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Ethanol plants begin to mushroom in the US

G. Chandrashekhar

Investments flow to build more units with huge capacity

Growing demand
Large businesses in America upbeat on the future of bio-ethanol
About 97 plants in 21 States in the US now, up from 50 in early-1999; 33 under construction.
Capacity under construction equals 1,893 million gallons a year

Washington , Aug 23

There seems to be a new gold rush in the US — building ethanol plants.

Huge investments are flowing into building more units and bigger capacity to produce ethanol, mainly from corn (maize), of which the US is the world's largest producer.

Soaring energy prices, but resistance to curb fuel consumption; geopolitical developments (especially surrounding Midwest Asia) threatening crude supply disruption and energy security of developed economies; and rising energy demand in major developing economies like China and India have all combined to propel the once fledgling bio-fuel sector into the big league.

Examining developments

Around the world, market participants are busy examining in-depth continuous developments in the bio-fuel sector, comprising primarily bio-ethanol (from cane or corn) and bio-diesel (from vegetable oil).

With gasoline prices spiking to as high as $3 a gallon and no immediate prospect of a substantial downward correction, large businesses in America have turned upbeat on the future of bio-ethanol.

Several leading corporates and agribusinesses have forayed into bio-fuels.

The US is a major guzzler of gasoline for a variety of industrial, commercial and other activities including road transportation. No wonder, ethanol is the most widely used bio-fuel in the US, unlike the European Union that uses more of bio-diesel, produced mainly from rapeseed oil. Not only are huge investments flowing into building bigger and bigger ethanol plants here in the US, several of them have already gone public and many more are due.

Frantic pace

The frenetic pace of capacity building may be gauged from the fact that while there were 50 ethanol plants in the US by early 1999, today there are as many as 97 plants operating in 21 States.

What's more, 33 new plants are under construction to cater to the growing demand. While the current capacity is 4,481 million gallons per year, the capacity under construction equals 1,893 million gallons a year or 42 per cent of the existing capacity.

Energy policy

State support is an integral part of this activity. The Bush Administration has made ethanol an important part of its energy policy with the twin objective of supporting corn growers and reducing dependence on foreign oil. While Brazil is the world's largest producer of ethanol mainly from sugarcane, in the US corn is the dominant raw material for ethanol.

The US ethanol production now makes up about 3 per cent of the country's annual gasoline usage. Last year, the US consumed an estimated 140 billion gallons of gasoline and 4 billion gallons of ethanol.

By comparison, bio-diesel consumption in the US was small — 75 million gallons out of 38.3 billion gallons of diesel consumed for transportation.

Rising ethanol production and usage is likely to have far reaching implications for the coarse grains sector not only in the US, but around the world, in terms of prices and availability.

Rising corn offtake

After reaching 300 million tonnes in 2004-05, the US corn output declined to 282 million tonnes the following year.

For 2006-07, crop size of 278 million tonnes (10.98 billion bushels) has been forecast. Consumption, on the other hand, has been rising.

For 2006-07, it is forecast at 245.5 million tonnes, up 15 million tonnes from the previous year. A large part of the increase in usage will be for ethanol production, rather than for food or feed use.

The US Department of Agriculture has projected that ethanol will consume 2.150 billion bushels of corn in 2006-07, equivalent to 20 per cent of the total corn production.

Private estimates place the figure even higher at 2.5 billion bushels.

No wonder, from growers to consumers to speculators, everyone is bullish on corn. Increased diversion of corn for energy purpose is expected to deliver better price benefit to farmers.

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