Rising oil prices spark interest in biofuels

But while biofuels are attracting more interest and generating more profits for farmers and fuel processors, they're not likely to have much impact on U.S. gasoline prices in the short term. The reason: There’s nowhere near enough biofuel production capacity to make a dent in gasoline consumption.

Last year, U.S. cars and trucks burned through some 3.6 billion gallons of ethanol — compared to about 140 billion gallons of gasoline. That’s means ethanol provided about 2.5 percent of the motor fuel consumed.

So why not just make more? Even over the long term, there are limits to how much biofuel production could be expended. Last year, the U.S. ethanol industry processed a record 1.26 billion bushels of corn into ethanol, about 11 percent of the nation’s total harvest. So even if the entire U.S. corn crop were diverted to ethanol production, total output would still account for less than quarter of gasoline demand. And ethanol's critics argue that converting an ever larger share of the U.S. corn harvest into ethanol will eventually drive up food prices.

Biodiesel producers in the U.S., meanwhile, cranked out about 25 million gallons last year, according to the National Biodiesel Board, a trade group. Production capacity stood at 110 million gallons a year in May, which is forecast to nearly double by May, 2006. But that compares with total highway diesel fuel demand of about 136 million gallons a day. That means that even if biodiesel makers ran their production plants flat out, they'd only be able to supply 2-tenths of one percent of overall diesel demand.

If you drove a truck from Portland, Ore. to Portland, Me., the share of fuel demand met by current biodiesel production would take you about 7 miles.

Put another way: If you drove a truck from Portland, Ore. to Portland, Me., the share of fuel demand met by biodiesel would take you about 7 miles — barely outside the city limits.

So while biofuels may help slow the rise in gasoline prices — and may provide an important fuel source in the long run — they won't provide enough new supply to have a meaningful impact on supplies for at least the rest of the decade.

To boost production, some alternative energy analysts believe other crops may be better suited for making biofuels. Research is currently underway on improving production processes and using naturally growing plants that require less energy to produce.

"We have to move to energy crops, which are switch grass and other crops that don’t require much tillage or fertilizer or pesticides and we’re growing really well in research plots," said Dr. Marilyn A. Brown, Director of the Energy Efficiency and Renewable Energy Program at the Oak Ridge National Laboratory.

Other countries' biofuel programs may offer some lessons for U.S. makers. Brazil makes about 3.5 billion gallons of ethanol a year with sugar cane — about half the world's total output. Some 90 percent is used at home, where cars run on a 25 percent ethanol gasoline blend, the rest is exported. Brazil's president has been quoted as saying the country could double ethanol output over the next few years to meet demand from other countries.

Europe produces 20 times more biodiesel than the United States — largely because a much bigger share of European cars run on diesel. The EU recently forecast that biodiesel consumption will more than double by 2006 to about 29 million barrels. That's still a small fraction of the 2.1 billion barrels of conventional diesel consumed in Europe last year, according to the International Energy Association.

Still, the global growth in biofuel demand is attracting attention from some unlikely producers. A British firm named D1 Oils, which has developed a biodiesel process using an oil-rich crop called jatropha, is partnering with biodiesel producers around the world. The list includes a joint venture in Saudi Arabia that plans to begin making biodiesel by late next year. Expected output: Roughly 2 million gallons a year.

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