INTERVIEW-POET CEO sees U.S. ethanol mandate opening markets
INTERVIEW-POET CEO sees U.S. ethanol mandate opening markets By Timothy Gardner NEW YORK, Dec 17 (Reuters) - The U.S. energy bill's expanded ethanol mandate and improvements in transport bottlenecks will spur new markets -- and higher prices -- for the alternative fuel, the chief executive of the largest U.S. ethanol producer said in an interview on Monday. The U.S. Senate passed a new energy bill last week, expected to be signed by U.S. President George W. Bush, that would boost the country's blending of alternative fuels, like ethanol, five-fold to 36 billion gallons a year by 2022. Jeff Broin, CEO of private South Dakota-based ethanol company POET, said the mandate is good for traditional U.S. ethanol made from corn, and for a next generation fuel expected to be made from the woody bits of plants, such as corn cobs and switchgrass. "It creates a market not only for grain ethanol, but also for cellulosic ethanol," he said. Broin said POET is spending about $10 million a year in research on cellulosic ethanol, which it hopes to produce in commercial levels by around 2012 to 2013, using corn cobs and waste as feedstocks. U.S. ethanol capacity has grown by more than a third to about 7.2 billion gallons per year since Jan. 1 as Bush has offered millions of dollars in incentives to blenders and producers in an effort to begin to wean the country off foreign oil. Transport infrastructure, however, has not kept pace with capacity, pushing the price of ethanol to a low in October of about $1.70 per gallon as the fuel began to pool up around production centers. Ethanol's price has since risen to about $2.00 a gallon, but it is still much less than gasoline, giving oil refiners and blenders purchasing power over producers of the alternative fuel. Broin said demand for ethanol should rise next year as workers build and fix terminals and equipment to offload rail road cars. "Some infrastructure that was not prepared for ethanol in several areas of the county and those are really the things that have held back the market today," he said. Analysts have agreed the lack of infrastructure could be a lingering problem. "These constraints will likely take over 12 months to remove, suggesting (the bill's short-term) mandate of 8.5 billion gallons of ethanol blending in 2008 may be unattainable," Neil McMahon, a senior analyst at Bernstein Research, said in a research note late last week. LOOKING TO THE SOUTHEAST Broin said POET is well placed to supply ethanol markets that are likely to open soon in the rapidly developing U.S. Southeast. That includes Florida, the country's third largest gasoline market. Ethanol producers say that state alone could increase demand by 1 billion gallons per year, while other states like Georgia, Tennessee and North Carolina are also eyeing ethanol blending. POET is building five ethanol plants in Indiana and Ohio that could supply those markets. "Those will be closer to the Southeast markets than a lot of plants in the industry are today," Broin said. He said the new Southeast markets, as well as the development of smaller markets throughout the country, should help boost the price of ethanol and improve profit margins. Weak profit margins have lead to delays in the building of some U.S. ethanol plants in recent months. "We have seen a slowdown in construction (in the overall ethanol market) and I think once some of these new markets open up, we will see more balance in supply and demand, which should result in a more competitive price to gasoline," he said.