By Cezary Podkul and Fabiola Gomes
NEW YORK/SAO PAULO, Oct 11 (Reuters) - U.S. imports ofBrazilian sugar cane ethanol could be cut by more than half if adraft proposal to reduce next year's U.S. biofuel blendingmandate is enacted.
While the U.S. corn-based ethanol industry has issued themost fierce complaints over news this week that theEnvironmental Protection Agency may ease volumes, it may beBrazilian ethanol producers like Raizen and traderslike Royal Dutch Shell PLC and Vitol S.A. who suffer a deeper blow. Their import business has been boomingthanks to the sugar-based fuel's treatment as an "advanced"biofuel under EPA regulations.
The EPA document - which is not yet finalized - calls for2.21 billion gallons of the "advanced" biofuels, such asBrazilian sugar cane ethanol and biodiesel made from soybean andrecycled cooking oils. That is down from 2.75 billion gallonsthis year and compares to 3.75 billion set by the 2007 lawmandating higher ethanol blending volumes.
Some 1.28 billion of the 2.21 billion gallons is due to bederived from biodiesel, the same as this year, according to theproposal.
But because biodiesel has a higher energy content, suppliersget 1.5 blending credits for each gallon, rather than just 1credit for each gallon of ethanol. The credits are required asproof that the gallons have been blended, and can be used tofulfill the overall "advanced" requirement.
As a result, some 1.92 billion of the credits could begenerated from the biodiesel side of the "advanced" pool,leaving precious little room - just under 300 million gallons -for imports of Brazilian sugar cane ethanol.
"The document indicates a red light for Brazilian ethanolexports in 2014," Intl FCStone analyst Renato Dias told Reuters.
By contrast, the EPA has previously said that some 666million gallons of Brazilian sugar cane ethanol would be neededto fulfill the advanced biofuel requirement in 2013.
The United States typically takes up to 80 percent ofBrazil's ethanol exports.
Other Latin American countries, which are seeking greaterproduction of ethanol for domestic use and for export, could seethe EPA's action as a "red light", said Plinio Nastari,president of sugar and ethanol consulting firm Datagro.
"It will be a shame for all the countries that aredeveloping ethanol markets, not just for Brazil," Nastari said.
HOPE FOR RELIEF
For now, at least, the ethanol volume requirement remainsfluid.
In a statement issued Friday, EPA administrator GinaMcCarthy said the agency had not finalized its biofuel blendingtargets for 2014. However, she also did not dispute theauthenticity of the draft proposal obtained by Reuters.
The Brazilian Sugarcane Industry Association breathed a sighof relief at McCarthy's statement.
"Brazilian sugarcane ethanol producers are pleased to seeAdministrator McCarthy confirm there have been no finaldecisions on the renewable fuel standards for 2014," theassociation's North America Representative, Leticia Phillips,said in a statement.
"We trust that EPA's final targets for advanced biofuelswill both recognize and help foster the tremendous growthoccurring in this industry," she said.
Thanks in large part to the U.S. ethanol blending mandates,and a California law that incentivizes the use of the fuel,Brazilian sugar cane ethanol exports have been growing in recentyears.
Brazil's ethanol exports for 2013 through September totaled605 million gallons, up 27 percent from 476 million gallonsexported over the same period last year, Brazilian TradeMinistry data show.
But exports have begun to slow in recent months, withSeptember exports totaling 78 million gallons, downsignificantly from the 128 million exported in August and the127 million shipped in September last year, the data show.
The trading arm of European oil major Royal Dutch ShellShell, investment bank Morgan Stanley Inc. andSwiss oil trader Vitol S.A. are the top threeimporters of ethanol into the U.S. so far this year, data fromthe U.S. Energy Information Administration show.
