Oil majors question Bush biofuel plan

from CNN Money.com

Oil majors question Bush biofuel plan
Exxon, Chevron CEOs say technology to increase biofuel production remains well out of reach.
February 15 2007: 12:13 PM EST

HOUSTON (Reuters) -- Top U.S. energy companies are skeptical President Bush's plan to boost biofuels production can wean the world's largest consumer off fossil fuels because the technology needed remains well out of reach.

Oil majors like Exxon Mobil Corp. (down $0.44 to $75.16, Charts) and Chevron Corp. (down $0.58 to $71.61, Charts), specialists in harvesting energy with drill bits and not plows, are damping the exuberance of U.S. farmers eager to reap the benefits of surging demand for corn-based ethanol.

In his State of the Union speech in January, Bush floated a plan to raise U.S. biofuels production five-fold by 2017 to help reduce reliance on Middle East oil.

A biofuels startup can't deliver on its promises
But top oil executives wonder if the plan, requiring more corn-based fuel production along with a breakthrough in cellulosic ethanol from non-food sources like switchgrass and wood chips, is feasible.

"I don't know much about farming and I don't have a lot of technology I can add to moonshine," Exxon Mobil CEO Rex Tillerson told an oil conference hosted by Cambridge Energy Research Associates this week.

"(Biofuels production) is going to be limited in terms of its scale, absent some significant technological breakthroughs," Tillerson said.

U.S. Energy Secretary Sam Bodman admitted the administration was setting an ambitious target.

"That is precisely the point," Bodman said. "This is the definition of an aggressive challenge. If we are to truly expand our energy horizons, then we must set the bar high."

The government has set aside $375 million to fund bioenergy research centers to reach the goal of using 35 billion gallons of biofuels in 2017.

New technology
Dave O'Reilly, chief executive of No. 2 U.S. oil firm Chevron, said that if no advances are made in cellulosic ethanol, the United States will not be able to get beyond 15 billion gallons of ethanol per year.

The U.S. uses around 140 billion gallons of gasoline per year now. O'Reilly said a practical plan would be to require ethanol in 10 percent of U.S. gasoline supplies.

"To get beyond that requires technology that has not yet been invented," he said.

Other industry officials are less restrained in pointing out sizable hurdles.

"Cellulosic ethanol is all about cooking up the right enzymes. When you get into that area it is basically a Holy Grail-area rather than a known science area," said Matt Simmons of Houston-based energy investment bankers Simmons & Co.

But whether biofuels can stand up under cost analysis, they are here to stay, said Ed Morse, chief energy economist at Lehman Brothers in New York.

"It smacks of good environmental policy. It smacks of good energy security policy, but especially smacks of good agricultural lobbying, and this is a momentum that is not going to turn around," Morse said.

Experts said there is some hope for additional imports from Brazil, the globe's lowest-cost ethanol producer, though a current 54-cent-per-gallon tariff on ethanol imports is keeping a lid on shipments.

"Clearly Brazil is the big player - they have most of the land," said Aaron Brady, an ethanol expert at CERA.

Bodman said the tariff is unlikely to change before its current planned expiration at the end of 2008.