Weather risks cloud promise of biofuel

Friday, July 11, 2008

From an article by Jad Mouawad in The New York Times:

The record storms and floods that swept through the Midwest last month struck at the heart of America’s corn region, drowning fields and dashing hopes of a bumper crop.

They also brought into sharp relief a new economic hazard. As America grows more reliant on corn for its fuel supply, it is becoming vulnerable to the many hazards that can damage crops, ranging from droughts to plagues to storms.

The floods have helped send the price of ethanol up 19 percent in a month. They appear to have had little effect on the price of gasoline at the pump, as ethanol represents only about 6 percent of the nation’s transport fuel today.

But that share is expected to rise to at least 20 percent in coming decades. Experts fear that a future crop failure could take so much fuel out of the market that it would send prices soaring at the pump. Eventually, the cost of filling Americans’ gas tanks could be influenced as much by hail in Iowa as by the bombing of an oil pipeline in Nigeria.

“We are holding ourselves hostage to the weather,” said John M. Reilly, a senior lecturer at the Massachusetts Institute of Technology and an ethanol expert. “Agricultural markets are subject to wide variability and big price spikes, just like oil markets.”

Three years ago, Americans discovered that the vicissitudes of the weather could have a powerful effect on energy prices when two hurricanes struck the Gulf Coast. Hurricanes Katrina and Rita interrupted a quarter of the nation’s oil production and closed dozens of refineries for weeks. Lines formed for the first time since the 1970s as gasoline spiked above $3 a gallon, a record at the time. The nation’s increasing dependence on crops for motor fuel adds another level of vulnerability from the weather.