One year after the state began requiring motorists to use ethanol-blended gasoline, none of the planned local ethanol plants have broken ground, and questions remain over whether Hawai'i can even grow the massive amount of crops needed to satisfy demands for the alternative fuel.

Lacking a local ethanol source, oil companies have been importing the grain-based fuel at a rate of about 4 million gallons a month from countries such as El Salvador, bringing total imports of ethanol over the past year to about 50 million gallons.

The ethanol mandate was aimed at reducing Hawai'i's dependence on imported oil by requiring gasoline to be blended with 10 percent ethanol, an alternative fuel that can be produced locally from sugar cane or one of its byproducts. In addition to weaning Hawai'i off foreign oil, the mandate is supposed to expand local sugar-cane production, generate more than $100 million of new investment in manufacturing plants, and create nearly 700 direct and indirect jobs, according to state estimates.

Plans to produce ethanol locally have been delayed by financing, permitting, engineering and other problems. Ethanol proponents had originally predicted local ethanol production would begin by January of last year.

"This has all been a bit more challenging than people initially thought, but we are making progress," said William Maloney, president of project developer Pacific Quest Energy LLC.

Pacific Quest, which is partnering with Kaua'i sugar producer Gay & Robinson, is one of five companies planning to build ethanol plants in Hawai'i. However, groundbreaking on Pacific Quest's $35 million ethanol-production facility has been pushed back until the second quarter of this year, and ethanol production won't begin until the third quarter of next year at the earliest.

That plant at Kaumakani is expected to produce 12 million gallons of the alcohol-based fuel annually, or 30 percent of what is needed to satisfy local demands. So far no other company has even applied for permits needed to breaking ground on another ethanol plant. Most if not all of Gay & Robinson's sugar would be used to make ethanol, and the company's sugar-cane fields ultimately might be expanded from 7,500 acres to 12,000 acres, Maloney said.

PRODUCTION WEIGHED

Other potential ethanol producers such as Hawaiian Commercial & Sugar Co. on Maui and a partnership called Hawai'i BioEnergy are still researching the feasibility of growing sugar cane to produce ethanol. Hawai'i BioEnergy is composed of Kamehameha Schools along with two other major landowners, Grove Farm Co. and Maui Land & Pineapple Co.

Ethanol proponents and state officials urge patience and said that the mandate has lessened Hawai'i crude oil dependence. During 2006, Hawai'i gasoline consumption rose 4.08 percent — a figure that likely would have been higher if that gasoline did not contain up to 10 percent ethanol. The increase was expected in part because ethanol-blended gasoline contains less energy than pure gasoline.

Despite the use of ethanol, crude oil imports into Hawai'i still rose 8.9 percent last year.

The state required the sale of ethanol-blended gasoline knowing that local ethanol might not be available by last April. It was felt that a such a deadline would aid prospective ethanol producer efforts to obtain financing needed to build factories. In addition to mandating ethanol use, lawmakers are willing to refund 100 percent of the costs of building ethanol-processing factories.

"Clearly there's a sense of disappointment that there hasn't been a major ramp-up in ethanol production," said Maurice Kaya, chief technology officer for the Department of Business, Economic Development and Tourism. "I think the sense of urgency is still there with the state's recognition that continuing to rely so heavily on petroleum is not environmentally sustainable. Yes, production has been slow to start, but we don't think it's proper right now to make changes to the (ethanol) policy."

Whether Hawai'i will become ethanol independent as initially planned remains to be seen, said Chevron Corp. spokesman Albert Chee.

"We were skeptical back then" when the state put the ethanol mandate in place in 2004, he said. "Two and a half years later, we're still having to import" ethanol.

Meanwhile, other states are rushing ahead on 80 refineries now under construction on the Mainland, according to the Renewable Fuels Association. Money is being pumped into the industry at a time when ethanol supplies are tight and prices have been volatile. Wholesale spot market ethanol prices seesawed between $2 and $4 a gallon in the past year.

At current ethanol prices, consumers aren't paying more at the pump because of the mandate, Maloney said.

However, "there have been times when the cost of ethanol was higher than the cost of gasoline, which was reflected in the price of gasoline at the pump," said Nathan Hokama, a spokesman for Tesoro Corp.

In addition, equipment and operating costs associated with storing and distributing ethanol-blended gasoline could put upward pressure on retail prices. Barging ethanol to the Neighbor Islands and costs for using other companies' facilities cost Tesoro an additional $1.3 million on an annual basis, Hokama said.

Chevron also said it faced added costs associated with ethanol blending.

"It has increased our cost to produce gasoline here," Chee said. "Only time will tell whether we are able to recoup our costs. It certainly puts pressure on us to recoup our costs, but at the end of the day, we can't be out of step with the marketplace."

Reach Sean Hao at shao@honoluluadvertiser.com.