From: Reuters
Published March 5, 2008 03:01 AM

U.S. won't meet ethanol goal

By Tom Doggett

WASHINGTON (Reuters) - The United States will not meet Congress's mandate to produce more ethanol from waste products over the next 15 years, resulting in an overall shortfall in ethanol production requirements contained in a new energy law, a government forecaster said on Tuesday.

The new energy law requires the United States to produce 36 billion gallons of biofuels a year by 2022 to help stretch gasoline supplies and reduce oil imports.

But only 32.5 billion gallons of the renewable fuels standard (RFS) will be met by the target date, said Guy Caruso, who heads the U.S. Energy Information Administration.

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The shortfall will come from a smaller volume of ethanol made from cellulosic sources such as wood chips, switchgrass and other agricultural and forest waste than the law envisions, Caruso told the Senate Energy Committee.

As result, he said the government will have to issue waivers on the mandate to ethanol producers in the years ahead.

Most U.S. ethanol is made from corn. Many experts believe the increased demand for ethanol production is pushing up prices for grains and thus for the food consumers buy.

"While the situation is very uncertain at this early date, our current view is that available quantities of cellulosic biofuels prior to 2022 will be insufficient to meet the new RFS targets," said Caruso.

He said the EIA assumes the current U.S. tariff on ethanol imports will be allowed to expire in January 2009, resulting in "strong growth" in foreign ethanol supplies coming into the U.S. market after 2010.

Caruso appeared at the hearing to discuss the EIA's revised long-term energy forecast that now reflects the impact of the energy law, which was passed by Congress last December..

Separately, higher vehicle fuel efficiency requirements under the new law will shave about 2.5 million barrels a day off the U.S. petroleum demand that was projected by 2030 before the law took effect, Caruso said.

U.S. consumption of liquid fuels, including both oil and renewable liquids, now increases from about 21 million barrels a day this year to 22.8 million barrels a day in 2030, led by transportation fuels that will rise from 68 percent of demand to 73 percent, according to the EIA.

Oil prices, which this week hit a record of almost $104 a barrel, are projected to gradually fall through the middle of the next decade and then slowly increase under the EIA's long-term reference case to $70 a barrel in constant 2006 dollars by 2030, or about $113 a barrel unadjusted for inflation.

Caruso said under the agency's worse-case scenario, oil could hit $185 a barrel in nominal dollars in 2030.

The Energy Department's current policy of adding oil to the U.S. Strategic Petroleum Reserve could add about $2 to the price for a barrel of oil and four or five cents to a gallon of gasoline, when the reserve's fill rate averages about 100,000 barrels a day, according to Caruso.

The department is now delivering about 70,000 barrels of oil a day to the emergency stockpile, but that fill rate could rise to 125,000 barrels per day this summer.

While retail gasoline prices will continue to rise this spring as record crude oil costs are passed on to consumers at the pump, Caruso said he does not think the national average will climb to $4 a gallon.

Caruso said there is no one thing the government can do in the short term to lower gasoline or heating oil prices, except to encourage Americans to cut back on their fuel use and become more fuel efficient in their daily lives.

"In the short term, it's really up to the consumer," he said.

(Editing by Christian Wiessner)

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