ATTICA, Ohio — World oil prices are stabilizing and the tremendous growth of the ethanol industry in the United States may begin to slow. Those were the predictions of Matthew C. Roberts, an ag economist in Ohio State University’s Department of Agricultural, Environmental and Development Economics during the 2006-2007 Policy and Outlook meeting sponsored by Sutton Bank. The meeting took place at the Attica Fairgrounds Wednesday.

Roberts said he doesn’t think the ethanol industry will continue to expand at its present pace. He predicted Ohio will end up with five or six plants.

The main dangers are lower oil prices and higher corn prices. “Bubbles like this don’t end happily,” he said.

“The ethanol industry is being driven by the gasoline industry,” Roberts said. “It’s a heck of a lot easier to compete against $2.50 gas that it is against $1.50 gas.”

Now, he said ethanol is mainly sold as a gasoline additive - mainly required by government gasoline additive mandates.

“Once we saturate those markets, ethanol has to compete as a fuel,” he said.

By late 2007, Roberts said the United States is on track to be producing “a tremendous amount” of ethanol.

The federal government is mandating the use of 7.5 billion gallons by 2012, he said. But state-level mandates will be more important. “We are on track to exceed 7.5 billion by 2008,” he said.

As a fuel, he said ethanol prices must be 20 percent to 25 percent less than gasoline to compete because ethanol provides fewer miles per gallon.

“You get fewer BTUs from ethanol than from gas,” he said.

In the oil arena, Roberts said demand is still high.

“Globally, we’re producing as much oil as we ever have,” he said. “But supply has not reached demand.

“Strong global economic growth brings a strong increase in oil demand,” he said.

Globally, economic growth was about 5 percent this year and is expected to be 5 percent in 2007. Oil consumption was up 1.3 percent this year and is expected to be 1.8 percent higher next year. For example, he said China has averaged 9.2 percent growth per year since 1991.

“In 1990, China was a net oil exporter,” he said. “Now, it’s the second-largest importer.”

Roberts said the market seems comfortable at $60 a barrel for oil and will likely stay there through the winter.

Prices have fallen from $80 a barrel in early August, he said, because there is less concern about Iran, there were few hurricane threats in the United States and Prudhoe Bay was not as bad as some people feared.

In addition, he said Nigerian oil production has been steady and Iraq’s production has been increasing.

“OPEC is kind of between a rock and a hard place right now,” he said. If it continues maximum production, prices fall because there is more supply. At the same time, he said if it limits production, prices fall because it takes the fear of an oil shortage out of the picture.

A few weeks ago, he said OPEC members voted to decrease production.

“The fear is coming out of the market,” he said. “Prices will be moving back toward equilibrium.”

Long term, Roberts said the energy market is no longer as volatile because global production is up, even with U.S. production still less than pre-Katrina levels.

The cost of lessening oil prices at this point would be weak global economic growth or a strong U.S. dollar.

“The benefits of cheap oil aren’t worth either of these,” he said.

Regarding the cost of nitrogen fertilizer, which gas a primary ingredient of natural gas, Roberts said the cost next spring will depend on winter weather.

Natural gas is plentiful, but each $1 increase results in a $35 increase for nitrogen fertilizer. Current prices would translate into $365 nitrogen.

In the long term, he said natural gas consumption is growing 2 percent a year while production is growing 1 percent.

He said the good news is there’s lots of natural gas available worldwide, but the bad news is that it’s expensive to move from one place to another.

This farm news was published in the Jan. 3, 2007 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.