Reuters writer Andrew Stern http://uk.reuters.com/article/oilRpt/idUKN092540102007110…
reported on Friday that, “The [biofuels] industry has created tens of
thousands of jobs in Iowa — and more than 150,000 across the United
States — and is credited with lifting the prices paid to farmers for
their crops, and even eased the pain at the gas pump.”

“But all is not well in the biofuels industry,” the article said.

Mr. Stern indicated that, “Ethanol plants in Iowa, the leading U.S.
state for both corn and ethanol production, are struggling to make a
profit despite soaring oil prices. A few plants on the drawing board
have halted construction as price margins have shrunk due to a doubling
of corn prices to near 10-year highs. Demand from ethanol producers
consumed a quarter of the U.S. crop.”

And Monica Davey http://www.iht.com/articles/2007/11/11/business/ethanol.php
, writing yesterday at the International Herald-Tribune Online, in an
article datelined from Sparta, Wisconsin, reported that, “For years,
the arrival of an ethanol distillery in agricultural America was
greeted mainly with delight, a ticket to the future in places plagued
by economic uncertainty. But in the country’s middle, the engine of the
ethanol industry, the glow is dimming.

“In Kansas, Illinois, Indiana, Minnesota and even Iowa, the largest
corn and ethanol producer in the United States, this next generation
fuel finds itself facing the oldest of hurdles – opposition from
residents who love the idea of an ethanol distillery someplace else.”

The IHT article stated that, “‘There is a campaign of sorts that is
seeking to slow and preferably to stop the growth of the ethanol
industry,’ said Matt Hartwig, a spokesman for the Renewable Fuels
Association, a trade group based in Washington. ‘We have to get through
a barrage of mud pies to get our message out.’

“These are not the better-known philosophical opponents to ethanol,
those who question the efficiency of corn-based ethanol as an energy
source, blame ethanol for rising food prices or disagree with the
national subsidies that have long held up the industry.

“These people are farmers. Or they know a farmer. Or their grandfather
was a farmer and, as in so many farm families, ethanol has offered new
promise for a fading town. The biggest complaints concern are an
increase in noise, traffic, odor, emissions and demand on the water
system.”

The article noted that, “The local strife coincides with what is
already a moment of tumult for the ethanol industry. In recent months,
an enormous crop of corn and, thus, supply of ethanol, has glutted the
market, sinking the price of ethanol and sending a chill through the
ethanol boom.”

In a related article regarding water and ethanol production, Jessica Resnick-Ault http://online.wsj.com/article/SB119463308254088182.html
reported in today’s Wall Street Journal that, “Ethanol plants sprouting
up across the Corn Belt have brought with them some of the best
financial opportunities seen in those areas in a generation.

“Producers of ethanol have pumped nearly $14 billion into a wide array
of businesses, and the resulting economic boost has created more than
40,000 jobs since the corn-based gasoline additive gained popularity
two years ago.

“At first glance, ethanol may seem like a panacea for a weak economy in the Midwest.

“But critics point to hidden costs associated with the new ethanol
plants: rising corn prices for consumers, gasoline that gets fewer
miles per gallon, and, perhaps most ominous, potential water shortages.”

The Journal stated that, “The amount of water needed to grow the corn,
process the fuel and dispose of the waste at a small ethanol plant is
about equal to the water needs of a town of about 10,000, according to
an Environmental Defense Fund report. And although the next five to 10
years may not see major changes to the Plains region’s water levels,
long-term implications could be severe, says a study from the National
Research Council, a Washington, D.C.-based public-policy research
institute.”

The article also pointed out that, “Significant technical innovations
are required to reduce the amounts of water that ethanol plants
consume. One ethanol plant designer, Delta T Corp., based in
Williamsburg, Va., says it has created a system that will reduce
consumption to just one-and-a-half gallons of water per gallon of
ethanol, down from four gallons of water.”

Despite some of the potentially problematic issues pointed out in these
articles, changes in federal law could be a positive boost for the U.S.
ethanol industry.

Faith Bremner http://www.argusleader.com/apps/pbcs.dll/article?AID=/20… 
reported in today’s Argus Leader (South Dakota) that, “The cure for the
recent slowdown in South Dakota’s booming ethanol industry could hinge
on a proposal in Congress to require oil companies to add more ethanol
to their gasoline.

“Ethanol producers and their investors are ‘getting real jittery’ about
putting more money into ethanol plants as long as the federal
government’s requirement for ethanol sales at gas stations nationwide
tops out at 7.5 billion gallons, Sen. John Thune, R-S.D., said Friday.”

Ms. Bremner added that, “Last week, Thune joined with two other
senators in introducing an amendment to the farm bill that would
gradually increase the requirement, which is known as the renewable
fuel standard, to 36 billion gallons by 2022.”

