SAO PAULO (Dow Jones)--California and Minnesota are keen to ramp up purchases of Brazilian ethanol in coming months, but there may be little chance that the U.S. government will quickly move to omit a lofty ethanol import tariff, said participants at a biofuels panel at Thursday's World Economic Forum meeting in Sao Paulo.
Analysts and traders forecast that the U.S. will be hit by a serious ethanol crunch in coming months, due to its phase-out of gasoline additive MTBE, which contaminates water supplies and has led state governments to boost initiatives to Brazil, the world's No. 1 ethanol exporter.
Brazil's Ambassador to the U.S., Roberto Abdenur, met with California governor Arnold Schwarzenegger and Minnesota governor Tim Pawlenty, and said both were interested in buying Brazilian ethanol.
California state senators arrived in Brazil on Friday to meet with the Brazilian Motor Vehicle Manufacturers Association, or Anfavea, according to company director Henry Joseph Jr.
One of the main objectives of the visit will be to visit ethanol production facilities and strengthen ties between California and Brazil, the Commerce Ministry said in a press statement Thursday.
California currently uses a 5.6% ethanol mixture in gasoline. While tight ethanol supplies this season, combined with the added technical difficulty of blending ethanol in the state`s summer gasoline, may mean the state will use other gasoline blends in coming months, a proposal to increase the ethanol blend to 10% in the near future is on the table.
Meanwhile, Minnesota, a top corn producer, also welcomes technological and other partnerships with Brazil's ethanol sector.
"Minnesota's governor doesn't consider Brazilian ethanol a competitor to corn ethanol. It's a contribution to it," Abdenur said, adding that the U.S. will face a corn ethanol shortfall in the months ahead to meet growing demand for cleaner fuel and a general reduction of petroleum use.
Still, when Abdenur asked U.S. Assistant Secretary of State for Business and Economic Affairs, Anthony Wayne, on Thursday when the U.S. would cut its excise tax on Brazilian ethanol imports, Wayne appeared lukewarm to Abdenur's suggestion.
The U.S. has duties of 54 cents-per-gallon on direct ethanol imports, as well as a 2.5% ad valorum tax.
Wayne responded to Abdenur saying only that "Brazil's ethanol and Argentina's compressed natural gas are good lessons for clean burning fuels," adding that the U.S. was more focused on unifying energy regulatory matters within energy trading partners, Canada and Mexico, at the moment. He did not say the U.S. was considering increasing imports of Brazilian ethanol.
However, the U.S. will increase corn ethanol use to 7.5 billion gallons a day by 2012, to meet targets in its 2005 energy bill, or double what it is now, Wayne said.
The U.S. is the world's largest producer of corn ethanol and Brazil is the world's largest producer of sugarcane ethanol.
But Brazil has an advantage over the U.S., as cane ethanol is far more energy-efficient to produce as corn ethanol.
It also costs 11 cents less per liter to produce, or roughly 20 cents a liter, according to Brazil's Commerce Ministry.
"The U.S. does not want to open its market to Brazilian ethanol," Mozart Queiroz, executive manager of energy development at Petrobras, Brazil's top oil and ethanol exporter, told Dow Jones Newswires.
Queiroz said other markets were more willing to increase imports, however, naming Costa Rica and the European Union.
At the same time, Trade Minister Luiz Fernando Furlan is in Japan this week to discuss ethanol with Japanese officials.
However, all this talk of Brazil significantly expanding ethanol exports may be preliminary, said local traders and analysts.
For the coming year, as Brazil's own local ethanol market booms, analysts and traders caution that at best the country's ethanol exports are likely to stay level this year to the roughly 2.6 billion liters sold in 2005. At worst exports could fall as low as between 1 billion and 1.5 billion liters.
Source: Kenneth Rapoza and Grace Fan, Dow Jones Newswires; 5511-3145-1488; kenneth.rapoza@dowjones.com