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Warning of Oil and Gas Crunch in Five Years

posted on July 13, 2007


One of the primary reasons Brazil is questioning U.S. farm subsidies centers on alternative fuels.

The South American nation is the planet's second largest producer of ethanol, trailing only the United States. It also is the world's top sugar producer, and the leading exporter of ethanol made from sugarcane.

The renewable fuel sells for about half the price of gasoline in Brazil, where eight of every 10 new cars are "flex-fuel" models that can run on ethanol, gasoline or any combination of the two.

Despite criticisms that increased production of alternative fuels could lead to further clearing of the Amazon rain forest, the industry -- like its American counterpart -- is expanding at breakneck pace.

That may, in fact, be a good thing for the U.S., if you believe the warnings heard this week of a serious oil shortage looming on the horizon.

Warning of Oil and Gas Crunch in Five Years

An international agency that acts is an energy policy advisor to 26 countries, including the U.S., warned this week of a global oil and gas crunch due to unforeseen demand and inadequate supply from OPEC and other suppliers.

In an oil market report, the International Energy Agency, or IEA, warned that the oil supply looks extremely tight over the next five years. The assumption is based on a 2.2 percent annual increase in global oil demand powered by economic growth – which the Paris-based agency forecasts at 4.5 percent per year.

The IEA does not forecast oil prices, but the scenario points to higher prices at the gas pump. Oil prices flirted with contract highs over $70 for the past two weeks.

Being at the mercy of foreign oil, of course, has been much of the impetus behind the U.S. ethanol industry's rapid growth. According to the Renewable Fuels Association, America is home to nearly 120 plants which produce just under 6.2 million gallons per year.

The vast majority of U.S. ethanol is made from corn. But Reuters (ROY ters) news service reported this week that the House Agriculture Committee is considering a proposal to allow cane and beet sugar – protected as a "food" under the government's sugar program – to be used for ethanol. The USDA would set marketing allotments "for domestic human consumption" of sugar for the 2008-12 crop years. Sugars sold "for uses other than domestic human consumption" would be excluded from the limits.

The news report says a related measure would allow USDA to purchase raw, refined or in-process sugar from growers and sell it to bioenergy producers – if it would help the sugar program operate at no net cost to taxpayers.

The move signals a change for the government sugar program, which historically has treated the commodity solely as a food.

 


Tags: biofuels future news oil