23-02-09 The US ethanol industry will produce more gallons in 2009, but will be below capacity with output estimated to be near federally mandated levels, the Renewable Fuels Association said in its annual industry outlook.
The group, which will hold its annual meeting in San Antonio, Texas, said US ethanol makers produced a record 9 bn gallons of ethanol in 2008 and are "poised to produce well in excess of 10 bn gallons in 2009." If producers fail to make 10.5 bn gallons of ethanol in 2009, they will be below the federally mandated target in the Renewable Fuel Standard. In 2010 the mandate jumps to 12 bn gallons.

While production will be up in 2009, the 10 bn gallon level is below the industry's current 12.4 bn gallons of capacity, according to RFA data. Another 2 bn gallons of capacity are under construction.
The figure over 10 bn gallons would represent nearly 9 % of America's gasoline supply, RFA noted. US ethanol production of 9 bn gallons in 2008 made it the biggest producer in the world, according to RFA. At the same time, US ethanol imports jumped to 600 mm gallons in 2008, up from 435.2 mm gallons in 2007.

Brazil was the second-biggest ethanol producer in 2008 at 6.4 bn gallons, followed by the EU at 733.6 mm gallons, China at 501 mm gallons, and Canada at 237 mm gallons, according to RFA. Total world ethanol production in 2008 was more than 17 bn gallons, said the group.
While the RFA said it sees an "increased sense of community" among global producers, it still backs a US tariff on imported ethanol.
"History has shown that foreign ethanol arriving in the US can pay the credit offset and still compete effectively in the marketplace," said RFA.

The group said increased US production is "undermined" by a "blend wall" that now exists, capping ethanol-gasoline blends at 10 %. The "wall" is created by a federal rule that certifies only 10 % blends for non flex-fuel vehicles.
US ethanol producers have idled 15-20 % of their capacity due to the weak economy, according to the industry. A drop in gasoline demand has come at a time when new ethanol production capacity was being ramped up to levels needed to fulfil RFS targets. The E10 blend wall has kept refiners from blending ethanol outside of mandates, unless it was deemed economic.

Now that discretionary blending has dried up. Weak economics have prompted many blenders to buy renewable fuels credits, known as RINs (Renewable Identification Number), to cover their requirements without using ethanol.
"By working with automakers, the federal government, and other stakeholders...the federal cap on ethanol use can be changed," said RFA. "Whether it is 13, 15 or 20 %, increasing the volume of ethanol blended into each gallon of gasoline is critical to the future of America's ethanol industry."

Another way to address the blend wall is by expanding production of flex-fuel vehicles (FFVs) and the mid-and-higher level ethanol blending infrastructure to fuel them, said RFA.
"Currently, some 7 mm vehicles on American roads aredesigned and warranted to run on ethanol blends higher than 10 %. Yet, these FFVs represent just 3 % of the total 220 mm vehicles on the road today."

RFA cited the need for investment in so-called blender pumps that blend ethanol and gasoline at the retail site and for E85 (85 % ethanol/15 % gasoline) infrastructure.
"Today, approximately 1,900 gasoline stations across the country offer E85," said RFA. "As the production of FFVs continues to increase and the infrastructure investments are made in higher level ethanol blends, fuels like E20, E30, and E85 will gain a bigger share of the gasoline marketplace."