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California considers turning to Brazil for ethanol to add to gasoline By SCOTT CANON - The Kansas City Star Date: 08/07/01 22:15 First, California balked at gassing up with ethanol, pleading with the federal government that it could fight its chronic smog without the corn-fed fuel. But Washington, lobbied hard by the ethanol industry, said in June that California must use either ethanol or another additive -- one that so fouls water supplies that the state has banned its use beyond 2002. So last month, California officials made noises about the virtues of Brazilian ethanol. No country makes or consumes more ethanol than Brazil. Production there can be cheaper. Shipping routes don't freeze. Another point -- largely unspoken -- is that it doesn't come from the Midwesterners whom California blames for bullying the federal government into taking such a rigid, pro-ethanol stance. California Gov. Gray Davis eased off his Brazilian bluff this week when confronted by his peers from the Midwest at the National Governors Association, but South American ethanol might still flow to the gas-guzzling Golden State. "We, the industry, are ultimately the people who are going to have to put ethanol into gasoline and not create shortages," said Paul Langland, a spokesman for BP, which sells gasoline in California under the Arco brand. "We have to look at all the suppliers out there to keep a market this large going." Wherever it comes from, the amount of ethanol pouring into California must climb dramatically. In 2000, the state used about 150 million gallons and imported just 70,000 gallons. For 2003, it could need -- depending on who makes the estimate -- between 600 million and 1 billion gallons of ethanol to spike its gasoline. State energy officials, as well, say they're looking everywhere to make sure there's enough gas to keep Californians commuting. "One or two refineries have been in discussions with Brazilian companies about getting ethanol from there," said Pat Perez, manager for the fuels office of the California Energy Commission. "But our primary source is definitely going to be the Midwest." Price is a key factor. Since the 1970s, gasoline containing at least 10 percent domestically produced ethanol has been exempt from 5.4 cents a gallon of the federal fuel tax. That subsidy is seen as a way to keep grain surpluses down because the fuel is made from corn, wheat, sorghum and other crops. Some have been skeptical about the U.S. industry's ability to rise to an explosion of market demand. "It's silly for us to be counting on only the Midwest when we can get it from a variety of suppliers," said William Rukeyser, an assistant secretary of the California Environmental Protection Agency. "We're not sure there's going to be enough to go around. We need a reliable supply." The industry responds that its capacity is rising quickly, with plants either under expansion, under construction or on order now, that they will more than meet the new California thirst for ethanol. "If there's one thing that U.S. (agriculture) companies can do quickly, it's to add capacity," said Jeff Kanter, an analyst who follows the industry for Prudential Securities. "This stuff about there not being enough capacity is all coming from the oil industry, and it's complete gamesmanship." Even the talk of importing foreign ethanol has its bright side for Monte Shaw, spokesman for the ethanol industry group, Renewable Fuels Association. "That's OK. Ethanol is a world commodity. I'm glad they're beginning to realize ethanol isn't some weird, terrible thing coming from the Midwest," he said. Federal clean air rules require that certain regions of California blend something with their gasoline to increase oxygen levels. For years, the state has chiefly used the chemical known as MTBE -- relatively cheap and convenient because it is petroleum-based. As its water-polluting qualities became more vexing, a consensus formed in the state to ban its use. Davis signed an executive order -- a politically popular one -- to impose a ban that kicks in at the start of 2003. Adding ethanol does reduce the carbon monoxide that steams out of tailpipes. It doesn't pollute water like MTBE. But critics note that it adds oxides of nitrogen that can make smog worse in some instances. Now Rukeyser said the MTBE ban might not be so quick or absolute. Davis, he said, could still decide to phase in the MTBE ban or delay it until the state develops more confidence that it will have plenty of ethanol to fill the void. "We're analyzing the logistics of importing hundreds of millions of gallons of ethanol into the state," he said. Brazil, where ethanol is made chiefly from sugar cane, could send tankers up through the Panama Canal and along the Pacific Coast. Rukeyser said those deliveries wouldn't face the same vagaries of the weather that can bedevil wintertime barge shipments from the Midwest on the Missouri and Mississippi rivers. He said Brazilian refinery costs and shipping expenses -- given that much of the Midwestern ethanol also would have to pass through the Panama Canal -- would be low enough to offset tariff protections for the domestic product. At the National Governors Association meeting this week, Iowa Gov. Tom Vilsack and Nebraska Gov. Mike Johanns met with Davis privately about that sort of Brazilian talk. Vilsack emerged from a conversation with Davis saying he had assurances that ethanol "would be purchased from a domestic source." The gasoline industry, however, won't be taking purchase orders from Sacramento. "The main concern is to have an adequate supply at the best price," said Jodie Muller, a spokeswoman for the Western States Petroleum Association. "The domestic producers promise us there will be enough. If that's the case, there won't be a problem. But we'll have to find it somewhere." To reach Scott Canon, national correspondent, call (816) 234-4754 or send e-mail to [EMAIL PROTECTED] All content © 2001 The Kansas City Star ------------------------ Yahoo! Groups Sponsor ---------------------~--> Small business owners... Tell us what you think! http://us.click.yahoo.com/vO1FAB/txzCAA/ySSFAA/FGYolB/TM ---------------------------------------------------------------------~-> Biofuel at Journey to Forever: http://journeytoforever.org/biofuel.html Please do NOT send "unsubscribe" messages to the list address. To unsubscribe, send an email to: [EMAIL PROTECTED] Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
