Global biofuels will struggle to match ambitious objectives

When the US Energy Information Administration (EIA) published the September 2011 edition of its Petroleum Supply Monthly, it marked the sixth month out of the previous 9 in which the US was a net exporter of refined products. Industry observers were quick to recognize the distinctive shift this represented in finished-fuel trade patterns with 2011 establishing itself as the first time in 62 years the US was a net petroleum product exporter.

A contributing factor to this historic shift has been the rapid profusion of ethanol and biodiesel into the transportation-fuels mixture. Brazil, long considered the model for a national biofuels program, has been eclipsed in the last 10 years by the US as the dominant player in the worldwide ethanol market.

With biofuels now firmly established as a contributor to global transportation fuel supply, this article will analyze growth trends and ongoing governmental policy decisions in determining the percentage of market share that biofuels will occupy by 2022.
US ethanol demand growth

The rapid growth of ethanol use as a transportation fuel has largely been driven by blending mandates and supplemented by government subsidies and high crude oil prices. Ethanol initially found inclusion in the US blend pool as an oxygenate substitute during the selective methyl tertiary butyl ether (MTBE) phase-out that began in California in the early 2000s (OGJ, Jan. 14, 2002, p. 18).

Creation of the Volumetric Ethanol Excise Tax Credit (VEETC), which arose from the 2004 passage of the American Jobs Creation Act, provided the first official federal government stimulus (OGJ, Oct. 12, 2009, p. 24). This was subsequently followed by the Energy Policy Act of 2005 and the Energy Independence and Security Act (EISA) of 2007, establishing the Renewable Fuel Standard (RFS) 1 and 2, respectively.

The impact of these government policies and of comparable European Union measures has transformed the biofuels industry.

In 2000, Brazil accounted for 85% of all worldwide fuel ethanol usage; 10 years later US ethanol fuel consumption is over 100% greater than that of Brazil (Fig. 1).2 The rapid growth of the US fuel-ethanol industry has been more pronounced in the past year as the US has turned into a net exporter of fuel ethanol with Brazil, the EU, and Canada providing the primary outlets. Through 2011, net ethanol exports from the US have averaged about 45,000 b/d.3