With rising fuel prices, market pressures have prompted many consumers to seriously reconsider their habits. Increased concern over environmental degradation has also prompted calls for a change to cleaner fuels and renewable energy sources. Already, many vehicles on the road can run on a blend of ethanol and gasoline, most on lower-level blends such as E10 (10% ethanol and 90% gasoline), and many on higher level blends such as E85 (85% ethanol and 15% gasoline). Because of the abundance of ethanol-compatible vehicles, the future is bright for ethanol as a fuel.

Because of limited crude oil supplies and refining capacity, and rising concern over environmental degradation, there is a good market outlook for ethanol. Ethanol can be produced not only from corn, barley, and wheat, but also from cellulose feedstocks such as corn stalks, rice straw, sugar cane bagasse, pulpwood, switchgrass, and municipal solid waste. Because of the variety of feedstocks that can be used, ethanol offers tremendous opportunities for new jobs and economic growth outside the traditional "grain belt" (Source: U.S. Department of Energy, Alternative Fuels Data Center 2006).

In early 2006, the annual capacity of the U.S. ethanol sector stood at 4.4 billion gallons, and plants under construction or expansion are likely to add another 2.1 billion gallons to this number. If this trend and the existing and anticipated policy incentives in support of ethanol continue, U.S. ethanol production could reach 7 billion gallons in 2010, 3.3 billion more than the amount produced in 2005 (Source: U.S. Department of Agriculture, Economic Research Service 2006).
 

With 97 existing ethanol refineries in the U.S. pumping at maximum capacity, nine in the process of expanding and an additional 35 plants currently under construction, current levels of production are still insufficient to keep up with rising demand. By federal mandate, the country must use 7.5 billion gallons of renewable fuels by the year 2012, up from an estimated 5 Billion gallons this year, and lawmakers in Washington are contemplating an even higher target of 15 Billion gallons. Some predict that U.S. ethanol demand will likely increase by at least 50% this year alone (Source: Wall Street Journal). Ethanol appears destined to become one of the more popular sources of cleaner, renewable energy in the very near future.

Projects
Ethanoil and Gas Corp. is actively engaged in negotiations intended to further develop its plans to participate in the ethanol market through the construction and operation of ethanol producing facilities. The Company is currently assessing all facets of ethanol production including the ethanol and fuel markets, feedstock sources, plant locations, energy requirements, etc. Due to the incomplete and sensitive nature of some of the present discussions, Ethanoil and Gas is unable to release detailed information regarding its upcoming initiatives. The Company will make all such information publicly available at the earliest possible opportunity.