West Lafayette, Indiana
January 28, 2008
By the end of 2008, the United
States will have the capacity to produce 13 billion gallons of
ethanol, but a Purdue University
expert said the maximum ethanol the market can handle is 12
billion gallons, and perhaps considerably less.
"Ethanol production capacity has grown tremendously fast, and
it's going to almost double from its high level today to the end
of 2008," said Wally Tyner, Purdue Extension agricultural
economist. "It has grown so fast that the capacity to produce is
bigger than the capacity to market."
As a result, Tyner and colleagues forecast a few possible
changes in 2008:
* The price of ethanol will
be lower.
* Some ethanol plants will have to reduce production or shut
production down.
* Some ethanol may have to be exported.
However, Tyner said a combination
of these factors is most likely.
"There will be a lot of pressure on ethanol prices in 2008 and
with high corn prices that means there will be a lot of pressure
on profitability of ethanol during the next year," he said.
The challenge is that once all this ethanol is produced, it has
to be made available to consumers at gas stations, and shipment
of ethanol is an issue.
Tyner said that in order to build the ethanol market to its
maximum potential - 14 billion gallons, or 10 percent of
gasoline consumption - the capacity has to exist to transport it
by rail to the East Coast, West Coast and the South. Because of
its corrosive nature, ethanol can't be moved by pipeline.
"Once at its destination, there needs to be terminal blending
capacity so the ethanol can be blended," Tyner said. "That means
building new tanks and, in some cases, building new rail lines
into the terminals.
"All this can happen, but it takes time. It is already being
done in Florida, but not everywhere, and it most certainly will
not be done by the end of 2008. This puts a real infrastructure
constraint on even getting to the physical potential."
Tyner said that expanding the E85 market in the longer term
means producing more flex-fuel cars and installing more E85
pumps in gas stations.
"That's a long, slow process," he said. "Automotive
manufacturers will be moving that way, but changing the
percentage of the fleet that's flex-fuel will take years.
"But the faster we move in that direction, the faster it will
happen." |
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