High gas prices, the renewable fuels standard, and the "gold rush" mentality by companies jumping on the ethanol and alternative fuel train are causing financial analysts to wonder if an oversupply is in ethanol's future.
"There's really no mechanism that we say would protect this industry from excess supply," states Daniel Welt for Standard & Poor's. They point to an "extra" one billion gallons a year if all new ethanol plants are active by 2008. Subsidies from both the federal government and states, high public demand, and the issue over MTBE, continue to draw investors to the industry and thus the production of even more ethanol. Analysts cannot predict what would happen if there is a major downturn in the supply of corn--a major ethanol source--or change in its current low price.
[Source: Associated Press via Forbes]
"There's really no mechanism that we say would protect this industry from excess supply," states Daniel Welt for Standard & Poor's. They point to an "extra" one billion gallons a year if all new ethanol plants are active by 2008. Subsidies from both the federal government and states, high public demand, and the issue over MTBE, continue to draw investors to the industry and thus the production of even more ethanol. Analysts cannot predict what would happen if there is a major downturn in the supply of corn--a major ethanol source--or change in its current low price.
[Source: Associated Press via Forbes]
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