Bush plan won't end US foreign oil dependence

The Bush administration's new energy plan to slash gasoline demand by 20 per cent faces serious economic obstacles and will do little to cut long-term US reliance on foreign oil, analysts said.

The plan, outlined by US President George W. Bush in Tuesday's State of the Union address, calls for the world's top energy consumer to cut gasoline use over 10 years through alternative fuels like ethanol and tighter vehicle fuel-efficiency standards. But analysts say the plan would be costly and primarily reduce US imports of gasoline, not oil from volatile regions such as the Middle East.

"It would be gasoline imports that would be first hit, and we don't get much gasoline from the Middle East. We get it mostly from Europe and Latin America," said Sarah Emerson of Energy Security Analysis Inc. In addition, the reductions outlined in the plan would not be sufficient to offset demand, which the US Department of Energy estimates will grow from about 21 million barrels per day (bpd) now to 23.3 million bpd in 2017.

"If you look at how many barrels of oil will be displaced, it is around 1.65 million barrels per day, so I don't think we are really weaning ourselves from foreign oil," Ms Emerson said.

Conversely, forecasts for a decline in domestic oil production over the same period foreshadow increasing dependence on imports.

"Our domestic supply is relatively flat to ultimately declining, and that implies more imports going forward unless something pretty dramatic happens on the demand side," said Katherine Spector, vice president and head of energy research at JP Morgan Securities Inc.

Economic hurdles including a lack of transport infrastructure and high feedstock prices also loom.

"We doubt the feasibility of the target," Deutsche Bank said in a research note. "Fully half of the goal is dependent on hugely expensive cellulosic ethanol/ butanol."

US producers have delayed or scrapped plans to build new ethanol plants this year that would double output by the end of 2008 as high corn prices erode profit margins and rising steel prices drive up construction costs.

Analysts say US farmers cannot produce enough corn to meet the ethanol target, which calls for production to jump from around five billion gallons per year now to 35 billion gallons per year in 2017.

However environmental regulations restrict the amount of ethanol that can be blended into gasoline since at concentrations over 10 per cent it makes gasoline evaporate, causing smog.