Information on ethanol expansion in the United States has been overwhelming. What we have not seen a lot of is the trend of ethanol outside the United States.
Enormous opportunities, as well as challenges, face the global ethanol market. Some countries are embracing expansion with more vigor than others.
As the accompanying chart shows, Brazil has been the global leader in ethanol production for many years and continues to ramp up the production of ethanol from sugar cane in anticipation of growing worldwide demand for biofuels.
The United States has caught up with Brazil, relying primarily on corn as the feedstock. Growth in the United States has started to slow as profit margins have declined; high construction costs and a lack of infrastructure to blend large amounts of ethanol with gasoline have also limited growth near-term.
The first phase of the global ethanol industry is the one that we have just witnessed in the United States, bringing rapid expansion in isolated areas. Thus far the U.S. production growth has been concentrated in the Midwest, where the vast majority of the corn is grown.
The basic problem is that roughly 80 percent of gasoline use in the United States is on the two coasts.
In the second phase, which has already started to some extent, the globalization of the ethanol market and the switch to multiple and lower cost feedstocks take place. The economics are in place to encourage research to find better and cheaper ways to produce and utilize ethanol. Once that happens the export market will open up — something Brazil is counting on.
In the third phase, advanced technology will kick in and make large-scale, commercial production of cellulosic ethanol possible. Corn-based production of ethanol will not end, but it could be relatively minor compared to total global ethanol production.
That, of course, depends on which country you are looking at. It's full speed ahead for ethanol expansion in Brazil. The United States is also on a steep growth curve, but it has flattened out over the past couple of months.
The combination of higher grain prices and lower ethanol prices has halted the construction of a few plants and forced developers to shelve plans for other facilities. This might just be a temporary slow down, but economics still win in the long run.
China, India, Europe and a host of developing nations would like to become major ethanol players. Because of strong food demand, China has restricted new construction of ethanol plants to plants that utilize non-food producing feedstock. This will virtually kill China's plans to produce over 700 million gallons of fuel ethanol per year by 2010.
Australia shelved plans to build two ethanol plants in October. European expansion continues in biodiesel production, but ethanol growth has been limited by high feed grain prices.
India, even with a rapidly growing economy, might not have the resources to quickly build the biofuels industry of its dreams.
The ethanol industry is here to stay and long-term it will be a booming market worldwide. However, we are likely witnessing the first bump in the road for this emerging industry. These adjustments will be taken care of in time and the industry will stabilize, grow and become more efficient.