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Oil Majors and Car Giants Look to Push Ethanol As Petrol Alternative

Posted on: Monday, 24 October 2005, 06:00 CDT

By Tracey Boles

BP and Shell, which report third-quarter results this week, have held talks with GM and Ford about increasing the availability of ethanol, the biofuel that can be used in millions of vehicles already on the road instead of petrol.

GM and Ford want to increase the number of cars that can use petrol or ethanol by a million in the next year. They see the support of the oil majors as key to achieving this. The Ford Focus range already has a model which runs on ethanol.

Ethanol alcohol can be derived from starchy crops such as wheat or corn, making it a renewable resource. The high price of oil has seen it touted as one of the most promising alternatives to crude. Fears about energy security in America have also spurred interest in biofuels.

In the past, the oil industry has resisted the increased use of ethanol in conventional petrol. But the growing popularity of cars which run on such flexi-fuels has piqued their interest.

The recent doubling of the number of ethanol refuelling sites in the US to 500 has also helped bring them to the table for the recent discussions with GM and Ford officials.

The biofuel at the heart of the talks is E-85, a mix of petrol and ethanol which is 85% alcohol. The oil and car giants have been looking at how they might market E-85, the lynchpin of Americas emerging ethanol infrastructure.

One strategy being considered is co-marketing where the oil companies would gain access to the car companies flexi-fuel vehicle customer base to alert them as new E-85 refuellng stations come online.

Among car companies, the race is on to find more fuel-efficient cars, be they diesel, flexi-fuels (a mix of petrol and alcohol) or those run on futuristic fuel cells.

Recently, the focus has been on launching marques with hybrid engines where the petrol engine is supplemented by an electric motor. Ford plans to dramatically expand production of flexi-fuel vehicles in 2006 by adding 280,000 units.

* Analysts expect BP to report a profit of about $5.7bn for the third quarter, up 36% on last year, while two days later Royal Dutch Shell is expected to report a 22% rise to $5.4bn.

This comes despite both companies losing large swathes of oil production and refining in the wake of hurricanes Katrina and Rita in the US Gulf of Mexico.

Analysts will be looking for more certainty as to the long-term impact of the storms, in particular an update as to how long the start of oil production from BPs huge Thunderhorse platform has been delayed.

Source: Sunday Business; London (UK)

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