Brazil ethanol exports to U.S. at risk if EPA eases blend rule
U.S. imports of Brazilian sugar cane ethanol could be cut by more than half if a draft proposal to reduce next year's U.S. biofuel blending mandate is enacted.
While the U.S. corn-based ethanol industry has issued the most fierce complaints over news this week that the Environmental Protection Agency may ease volumes, it may be Brazilian ethanol producers like Raizen and traders like Royal Dutch Shell PLC and Vitol S.A. who suffer a deeper blow. Their import business has been booming thanks to the sugar-based fuel's treatment as an "advanced" biofuel under EPA regulations.
The EPA document - which is not yet finalized - calls for 2.21 billion gallons of the "advanced" biofuels, such as Brazilian sugar cane ethanol and biodiesel made from soybean and recycled cooking oils. That is down from 2.75 billion gallons this year and compares to 3.75 billion set by the 2007 law mandating higher ethanol blending volumes.
Some 1.28 billion of the 2.21 billion gallons is due to be derived from biodiesel, the same as this year, according to the proposal.
But because biodiesel has a higher energy content, suppliers get 1.5 blending credits for each gallon, rather than just 1 credit for each gallon of ethanol. The credits are required as proof that the gallons have been blended, and can be used to fulfill the overall "advanced" requirement.
As a result, some 1.92 billion of the credits could be generated from the biodiesel side of the "advanced" pool, leaving precious little room - just under 300 million gallons - for imports of Brazilian sugar cane ethanol.
"The document indicates a red light for Brazilian ethanol exports in 2014," Intl FCStone analyst Renato Dias told Reuters.
By contrast, the EPA has previously said that some 666 million gallons of Brazilian sugar cane ethanol would be needed to fulfill the advanced biofuel requirement in 2013.
The United States typically takes up to 80 percent of Brazil's ethanol exports.
Other Latin American countries, which are seeking greater production of ethanol for domestic use and for export, could see the EPA's action as a "red light", said Plinio Nastari, president of sugar and ethanol consulting firm Datagro.
"It will be a shame for all the countries that are developing ethanol markets, not just for Brazil," Nastari said.
Hope For Relief
For now, at least, the ethanol volume requirement remains fluid.
In a statement issued Friday, EPA administrator Gina McCarthy said the agency had not finalized its biofuel blending targets for 2014. However, she also did not dispute the authenticity of the draft proposal obtained by Reuters.
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