Chevron May Invest in Ethanol Distilleries

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Chevron May Invest in Ethanol Distilleries

SAN RAMON, Calif. -- Chevron Corp. is exploring investments in ethanol plants to guarantee steady supplies of the gasoline additive for its refineries.

Chevron is examining whether larger ethanol distilleries could be built to lower production costs, Donald Paul, the company's chief technology officer, said in an interview with Bloomberg News Monday. Chevron would be the first major oil company in 26 years to invest in U.S. production of the grain-based additive.

The company is weighing the possibilities "because we're a major buyer of ethanol," Paul told the news service. "Ethanol today is dominated by people who are not from the traditional fuel-making business."

Ethanol prices more than doubled in the last year as refiners phased out a competing fuel additive that polluted groundwater. Demand will continue to surge because of last year's Energy Policy Act, which requires U.S. refiners to almost double ethanol use by 2012 to 7.5 billion gallons a year, which is 70 percent more than U.S. production capacity today.

Interest in alternative fuels has been spurred by rising petroleum prices and growing concern about oil supplies. President Bush has touted ethanol as an aid in reducing the country's dependence on foreign oil.

San Ramon, Calif.-based Chevron last week announced that it acquired a 22 percent stake in a Galveston, Texas, company, building a plant that will refine soybean oil into diesel.

Crude oil touched a record $75.35 a barrel last month in New York, and gasoline pump prices in the United States are near the all-time highs reached in September after Hurricane Katrina.

"The oil industry has come to the realization that ethanol is here to stay," Matt Hartwig, a spokesman for the Renewable Fuels Association, a Washington-based trade group, told Bloomberg News. "It wouldn't be surprising to me at all if they decided to come aboard."

Texaco Inc. was the last major oil company to invest in U.S. ethanol when it teamed with CPC International in 1980 to convert a mothballed Illinois sugar-beet refinery into a corn distillery. Texaco, now part of Chevron, sold the project in 1995.

Ethanol, a form of alcohol distilled from grain or sugar, accounted for 3 percent of the gasoline burned in the U.S. last year, according to figures from the Energy Department. The additive is used to reduce tailpipe emissions, improve engine performance and stretch gasoline supplies.