Market may not be ready for ethanol boom

WASHINGTON — Experts are beginning to worry that the rush to build ethanol plants will cause a quick saturation of the market, with more ethanol available than drivers are willing or able to buy.

The nation now uses about 140 billion gallons of gasoline per year, and if all of it contained 10 percent ethanol (in an additive form known as E10), refiners would need 14 billion gallons of ethanol.

The industry’s production capacity will reach 11.4 billion gallons per year once existing construction projects are completed. And numerous additional plants are being planned around the country, including four projects announced last week by agribusiness giant Cargill Inc.

“The time when ethanol will saturate the blend (E10) market is on the horizon, and the industry is looking forward to new market opportunities such as E85,” Ron Miller, president of Aventine Renewable Energy LLC, said in testimony to the Senate Agriculture Committee last week.

The industry is counting on boosting the sales of E85, a higher blend of ethanol that is 85 percent ethanol and 15 percent gasoline, and is looking for Congress to help increase its availability and use. One bill introduced by Sen. Barack Obama, D-Ill., a possible presidential candidate, would create a new tax credit to cut the price of E85.

But finding an E85 pump will continue to be difficult. Wal-Mart and other major retailers won’t offer the fuel until mid-2008, at the earliest.

“It’s a little worrisome that the industry might be overbuilding to their own detriment,” said Ron Litterer of Greene, Iowa, a leader of the National Corn Growers Association and an investor in the Midwest Grain Processors ethanol plant at Lakota.

Nationwide, about 1,000 locations among 170,000 service stations sell E85, according to the National Ethanol Vehicle Coalition. A federal tax credit of up to $30,000 was enacted to help defray the cost of converting stations to sell the fuel.

But the opening of new stations was slowed considerably by the decision of Underwriters Laboratories last year to suspend its certification of E85 service-station dispensers. UL, an independent organization that certifies the safety of everything from toasters to gasoline pumps, has decided to develop standards for certifying the pumps but first will have to research the impact of alcohol fuel on pump parts.

In high concentrations, alcohol can corrode some types of metal, such as aluminum, and damage conventional rubber fittings and hoses. E85-compatible pumps are manufactured or retrofitted with different materials.

Wal-Mart and other major retailers have put off installing E85 pumps at their filling stations until UL finishes the certification process, likely in the second quarter of 2008, said Phil Lampert, executive director of the ethanol vehicle coalition. “We are certainly interested in getting that (research) going so that down the road we can initiate testing of dispensers,” said John Drengenberg, UL’s consumer affairs manager.

Increased use of E85 will be necessary both for corn-derived ethanol as well as ethanol that would be distilled from other sources, such as crop residue, trees and perennial grasses.

A group of 37 state governors, including outgoing Iowa Gov. Tom Vilsack, asked Congress last week to take steps to increase the availability of E85 and the number of motor vehicles that can use it. The governors called for providing financial incentives to automobile manufacturers to equip vehicles to run on E85. About 8 percent of the nation’s cars and trucks can now run on the fuel.