DES MOINES (DTN)--Two tanker ships full of imported Brazilian ethanol arrived recently at a New York harbor and U.S. ethanol industry officials are at a loss to explain why imports are necessary since domestic ethanol production continues to set records.

At best guess, the ships are carrying between 14 to 16 million gallons of Brazilian ethanol, about one third of the average annual production from a farmer-owned Iowa plant. Brazil, with annual production at 4 billion gallons a year, is the largest ethanol producer in the world.

Monte Shaw, spokesperson for the Renewable Fuels Association (RFA), is unsure why U.S. gasoline refiners are bringing in ethanol. But, he says nationwide ethanol use is booming.

"I'm not sure what the driving force to bring this stuff up here is," Shaw said. "Keep in mind the ethanol industry now has large markets to serve like California, New York and Connecticut. Plus, Denver and the Seattle markets are starting to use ethanol. Year round demand is increasing."

Overall, the U.S. is on track to burn 3.5 billion gallons of ethanol this year, using over 1 billion bushels of corn, according to Shaw. Domestic production has increased by 32 percent over last year and by 91 percent since 1999.

Statistics indicate the U.S. ethanol industry can provide up to 207,000 barrels of ethanol a day with 72 ethanol production facilities in 20 states. Seven new facilities opened in 2003 and 15 more are under construction.

The Brazilian ethanol imports should send a signal to the U.S. Congress to get moving on energy legislation, said Martin Barbre of the Illinois Corn Growers Association (ICGA).

"We think the imports are a product of not getting the energy bill in place in this country," he said.

East Coast companies would need to import ethanol if supply was short, Barbe said. "The market needs to be supplied," he said. "It may not be all bad" because it indicates growing demand. However, Barbre says domestic producers can meet that demand.

"This sends the wrong message to consumers and says we can't supply the market, but we can. It's there," he said.

Since last year the U.S. ethanol industry has added over 1 billion gallons of production capacity with another 500 million gallons coming on line this year.

"We could have increased more if the political picture on an energy bill was clearer," Shaw said. "Will the energy bill get passed? Will California and New York be granted their waivers allowing them to not have to use ethanol in blended gasoline? [These] are some of the questions that remain."

Shaw added, "So, in the meantime, if there is a refiner that says we are going to go to Brazil and get some ethanol, that's fine because otherwise we could have given up marketshare in the U.S. for ethanol."

Current proposed energy legislation would double the amount of ethanol used by refiners by 2010.

Sen. Chuck Grassley, R-IA, when asked if the energy bill was dead for the year, told reporters this week he didn't think so.

"Democratic leaders from farm-states can gather needed support for other non-ag issues. You would think they could get the few votes needed to get the energy bill passed," Grassley said.

The Senate is expected to take up the energy bill again during the week of May 10, according to DTN's Washington Insider.

April 8, DTN's Washington Insider reported the House-passed version of an energy bill is much different than the Senate version, which doesn't include a liability waiver for MTBE producers. MTBE is another oxegynate additive for gasoline. It has been tied to groundwater contamination in several areas.

Meanwhile, whether U.S. companies can purchase ethanol cheaper from Brazil compared to the U.S. price is debatable.

"With shipping costs and tariff costs involved it would be hard to believe," Shaw said. "Because the current spot market is considered high based on demand, some companies may be looking abroad because they didn't contract enough for the year."

At the pump, imported ethanol can make gasoline cost more than domestic ethanol. "Because imported ethanol doesn't receive the $0.52 excise tax credit, the consumer in New York is paying an extra 5.2 cents per gallon," Barbre said.

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