Bioethanol, Gasoline Prices, the U.S. Senate and the Law of Unintended Consequences

The Senate is debating an energy bill this week that among other things would mandate that the U.S. use 36 billion gallons of ethanol as transport fuel by 2022. This proposal is already having an interesting effect on future oil refinery capacity. The AP reports:

With President Bush calling for a 20 percent drop in gasoline use and the Senate now debating legislation for huge increases in ethanol production, oil companies see growing uncertainty about future gasoline demand and little need to expand refineries or build new ones.

Oil industry executives no longer believe there will be the demand for gasoline over the next decade to warrant the billions of dollars in refinery expansions—as much as 10 percent increase in new refining capacity—they anticipated as recently as a year ago….

With the anticipated growth in biofuels, "you're getting down to needing little or no additional gasoline production" above what is being made today, said Joanne Shore, an analyst for the government's Energy Information Administration.

In 2006, motorists used 143 billion gallons of gasoline, of which 136 billion was produced by U.S. refineries, and the rest imported.

Drevna, the industry lobbyist, said annual demand had been expected to grow to about 161 billion gallons by 2017. But Bush's call to cut gasoline demand by 20 percent—through a combination of fuel efficiency improvements and ethanol—would reduce that demand below what U.S. refineries make today, he said.

"We will end up exporting gasoline," said Drevna.

Asked recently whether Chevron Corp. might build a new refinery, vice chairman Peter Robertson replied, "Why would I invest in a refinery when you're trying to make 20 percent of the gasoline supply ethanol?"

Again, if bioethanol is such a good idea for fueling cars, why does it need to be mandated and/or subsidized? Whole AP story here. Read it and weep.