaman said later.
Bonanza for Corn Growers
The ethanol boom has been a bonanza for
corn growers, who will enjoy significantly
higher prices for their crop in the coming
year, the Agriculture Department said
With the use of corn for ethanol projected
to increase in the next marketing year to 3.2
billion bushels from 2.15 billion bushels this
year, farmers can expect to get $334 for every
acre of corn they produce, more than double
what they got in 2006.
Despite the Energy Department’s projections
of an easing of ethanol prices, the industry’s
primary trade association predicted that
ethanol producers will have no trouble selling
their product even while new ethanol plants
start production this year.
“The price will go up and down, but we
certainly think there is room in the
marketplace to absorb what is coming online,”
said Matt Hartwig, a spokesman for the
Renewable Fuels Association.
While the increased demand for ethanol has
been good for corn growers, it is hurting
beef, pork and poultry producers, who are
paying more for animal feed. Food processors
and nutrition groups also worry that
corn-based food will become more expensive.
The livestock producers, food processors and
nutrition groups have vowed to fight to keep
corn ethanol incentives out of the 2007 farm
But Democrat Collin C. Peterson of
Minnesota, who chairs the House Agriculture
Committee, downplayed concerns about the
impact of high corn prices and dismissed calls
to lift the 54-cents-per-gallon tariff on
Brazilian ethanol imports. Some energy experts
have advocated lifting the tariff to ease the
pressure on corn prices and help achieve
Bush’s goal of reducing gasoline consumption.
“I think the whole thing has been jimmied
up by [public relations] firms to get
worldwide trade of ethanol going,” Peterson
said Thursday, adding that there is “no hope”
that Congress would lift the import tariff.
The Bush administration projects that
livestock producers will enjoy increased
exports and higher prices for their products,
which Peterson said would mitigate some of the
costs of more expensive feed.
“This fuel competition is good,” Peterson
said. “We’ve been underpricing food for years.
Fuels will even this out. Consumers will pay
more [for food] and, in my opinion, they
The growing ethanol demand has been fueled
by the mandate in the 2005 energy law, a
federal tax credit of 51 cents a gallon for
ethanol production and a switch by refiners
from a competing gasoline additive, methyl
tertiary butyl ether (MTBE). Refiners largely
stopped using MTBE after Congress declined to
limit liability for groundwater contamination.
But to approach the levels of alternative
fuel use that Bush is urging, sources of
ethanol other than corn will be needed.
The Energy Department announced plans this
week to spend $385 million on six
“biorefineries” that will produce cellulosic
ethanol from biomass sources such as corn
stover, switch grass and wood chips.
Charlie Drevna, executive vice president of
the National Petrochemical and Refiners
Association, called the president’s goal “a
great sound bite” but said it is not practical
or in the consumer’s interest, since ethanol
remains more expensive than gasoline.
First posted March 1, 2007 1:38 p.m.