The Argus Leader article went on to explain that; “The Senate passed an
energy bill in June that would raise the standard to the 36 billion
gallons by 2022.

“But the House passed a similar bill in August, without the increased standard.

“Texas Sens. John Cornyn and Kay Bailey Hutchison, both Republicans,
have blocked the bills from going to a House-Senate negotiating
committee for reconciliation because of concerns over the renewable
fuel standard and tax provisions that would affect oil refineries in
their state.

“While Thune and others are eager to graft the higher fuel standard
onto the farm bill, some Senate Democrats are reluctant to see it
separated from the energy bill.

“Sen. Tim Johnson, D-S.D., co-sponsored Thune’s farm bill amendment, despite wanting to keep the energy bill intact.”

Wall Street Journal writers Ian Talley and Beth Heinsohn http://online.wsj.com/article/SB119463316090988184.html?… provided additional analysis regarding the House and Senate versions of the energy bill in today’s paper.

“The House and Senate have passed separate energy bills and are now
working on combining the two into final legislation that could come up
for a vote by the end of the year,” the authors said.

The Journal article further stated that, “Both bills are designed to
lessen American reliance on foreign oil, in part by mandating far
greater use of corn-based ethanol and so-called cellulosic ethanol,
which is made from biomass like grasses and wood chips. The Senate bill
also calls for higher fuel-economy standards.

“Here’s the catch: Anything that creates uncertainty about demand for
gasoline over the long term means less incentive for refiners in the
U.S. to expand their capacity. And that means greater reliance on
gasoline imports in the near term, at least until ethanol becomes a
mainstream fuel. And that, of course, is the opposite of energy
independence.”

The authors added that, “‘It’s safe to say that our imports of gasoline
will be steadily increasing over the next several years,’ says Adam
Robinson, an energy research analyst at Lehman Brothers. ‘The big
question is whether or not we can make that silver-bullet jump to
cellulosic, and also whether or not we can develop the downstream
systems to deliver the ethanol.’

“Already, imports are satisfying an ever-larger share of America’s
thirst for gasoline. As of August, imports stood at 11.4% of demand, up
from 9.4% in the same month in 2002 and 5.5% in July 1998.”

With respect to the “silver-bullet jump to cellulosic” ethanol production, Reuters writer Timothy Gardner http://www.reuters.com/article/reutersEdge/idUSN082646422… 
reported on Thursday that, “New plants the biofuels industry has touted
as potential sources of green domestic fuels pose risks as aggressive
weeds that could damage farms and other ecosystems.

“Botanists like Richard Mack at Washington State University said the
new crops must be considered to help ease tightening oil supplies, but
that they should be studied carefully before the nascent industry
develops the new energy source.”

Later, the article stated that, “Many plants that had been introduced
as beneficial species have had long-term costs due to their
aggressiveness. A recent paper on biofuels in ‘Science’ magazine said
Johnsongrass, a type of sorghum, has become an invasive weed in 16 U.S.
states and costs cotton and soybean farmers in three states a
conservative estimate of $30 million annually.

“Switchgrass is native in the eastern United States, but it is unknown
how it would mingle with ecosystems in the rest of the country, said
Jacob Barney, a scientist at University of California at Davis and
co-author of a report this week on the risks of new biofuels by
non-profit group, Council for Agricultural Science and Technology
(CAST).

“John Ferrell, a U.S. Department of Energy biofuels expert, said any
risk of new feedstocks to places where they are not native could be
lessened by government cooperation in regulating them.”

In opinion regarding U.S. energy policy and ethanol production, The Wall Street Journal editorial board http://online.wsj.com/article/SB119482533176389532.html?m…
stated in today’s paper that, “Like water seeping out of the giant High
Plains Ogallala aquifer, support for corn ethanol seems to be ebbing in
Congress. As political news goes, this is of the miracle variety, but
apparently the market distortions caused by ethanol mandates are
finally having an impact.

“‘We’re in a strong position,’ says Senator John Cornyn, the Texas
Republican who is blocking a conference on the energy bill because the
House version contains billions in new oil taxes to be spent on ethanol
subsidies. Meanwhile, in the House, there’s opposition to the Senate’s
mandate to increase ethanol production by 30 billion gallons annually
by 2022.”

The Journal editorial added that, “Last month, the National Academy of
Sciences reported on the impact of ethanol production on water
supplies. A University of Iowa professor chaired the report committee,
so Big Corn might have hoped for a home-court advantage. But NAS
reported that, ‘in some areas of the country, water resources are
already significantly stressed . . . Increased biofuels production will
likely add pressure to the water management challenges the nation
already faces as biofuels drive changing agricultural practices,
increased corn production, and growth in the number of biorefineries.’
When ethanol is criticized by scientists at Iowa’s two largest state
universities, you have to wonder who is for it.”