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Houston Chronicle: Diverging views on biofuels

U.S. oil executives say potential overstated, but a leader of Brazil’s Petrobras sees too little effort given to champion alternative energy

Copyright 2007 Houston Chronicle

While usage of ethanol and other renewable fuels is likely to grow in coming years, their ultimate role in meeting the world’s rising energy needs is still up for debate.

And increasingly, that debate is spilling out of Washington and into Houston, the heart of the nation’s energy business, which could feel the most direct impact from even a small shift toward biofuels.

On Monday, in a sign of the times, the biofuels question was addressed in different ways at two conferences in the Houston area, one from the point of view of the oil refining industry, the other from Brazilian biofuel advocates.

Oil company executives, speaking at the Global Refining Strategies meeting in The Woodlands, said biofuels can help curb dependence on oil and cut tailpipe emissions.

But the fuels have problems of their own, and regulators and the public should understand that fossil fuels will continue to be the dominant source of transportation fuels for at least the next several decades, they said.

“This cannot, in and of itself, save the planet,” said Mark Williams, executive vice president of supply distribution at Shell Oil.

The “hard truth” is that conservation and government caps on carbon emissions have a much greater potential to save energy and reverse climate change trends, he said.

But across town, at the Brazil Biofuels Houston Summit, the top U.S. executive with Brazil’s state-owned oil company said if the U.S. were serious about curtailing its addiction to oil, it could do more to create a market for biofuels.

“If you don’t have any regulations from the government, change will still come, but it will come much, much later,” said Alberto Guimaraes, president of Petrobras America, in a speech at the Houstonian Hotel.

“The time to change is now,” he said.

Surge of attention

Though nothing new, biofuels have received renewed attention in recent years as a way to wean the U.S. from foreign oil, clean the air and help American farmers.

A spate of new investment announcements, like one by Houston’s Endicott Biofuels on Monday, have also kept the industry in the spotlight.

Endicott said it secured $40 million in private equity financing to build a new biodiesel plant at an undisclosed location.

Congress is considering a proposal to boost annual ethanol production fivefold to 35 billion by 2012, and is mulling an extension of tax credits to biodiesel producers.

But the oil industry has generally opposed government subsidies and mandates for biofuels, saying the market should decide if the fuels can stand on their own.

It is “wishful thinking” to assume biofuels can solve the nation’s energy challenges, said Jerry Welch, senior vice president of refining at Marathon Oil, in a speech Monday.

What’s more, biofuel mandates are reducing the incentive to build or expand U.S. refineries, since they threaten to curb gasoline usage, he said.

Between 1994 and 2005, more than 2 million barrels a day of refining capacity were added, while about half that amount is expected between 2007 and 2018, Welch said.

Without more refining capacity, the U.S. will continue to depend on imported gasoline to feed rising American fuel demands, he said.

But Shell’s Williams said the growing role of biofuels has had no impact on the company’s plans to double the size of a Motiva refinery in Port Arthur. A final investment decision to expand the 285,000-barrel-per-day refinery, owned by the joint venture between Shell and Saudi Arabia’s state-owned oil company, is expected soon.

If anything, the current global boom in refinery construction will create a surplus of refining capacity in coming years, Williams said.

New business opportunity

Biofuel advocates say it is wrong to view biofuels as a threat to the oil industry.

Guimaraes, with Petrobras, said his company has begun treating biofuels more like a new business opportunity.

On Monday, he ticked through the company’s plans to build biofuel pipelines in Brazil, boost biodiesel production and ramp up ethanol exports to countries around the world.

Though the U.S. has a 53-cent gallon tariff on Brazilian ethanol, Guimaraes said he hoped an agreement reached in March between President Bush and Brazilian President President Luiz Inacio Lula da Silva will pave the way for an opening of American borders.

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