Oil surge sparks mixed ethanol response

02 January 2008 22:35  [Source: ICIS news]

HOUSTON (ICIS news)--Surging crude oil prices could help the ethanol industry in the short term but it also could trigger a global economic recession that would crush biofuels consumption, a Brazilian ethanol trader said on Wednesday.

“Crude oil at $90-100/bbl is already too expensive,” the trader said in Portuguese. “I do not know how much longer the global economy will be able to grow with crude at that level.”

The trader's comments followed a flutter in oil price futures that briefly hit the $100/bbl mark on Wednesday for the first time.

“The surge in crude oil could be a positive factor for the ethanol industry, but it could also trigger an economic recession worldwide,” the trader said.

The US Renewable Fuels Association (RFA) used the occasion to tout the benefits of ethanol.

Oil price volatility “is the exact problem Congress addressed by passing the Energy Independence and Security Act of 2007 and investing heavily in new technologies like renewable fuels,” the RFA stated.

The Energy Independence and Security Act of 2007 created a major new mandate for US production and consumption of biofuels in the country’s transportation fuels mix.

Congress decreed in the energy bill’s renewable fuels standard (RFS) that by 2022 the US should be producing 36bn gal/year (136bn litres/year) of biofuels, principally plant-based ethanol.

That is a four-fold increase over the previous biofuels mandate, which was to require 7.5bn gal/year of ethanol output and fuel blending by 2012. By the close of 2007, US corn-based ethanol production was nearing or at 7bn gal/year.

“Oil’s unprecedented rise to $100/bbl underscores our economic and geopolitical vulnerability to depleting oil reserves,” said RFA President Bob Dineen. 

“While developing new oil reserves is proving more difficult and expensive, the American ethanol industry is rapidly developing new cost-effective technologies that will greatly reduce our nation’s reliance on imported oil from unstable regions often hostile to the United States,” Dineen said.

Additional reporting by Brian Ford

By: William Lemos
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