Alon says U.S. ethanol push misguided

NEW YORK (Reuters) - A U.S. push to boost ethanol production dramatically to reduce dependence on foreign energy supplies may be misguided, the head of independent U.S. refiner Alon USA (ALJ.N: Quote, Profile, Research, Stock Buzz) said Tuesday.

Ethanol is less fuel-efficient than biodiesel, is corrosive to pipelines and storage tanks, and is difficult to import because of a U.S. tariff, Alon Chief Executive Officer Jeff Morris said at the Reuters Global Energy Summit in New York.

"I don't understand why we're not focused on biodiesel, rather than ethanol. It makes significantly more sense," Morris told Reuters. "Ethanol, in my view, is not the right alternative fuel."

The administration of President George W. Bush has laid out a plan to cut U.S. gasoline use by 20 percent in the next decade by using home-grown renewable fuels, sparking a boom in domestic ethanol production.

Energy companies now use ethanol as a favored oxygenate in gasoline to make it burn more cleanly in parts of the country where smog is a problem. It is also being promoted as a gasoline alternative. So-called E85 fuel is an 85 percent ethanol blend that can be used in specially made automobiles.

"The first headwind that ethanol has is that it is 25 percent less fuel-efficient than gasoline," said Morris.

"Then you have the logistical issues. You can't put it in an existing pipeline, so you have to build a special pipeline so it has the right gaskets."

"You have to spend $30,000 per retail station to build a separate tank and a separate pump for the ethanol for E85 ... Who's going to pay for that?"

"Then we have the tax policy. Why are we preventing Brazilian ethanol from coming in? What's the fun in this for the U.S. consumer?"

Ethanol has also been widely criticized for triggering a spike in corn prices that has, in turn, pushed up prices for bread, meat and milk.

Moore said biodiesel, which can be made from soybeans, is 50 percent more fuel-efficient than ethanol and noncorrosive to pipelines and storage tanks.

"I don't think the farmer cares if they grow soybeans or corn," Morris said.

He said one major obstacle to biodiesel is that the U.S. auto industry appears unwilling to market diesel vehicles, which have a reputation for being "smoky, loud, and slow."

"I have been surprised that U.S. auto industry has chosen to follow the ethanol route rather than the diesel route," he said, noting that European and Japanese car companies were making new diesel models that were fast and clean.