2009 Ethanol Outlook

The ethanol industry is likely to see further consolidation in 2009 as it copes with continued volatility in grain markets and falling oil prices, says Renewable Fuels Association (RFA) president and CEO Bob Dinneen.

This year will also include further debate concerning high level blends as more studies demonstrate the efficiency of using high level blends (greater than 10% ethanol in gasoline) in legacy vehicles.

Dinneen reported that the ethanol industry will take advantage of congressional efforts to stimulate the general economy and to look at global climate change more aggressively. These are areas where the ethanol industry is front and center in the public policy debate, Dinneen said, adding, “We’re going to have to be there making the case for ethanol on Capitol Hill.”

Volatility, especially that in the grain markets, will mean that ethanol producers will have to employ smart risk management strategies. Some companies will be smarter than others and some may not make it, Dinneen said, but added that the fundamentals of the ethanol industry “remain strong.”

This is because the U.S. will need to increase the amount of domestically-produced renewable fuels. In addition, demand for ethanol will continue to grow because U.S. energy policy demands it and because consumers are looking for alternatives to straight petroleum, Dinneen said. He points to the increase in E85 and blender pumps around the country as evidence.

A huge issue ahead for the ethanol industry will be “attacking the blend wall.” To do this, industry must maximize the use of 10% ethanol (E10) blends across the country. Dinneen noted that the RFA is working in California to expand market opportunities and also is working to bring down state regulatory barriers to E10 in the Southeast and elsewhere.

At the same time, the RFA is looking at how to increase the use of E85 through flexible fuel vehicles and expand the E85 refueling structure. “Part of that solution is going to be higher level blends,” Dinneen said, adding that RFA is working with automakers to determine “safe and appropriate blend levels for ethanol in legacy vehicles.”

Automakers have an enormous amount of influence over this process because they will have to extend warranty coverage to these vehicles and alert consumers that higher ethanol blend levels are safe.

There is a great deal of anecdotal evidence to suggest that higher blends are safe, but this alone is not enough, Dinneen said. “We need good solid science.” He indicated that RFA as well as the Department of Energy, the Environmental Protection Agency and automakers are working on higher blend studies. Dinneen added that RFA will continue to work with all of the groups to ensure “there are no artificial barriers to ethanol use anyplace.” Visit http://www.ethanolrfa.org/

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