Bush Gates, D E Shaw losers in ethanol bust

Corn based fuel prices have tumbled 57% from last years record.

Ethanol, the centrepiece of President George W Bush's plan to wean the US from oil, is 2007's worst energy investment.

The corn based fuel tumbled 57% from last years record of $4.33 US a gallon and drove crop prices to a 10 year high. Production in the US tripled after Morgan Stanley, hedge fund firm D E Shaw & Co and venture capitalist Vinod Khosla helped finance a building boom.

 Even worse for investors and the Bush administration, energy experts conten ethanol isn't reducing oil deman. Scientists at Cornell University say making the fuel uses more energy than it creates. while the National research Council warns ethanol production threatens scarce water supplies.

as oil nears $100 per barrel ethanol markets are so depressed that distilleries are shutting from Iowa to Germany. An investor who put $10 million into ethanolon Dec 31 now has $7.5 million, a loss of 25%. Florida and Georgia have banned sales during the summer when the fuel may evaporate and create smog.

"I dont anticipate any sort of immediate rebound." says Barry Frazier the 50 year old president of Center Ethanol LLC in suburban St Louis. "Its going to take 12 to 24 months before the market  is able to absorb the large amount of new capacity."

The biggest producer, Archer Daniels Midland Co., may resort to exporting ethanol. Pacific Ethanol Inc., back by microsoft Corp co founder Bill Gates, dropped 70 per cent in New York trading this year as profits collapsed. Record oil prices, which make blending of ethanol with gasoline more profitable for refiners, havent stemmed the declines.

Ethanol companies are near break even at best says Ron Oster a principal at Broadpoint Capital Inc in NY. Thats not a good recipe when you have $100 oil.

Corn has risen to $3.795 a bushel on the Chicago Board of Trade from less than $2.50 in September 2006. ETHANOL ON THE EXCHANGE IS LITTLE CHANGED AT $1.865 A GALLON AFTER falling from a peak of $4.33 in June 2006.

The bush energy plan spurred more production by mandating increased use of so called biofuels such as corn based ethanol.

The administration proposed raising output in the next 10 years to five times the current target amount for 2012.

The US Senateapproved the increase and lengthened the time frame to 2022. The federal government  has 20separate laws and incentives to boost ethanol use and 49 states offer additional subsidies and supports according to the energy department in washington.

Scientists question the wisfom of using ethanol. Stanford University researchers say ethanol, originally added to gasoline in the 1970s to reduce tailpipe emmissions does nothing to improve the environment.

It takes more energy to produce ethanol than it actually gives off says david pimental a cornell university professor who has studied production of the fuel for two decades.

Ethanol is a form of alcohol indistinguishable from moonshine thats created by fermenting and distilling the starches from corn sugar wheat and other crops. Harvestingcrushing fermenting and distilling corn requires 29 % more energy than ethanol produces says pimental a professtor of ecology and agriculture.

Michael Wang an environmental engineer at the Argonne National Lab outside Chicago says Pimental is wrong to include energy spent on making fertilizers and pesticides. Ethanol production results in a 33 % gain in combustible energy Wang says.

US ethanol inventories swelled to a record 10.3 million barrels in August as production jumped 32 % from a year earlier and demand growth slowed,the Energy Department said.