With lower gasoline prices, ethanol uncompetitive

Ironically the IRL signed a deal with a Brazil ethanol producing, and in the process stabbed the USA ethanol industry in the back. Now comes word that Brazil's biofuel industry, that just months ago was being flooded with billions in new investments for vast new sugarcane plantations and gleaming distilleries that churn out the cheapest ethanol on earth, is in trouble.

The global financial crisis has put the brakes on that boom, drying up foreign investment and domestic credit, stalling new projects and prompting cash-strapped ethanol producers to indefinitely postpone expansions. In addition, now that gasoline prices have plummeted, who wants or needs more expensive ethanol that produces horrible fuel mileage?

With oil below $50 per barrel, down more than 60 percent since July, biofuels have become less competitive. But U.S.-made corn ethanol is more expensive than Brazil's sugarcane-based fuel: Oil must top $50 a barrel for it to be cheaper than gasoline. In contrast, Brazilian ethanol companies insist, their fuel is competitive as long as oil sells for more than $40 a barrel. Not when you factor in the lower fuel mileage it isn't.

"I'm still ready to play ball, but the ball disappeared," said former Brazilian Agriculture Minister Robert Rodrigues, whose plans for an ethanol startup were recently put on hold as foreign investors withdrew cash amid fears that a global recession would slow demand for fuel.

One large ethanol maker filed for bankruptcy last week to restructure $100 million in debt it could not pay. Analysts and sugarcane growers predict others will follow, and a leading industry association says 50 percent of new equipment orders have been canceled or postponed.

"We're going to see more bankruptcies," said Eduardo Carvalho, director of the ethanol and sugar unit of conglomerate Odebrecht SA, one of Brazil's biggest companies.