Ethanol industry is ramping up production to meet increased demand
(Dave Hannon and Tom Stundza -- Purchasing, 2/17/2010)

A recent report from the U.S. Department of Agriculture (USDA) forecasts that ethanol demand will remain strong for an extended forecast period; as a result, corn demand and corn prices will remain high.

The USDA report says, "Although increases in corn-based ethanol production in the U.S. are projected to slow, ethanol demand remains high and affects production, use, and prices of farm commodities throughout the sector." The report goes on to say that "expansion in the U.S. ethanol industry is projected to continue, although the pace is assumed to slow from the rapid gains of the past several years."

The USDA maintains that corn is expected to remain the primary feedstock for U.S. ethanol production. And, according to the latest forecasts from the U.S. Department of Energy, projected ethanol production, which averaged 700,000 barrels/day in 2009, "increases to an average of 800,000 bbl/d in 2010 and 850,000 bbl/d in 2011." EIA forecasts that liquid fuel net imports (including both crude oil and refined products) will fall by 150,000 bbl/d in 2010 and then rise by 160,000 bbl/d in 2011, after having fallen by 1.42 million bbl/day during 2009."

In its state of the ethanol industry report, the Renewable Fuels Association says "the state of the U.S. ethanol industry is strong," adding that its members "are rebounding from the recession that has taken such a toll on every industry." In a keynote speech to open the association's National Ethanol Conference this week in Orlando, CEO Bob Dineen adds that the industry must tackle some critical challenges in 2010, including raising gasoline blend levels and preserving tax incentives that are due to expire at year-end.

Dinneen called for greater effort by the industry to "tear down the blend wall" that has generally held the ethanol content in U.S. gasoline at the 10% level, known as E10. According to an ICISnews.com report, U.S. ethanol production has grown to the point that the E10 market is nearing saturation. But the use of higher blends for ordinary cars has been held back by concerns over possible engine damage and the potential voiding of the manufacturers' warranty coverage.

Dinneen wants the government to accelerate its testing of E15 and E20 blends, adding that the Renewable Fuels Association's goal is to win endorsement of higher blends for all vehicles - not just those manufactured in 2001 and later, as has been suggested by the U.S. Environmental Protection Administration.