US imports of Brazilian sugar cane ethanol could be cut by more than half if a draft proposal to reduce next year’s US biofuel blending mandate is enacted.
While the US 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. There 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 finalised - calls for 2.21bn gallons of the “advanced” biofuels, such as Brazilian sugar cane ethanol and biodiesel made from soybean and recycled cooking oils.
That is down from 2.75bn gallons this year and compares to 3.75bn set by the 2007 law mandating higher ethanol blending volumes. Some 1.28bn of the 2.21bn 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 1.92bn of the credits could be generated from the biodiesel side of the “advanced” pool, leaving precious little room - just under 300mn 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 666mn gallons of Brazilian sugar cane ethanol would be needed to fulfil the advanced biofuel requirement in 2013.
The US typically takes up to 80% 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.”
For now, at least, the ethanol volume requirement remains fluid.
In a statement issued on Friday, EPA administrator Gina McCarthy said the agency had not finalised its biofuel blending targets for 2014. However, she also did not dispute the authenticity of the draft proposal obtained by Reuters.
The Brazilian Sugarcane Industry Association breathed a sigh of relief at McCarthy’s statement.
“Brazilian sugar cane ethanol producers are pleased to see Administrator McCarthy confirm there have been no final decisions on the renewable fuel standards for 2014,” the association’s North America representative, Leticia Phillips, said in a statement.
“We trust that EPA’s final targets for advanced biofuels will both recognise and help foster the tremendous growth occurring in this industry,” she said.
Thanks in large part to the US ethanol blending mandates, and a California law that incentivizes the use of the fuel, Brazilian sugar cane ethanol exports have been growing in recent years.
Brazil’s ethanol exports for 2013 through September totalled 605mn gallons, up 27% from 476mn gallons exported over the same period last year, Brazilian Trade Ministry data show.
But exports have begun to slow in recent months, with September exports totalling 78mn gallons, down significantly from the 128mn exported in August and the 127mn shipped in September last year, the data show.
The trading arm of European oil major Royal Dutch Shell Shell, investment bank Morgan Stanley Inc and Swiss oil trader Vitol S.A. are the top three importers of ethanol into the US so far this year, data from the US Energy Information Administration show.