Washington finds unlikely ally in OPEC as biofuels debate rages

Mon Jun 1, 2015 1:12am EDT
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By Chris Prentice

NEW YORK (Reuters) - The Obama administration has found an unlikely ally in its efforts to keep pushing more biofuel into the nation's gasoline supply: OPEC.

The lowest oil prices in over six years have fueled a resurgence in U.S. gasoline use in recent months as more Americans take to the road.

Demand is expected to climb 1.5 percent this year to nearly 139 billion gallons (526 billion liters) according to the government's most recent forecasts, enough to easily accommodate small increases in ethanol quotas without breaching the so-called "blend wall" that refiners say puts a cap on blending at around 10 percent of total gasoline and diesel supply.

It may be even higher, based on data from the first quarter, when gasoline use surged by more than 3 percent, the fastest in over a decade.

Those calculations help explain why biofuel backers are up in arms over the Environmental Protection Agency's proposed renewable fuel goals unveiled on Friday, which reaffirmed the agency's stance that ethanol use in fuel has hit a saturation point until more infrastructure and equipment is installed.

The proposed volumes fell far short of those laid out in a 2007 law, but still allow for increased blending while also ending years of uncertainty over the future of the nation's complex and contentious renewable fuels policy.

With Saudi Arabia pumping out near record volumes of crude and few experts forecasting any significant recovery in prices any time soon, the U.S. biofuels industry now stands to gain a bigger share of one of the world's biggest motor fuel markets, experts said.

"The market incentives are there for ethanol, without this (EPA) proposal, said Scott Irwin, a professor of agricultural economics at the University of Illinois.   Continued...

A biodiesel vehicle is seen at Dogpatch Biofuels filling station in San Francisco, California January 8, 2015. REUTERS/Robert Galbraith