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    Senate Votes to End $5B Ethanol Subsidy, But It May Not Become Law

    E15 to make its way to pumps slowly; Brazil ethanol will be needed more, according to Hart Energy Webinar.

    WASHINGTON, D.C. and HOUSTON -- The U.S Senate voted to end the $5 billion ethanol subsidy, but several media sources are skeptical the vote will ever become law. According to the Christian Science Monitor, "The Obama administration has said it would veto any attempt to cut subsidies for ethanol producers entirely."

    The New York Times added, "It's clear that a combination of pressures to cut the deficit, concerns about food prices and clearer information about the dubious merits of most existing methods of producing ethanol has overcome the political heft of farm states."

    The Senate vote served as a backdrop for a Hart Energy Webinar held this morning, titled "Renewable Ethanol 2011-2015: Navigating the Rapids." The Webinar, presented by Scott Richman, executive director, global biofuels and agriculture, for Hart Energy, revealed that adoption of E15, a fuel that contains 15 percent ethanol, will be adopted slowly until 2015.

    "We may see rare amounts of E15 at fuel pumps by Christmas," said Richman. Next year, he expects 7 percent of fuels to contain the blend. That figure could rise to 29 percent by 2015. "There are legal and regulatory issues involving E15," he said. "The largest petroleum companies are expecting to wait on the sidelines while it all plays out. Smaller companies will be the ones to adopt E15 sooner."

    A big change that will be seen in the next four years is large quantities of sugar cane-based ethanol imported from Brazil. "Brazillian ethanol can serve U.S. and European needs," Richman said. "But the price will be higher than U.S. ethanol. Demand in Brazil itself, as well as around the world, will cause those higher prices.

    Speaking of pricing, Richman predicted the price of all ethanol would remain high, but not as expensive as crude oil. "We expect the demand for crude oil to increase by 15 million barrels worldwide by 2020," he said. "Prices in the near term will remain high, but not as high as now. We expect crude oil prices in the low $90 range (per barrel) in the near term."

    West Texas Intermediate crude oil prices have ticked down recently, with a figure slightly north of $93 this morning. However, crude prices will continue to rise over the next four years, Hart Energy research predicted. "We expect to see prices of $108 to $110 per barrel by 2015," Richman said. "We expect prices to be even higher by 2020. OPEC will continue to be influential. Saudi Arabian output will especially be huge when it comes to oil prices."

    In addition to the E10 currently used and E15 that will become prominent if safety and regulatory hurdles are overcome, "advanced" biofuels may make some headway down the road, according to Richman. But how much? Perhaps the most prominent advanced biofuel is called cellulosic.

    "Will they be ready for primetime by 2015?" Richman asked. The answer, he said, is "no."

    "Cellulosic and other advanced biofuels will not be able to meet demand or government mandates in the next nine years," he said. Therefore, advanced biofuels seem to be far from making a huge market impact. "We only anticipate 200 to 800 million barrels of it to be available by 2020," said Richman. "That will not meet demand …The problem with cellulosic and other advanced biofuels is it is hard to finance the initial plant that produces it. It costs between $300 to $400 million to open a plant. That's much higher than the cost to open a corn-based plant."

    Hart Energy is a publisher specializing in data and information products and services.

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