Obama administration proposes cutting 2014 biofuel mandate


* U.S. fuel supply hitting so-called "blend wall"

* EPA seeks about 16 pct cut in overall renewable fuels goal (Adds quotes from EPA, details on overall range)

By Timothy Gardner

WASHINGTON, Nov 15 (Reuters) - The Obama administrationproposed on Friday to slash federal requirements for U.S.biofuel use in 2014, partially bowing to pressure from thepetroleum industry and attempting to prevent a projected fuelcrunch next year.

The Environmental Protection Agency proposed to cut overalluse of renewable fuels - made mostly from U.S. corn and to alesser extent from soybeans, grasses, crop waste and Braziliansugar cane - to a range of 15 billion to 15.52 billion gallons.

With that range the agency proposed a goal of 15.21 billiongallons, which is more than 16 percent less than the previous18.15 billion gallons contained in the law that governs theRenewable Fuel Standard (RFS), and below the 2013 level of 16.55billion gallons.

The proposed goal matches the number in a draft that wasleaked and circulated in October.

The EPA's proposal to reduce the renewable fuels targets isa partial win for the petroleum industry but a loss for biofuelproducers, and followed a prolonged lobbying blitz on both sidesof the issue.

The plan follows the agency's warnings that the country wasapproaching a point when the RFS would require the use of moreethanol than can be blended into gasoline at the 10 percentlevel that dominates the U.S. fueling infrastructure.

Refiners have said this impending "blend wall," if left inplace, would force them to export more fuel or produce lessgasoline, leading to shortages and higher prices at the pump.

U.S. gasoline demand had been expected to rise every yearwhen Congress passed the Renewable Fuels Standard in 2007, butit peaked in 2008 and has been anemic since - partly becausefuel efficiency of U.S. cars and light trucks has risen.

"This unanticipated reduction in fuel consumption brings usto the point where the realities of the fuel market must beaddressed to properly implement the program," a senioradministration official told reporters in a teleconference aboutthe proposal.

The EPA's proposal falls short of a request from two majoroil and gas trade groups to lower the 2014 renewable fuel usetarget to 14.8 billion gallons.

The plan cuts the 2014 advanced biofuel use target to arange of 2.0 billion to 2.51 billion gallons.

The agency did not propose a specific 2014 volume forethanol made from corn.

But the proposed change in advanced biofuels implies a cornethanol mandate of 12.7 billion to 13.2 billion gallons downfrom the previous 2014 mandate of 14.4 billion gallons.

Chicago corn futures fell to new lows for the day, down 1.1 percent at $4.21-3/4 per bushel, although the impactwas muted because Friday's announcement was similar to theleaked proposal from October. Prices this month hit their lowestpoint in more than three years.

The EPA expects to release a final rule next spring after a60-day public comment period. (Reporting by Timothy Gardner; Editing by Ros Krasny,Bernadette Baum and Bob Burgdorfer)


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