Thursday, November 12, 2009

The Debts of the Spenders: Agra Lobby vs. Refiner Lobby in Ethanol War

In what is critical news for corn traders and the oil majors, the legislative battle between their respective lobbyists is heating up. Proponents of clean energy have pressured the US Congress and the Environmental Protection Agency (EPA) to increase the amount of biofuel in their gasoline blend. President Obama is also believed to implicitly support the big agra lobby in his calls for a more green environment. Cynics also note that Obama drew much of his original political support from Illinois and the surrounding Mid-Western farm belt states. It would not be an exaggeration to say farmers miss the 2008 days of high priced corn.

A motley mix of refiners, food producers, and marine engine companies have snapped back at any sort of higher involvement by claiming that the markets are not ready yet to absorb this new technology in sufficient capacity. A major drawback is higher food prices as crops get re-routed to biofuel instead. More tellingly, the refiners have struggled with slim profit margins all year long. Indeed, the US energy majors - Chevron, Texaco, Exxon, etc. - have refinery operations that have become cost centers instead of revenue generators.

Refiners Rally Against Higher Ethanol Blend

Several U.S. oil refiners may have stepped up their investments in ethanol production this year to meet regulatory requirements, but at the same time the refining industry is waging a battle against a waiver that would allow more of the biofuel to be blended into gasoline.

The U.S. Environmental Protection Agency is considering a waiver that would allow the percentage of ethanol that could be blended into gasoline for conventional vehicles and power equipment to rise to 15% from 10%. The EPA has a Dec. 1 deadline on whether to grant this request, which was submitted in March by Growth Energy, a proethanol industry group representing 54 producers that is headed by retired U.S. Army General Wesley Clark. Among the companies backing the organization are POET LLC, ICM Inc., Western Plains Energy LLC and Green Plains Renewable Energy (GPRE).

Proponents say more blending of ethanol into gasoline is good for the environment and will foster a greener economy. But a wide coalition of refiners, food producers and marine-engine manufacturers say engine technology isn’t ready for more ethanol in gasoline, and food prices will increase if more of the corn-based fuel is produced. Moreover, refiners fear that higher
ethanol blending would cut into gasoline consumption even more. The refining industry has been struggling with narrow margins all year due to sharply lower demand amid the economic downturn for refined products— and experts predict that gasoline consumption in industrialized countries will likely stagnate for decades to come.

Source: CME News for Tomorrow
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