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US Biofuels Sector Sees Ally In Obama

Date: 06-Nov-08
Country: US
Author: Charles Abbott and Timothy Gardner

Obama, a Senator from Illinois, the No. 3 US ethanol producer, has pledged to expand federal mandates requiring the blending of biofuels into gasoline to 60 billion gallons annually by 2030, up from the current requirement of 36 billion gallons per year by 2022.

He would also accelerate the development of cellulosic ethanol, to be made from switchgrass and poplar trees, to 2 billion gallons by 2013.

Time will tell if those goals are achievable, with fears of an ethanol supply glut already helping to batter shares in producers.

But it is a show of support in the face of recent opposition from foodmakers and livestock producers. They tried earlier this year to scale back the mandates, claiming ethanol, which is mainly made from corn in the United States, was helping to spike food prices.

"I think Obama sees this as an industry that is evolving and he wants to assure that the evolution can continue," Bob Dineen, the president of a Washington-based ethanol industry group, the Renewable Fuels Association, said in an interview.

"That means that you don't walk away from the existing industry."

Biofuels makers also take heart in Obama's overall alternative energy plan to create a $150 billion fund for investments over the next 10 years and create 5 million jobs, which could eventually benefit ethanol companies that are struggling.

Last week the largest publicly traded US producer, VeraSun Energy Corp, filed for bankruptcy protection. Two other big producers, Pacific Ethanol and Aventine Renewable Holdings Inc, have seen their share prices plunge about 80 percent since their year highs.

BLEND WALL

Obama's plan may get help from other winners in Tuesday's election. Voters in Minnesota re-elected Democrat Collin Peterson, the House Agriculture Committee chairman, who advocated programs in the 2008 farm law that will encourage commercial development of cellulosic ethanol.

Peterson also supports boosting the content of ethanol in gasoline to 15 percent from 10 percent. "Obama would be supportive of whatever we (Congress) come up with," Peterson said in an interview with Reuters.

Ethanol output, running at a rate of 10 billion gallons a year, is approaching a "blend wall" --where production equals the legal limit for use. US ethanol output has tripled since 2003 and, at latest count, equalled 10 billion gallons a year.

Obama himself had said late in the election campaign that he may have to scale back some of his alternative energy plans. And ethanol's problems may go beyond the ability of anyone in the nation's capital to quickly fix them.

"The problems that the industry is dealing with right now go way beyond politics," said Pavel Mulchanov, an analyst at Raymond James & Associates in Houston. He said it will be tough for Washington to fix the credit crunch and gyrating prices of commodities like oil and corn.

But support for biofuels is widespread as it has the potential to boost other sectors.

"What is good for biofuels is good for much of agribusiness -- particularly elements leveraged to the crop sector, such as farm equipment, seed developers and others," said analyst Mark McMinimy of Stanford Washington Research. "And, in this sense, the election outcome may be the gift that keeps giving for biofuels and crop-related industries."

(Additional reporting by Nichola Groom; Editing by Walter Bagley)

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