Ethanol blend increases while oil reaches new low

Lower oil prices aren't taking the wind out of the sails for biofuels in the U.S.

The U.S. Environmental Protection Agency said today that the gasoline supply must contain a 10.21 percent blend of ethanol, giving a boost to an industry awash with bad news in recent weeks.

The new mandate for 2009 means a market for 11.1 billion gallons of biofuel next year.

Since December 2007, the government has increased biofuel requirements to ease the cost of the rapid rise in fuel costs. But today, crude oil futures closed at $54.95 a barrel—the lowest level in 22 months.

Before today's announcement, the ethanol industry pushed lawmakers to increase the blend to between 15 percent and 20 percent. The current mandate calls for a 7.76 percent blend, which is helping to create a market for 9 billion gallons of biofuel this year.

The 10.21 percent blend is still above what some carmakers say is safe for unmodified engines. However, the U.S. Department of Energy says American-made vehicles can use fuels with as much as 15 percent ethanol without requiring engine modifications.

The growing market for ethanol comes as big names in the industry are struggling, most notably Brookings, S.D.-based VeraSun Energy (NYSE: VSE) (see VeraSun reportedly near bankruptcy). 

There are 160 ethanol producers in the U.S., up from 57 last year, according to the Federal Trade Commission. The largest producers account for about 11 percent of U.S. ethanol production compared with 16 percent in 2007.

Ethanol makers using corn as a feedstock have been hurt by higher prices (see Using superpowers for the greater cleantech good). But now, corn prices have dropped to about half of what they were in late June.

By 2022, the government expects the mandate to create a market for 36 billion gallons of biofuel annually.

The American Coalition for Ethanol says that ethanol is blended into 70 percent of the fuel sold nationwide.

The U.S. and South America will account for 66.5 percent of ethanol sales in 2008, according to a new report from Global Industry Analysts.

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