Bush's 20 in 10 Road Show

President touts energy plan; analysts skeptical

Published in CSP Daily News

WILMINGTON, Del. While energy analysts dissected his new plan, President Bush was in Wilmington, Del., yesterday following up on the energy initiatives laid out in Tuesday's State of the Union address.

There he toured DuPont's research, development and commercialization facility, speaking to more than 1,000 employeesincluding scientists who are developing biofuels and other alternative energy technologiesabout how to achieve his 20 in 10 plan to reduce U.S. gasoline consumption, which many analysts said is laudable but overly optimistic.

In the State of the Union address, the president announced the goal of reducing U.S. gasoline usage by 20% in the next 10 years to become less dependent on foreign oil. He said that America will reach the goal by increasing the supply of renewable and alternative fuels by setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017nearly five times the 2012 target now in law. In 2017, this will displace 15% of projected annual gasoline use.

He also called for reforming and modernizing Corporate Average Fuel Economy (CAFE) standards for cars and extending the current light truck rule. In 2017, this will reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5% reduction that, in combination with increasing the supply of renewable and alternative fuels, will bring the total reduction in projected annual gasoline use to 20%.

The president's plan also includes stepping up domestic oil production in environmentally sensitive ways and doubling the current capacity of the Strategic Petroleum Reserve (SPR) to 1.5 billion barrels by 2027. Doubling the SPR alone will provide approximately 97 days of net oil import protection, enhancing America's ability to respond to potential oil disruptions, said Bush.

The more dependent we are on oil from overseas, the more likely it is that somebody else's demand is going to affect what you pay at the pump for gasoline, the president said in Wilmington.

Rep. John Dingell (D-Mich.), who leads the House Energy & Commerce Committee, said in a statement, CAFE is an issue that needs to be addressed as well. I have not seen the president's proposal, but it sounds similar to one he made last year that did not fly. I do not want to prejudge it, however, as it may serve as a fine starting point upon which we can build. Biodiesel, ethanol and other renewable fuels are vital to this nation reducing its reliance on foreign oil. Vehicles that run on these fuels are being produced in record numbersright here in the United States. I agree with the President that we need to do more to increase their availability as an alternative to petroleum, but the president also needs to put pressure on the oil industry to get these alternative fuels into the hands of American consumers.

And the new energy plan faces serious economic obstacles and will do little to cut long-term U.S. reliance on foreign oil, analysts said on Wednesday, according to a Reuters report.

The plan, outlined by President Bush in Tuesday's State of the Union address, calls for the world's top energy consumer to cut gasoline use over 10 years through alternative fuels like ethanol and tighter vehicle fuel-efficiency standards.

But analysts said the plan would be costly and primarily reduce U.S. imports of gasoline, not oil from volatile regions such as the Middle East. "It would be gasoline imports that would be first hit, and we don't get much gasoline from the Middle East. We get it mostly from Europe and Latin America," said Sarah Emerson of Energy Security Analysis Inc.

In addition, the reductions outlined in the plan would not be sufficient to offset demand, which the U.S. Department of Energy estimates will grow from about 21 million barrels per day (bpd) now to 23.3 million bpd in 2017. "If you look at how many barrels of oil will be displaced, it is around 1.65 million [bpd], so I don't think we are really weaning ourselves from foreign oil," Emerson said.

Conversely, forecasts for a decline in domestic oil production over the same period foreshadow increasing dependence on imports. "Our domestic supply is relatively flat to ultimately declining, and that implies more imports going forward unless something pretty dramatic happens on the demand side," said Katherine Spector, vice president and head of energy research at JP Morgan Securities Inc.

Economic hurdles including a lack of transport infrastructure and high feedstock prices also loom. "We doubt the feasibility of the target," Deutsche Bank said in a research note. "Fully half of the goal is dependent on hugely expensive cellulosic ethanol/butanol."

U.S. producers have delayed or scrapped plans to build new ethanol plants this year that would double output by the end of 2008 as high corn prices erode profit margins and rising steel prices drive up construction costs. Analysts said U.S. farmers cannot produce enough corn to meet the ethanol target, which calls for production to jump from around five billion gallons per year now to 35 billion gallons per year in 2017; however, environmental regulations restrict the amount of ethanol that can be blended into gasoline since at concentrations over 10% it makes gasoline evaporate, causing smog.

"To meet the 35-billion-gallon goal, there is going to have to be gasoline blends with more than 10% ethanol introduced," said Don MacKenzie, a vehicle engineer with the Union of Concerned Scientists in Washington. The best way to achieve this goal, he said, was for the government to expand the use of unconventional fuels made of at least 75% ethanol. At this concentration, the ethanol blend does not produce smog like conventional fuels.

Carmakers currently have only limited incentives to produce vehicles that can burn fuels with the higher ethanol content, and analysts say it would be difficult for them to overhaul their fleets to build enough high ethanol cars in 10 years.

Meanwhile, the American Petroleum Institute (API) said of President Bush's State of the Union energy plan, Ethanol and other biofuels have an important role in our nation's present and future energy mix. Our industry exceeded its required ethanol volumes by 25% in 2006. As our nation's leading user of ethanol, oil companies are dedicated to playing a vital role in increasing the use of ethanol in the U.S. gasoline pool. Attaining the full volumes included in the Administration's proposal will require additional technological breakthroughs.

Click here to read the full text of API's statement.

And Charles T. Drevna, executive vice president of the National Petrochemical & Refiners Association (NPRA), said in a statement, Unfortunately, biofuels are not a panacea for America's supply problems, nor can they deliver on the much-touted promise of energy independence. NPRA is not opposed to the use of ethanol, biodiesel, E-85, or other alternatives, provided their use is based upon market-pricing and not mandates and subsidies, which we do not support. We believe that alternative fuels will be a growing part of the nation's energy supplies as their economic viability improves and technological progress continues. But this is a long-term factor. The near-term reality is that mandating a massive increase in ethanol usage far beyond the current capacity of 5.4 billion gallons is likely to impact corn prices, leading to unacceptable food price increases for those in society least able to afford them.

Click here to read the full text of NPRA's statement.

Click here for the full text of President Bush's remarks in Delaware.