US Department Of Energy Mulling Creating Ethanol Reserve

WASHINGTON (Dow Jones)–As the U.S. Energy Department looks to expand the nation’s emergency oil stockpile, officials are also considering whether it would be beneficial to create an ethanol reserve.

“Perhaps we should be thinking about having an ethanol reserve,” Energy Secretary Samuel Bodman told reporters Monday during a press briefing to discuss DOE’s fiscal year 2008 budget proposal. “There are a number things we are looking at.”

Bodman said there are several ideas being discussed as the Bush administration moves to expand the strategic petroleum reserve. The plan is to double the size of the oil stockpile, increasing it from its current capacity of 727 million barrels to 1.5 billion barrels in the next two decades.

Administration officials are also considering whether there should be storage sites built in areas outside of the Gulf Coast, Bodman said. For the first time, new reserve sites could be built west of the Rockies or on the West or East coasts, a DOE official said last week.

Aside from considering new locations for SPR sites, another question on the table is “should we have an expansion in the type of fuel,” Bodman said, noting that the idea might have merit given the administration’s newly announced goal of reducing gasoline use 20% in the next 10 years. To meet that goal, the administration is proposing to increase use of ethanol and other alternative fuels.

Still, a congressional and regulatory affairs director at the Renewable Fuels Association, a trade association for the U.S. ethanol industry, said she doesn’t see a need for an ethanol reserve anytime soon.

“I can’t image them doing that in the near-term,” said Samantha Slater, noting that an ethanol reserve is certainly not on the industry’s agenda. “We’re using every drop.”

“Having a reserve would generally imply we have some we could put in reserve,” she said, adding that that’s not the case. “At this stage of the game, that’s probably not something that would be particularly effective.”

At the same time, experts have noted infrastructural challenges inherent in the creation of an ethanol stockpile, noting in particular storage and transportation capacity.

Ethanol has a corrosive effect on pipelines so it must be shipped by rail, truck or ship to fuel terminals where it is blended with gasoline before going to service stations.

Just last spring, concerns about marketers’ ability to move and store adequate amounts of ethanol for blending with gasoline accompanied a large-scale phase-in of the fuel additive and spurred higher prices for months.

The addition of a reserve might require the construction of new storage tanks, said Rick Kment, an ethanol analyst with Omaha-based DTN, a commodities news service. Storage tanks for other fuels can be used to hold ethanol but whether there are enough existing tanks in a given location is another issue, he said.

By Maya Jackson Randall, Dow Jones Newswires