Oil Report

Mid-April is earliest to renew US biodiesel credit

* Two-week recess will slow work on biodiesel credit

* Final vote on credit could be delayed beyond April

* Ethanol makers seek multi-year extension of their breaks

WASHINGTON, March 22 (Reuters) - Congress is unlikely to revive the $1 a gallon biodiesel tax credit before mid-April the earliest, till after a two-week recess, U.S. biofuels officials said on Monday.

The credit expired at the end of 2009 and virtually shut down the industry, says the American Soybean Association. Roughly 11 percent of U.S. soybean oil is used in making the biofuel, which is a bolster for soybean prices.

While the House and Senate have passed bills to renew the credit for 2010, they must agree on a common text to send to the president. “Neither the House or Senate has signaled any particulars on how they will do that,” said Michael Frohlich of the National Biodiesel Board, a trade group.

The tax credit is one provision in a $149 billion bill focused on job creation and extension of tax incentives.

A resolution is unlikely before mid-April, said two biofuels officials. Congress soon will recess until April 13, they noted, and a final vote on the credit could be delayed until late April or later, depending on the pace of House-Senate negotiations.

Biodiesel production is forecast at 800 million gallons (3.03 billion litres) this year as federal mandates require minimum amounts of the fuel to be mixed into diesel by blenders and refiners. In addition, revival of the tax credit would be retroactive to Jan. 1, which adds some incentive to make the fuel.

But the forecast output is only a quarter of industry capacity of 2.7 billion gallons. Besides the loss of the tax credit, the industry has been hurt by European Union tariffs, which have reduced exports sharply.

The much-larger ethanol industry has worked since the start of the year for a long-term extension of its tax breaks. A spokesman said extension was “legislative priority No. 1” for the Renewable Fuels Association. The 45-cent a gallon blender tax credit and the 54-cent a gallon ethanol import tariff expire at the end of 2010.

Ethanol groups also would include a $1.01 a gallon tax credit for cellulosic ethanol in a long-term extension, which would move later this year. The extension could become a rider on a larger, must-pass bill.

Cellulose, found in grass, crop residue and woody plants, is targeted as the next-generation feedstock for making fuel ethanol, now distilled mainly from corn.

A 2007 law mandates use of 12 billion gallons of fuel ethanol this year, rising to 15 billion gallons a year from 2015. Overall U.S. use of biofuels would reach 36 billion gallons a year in 2022, the bulk of it from advanced biofuels such as cellulosic ethanol. (Reporting by Charles Abbott; Editing by Marguerita Choy)