Engineering News

What Does Valero See In Ethanol Plants?
February 10, 2009

Oil companies hate ethanol. It's tradition. And ethanol producers hate them right back.

So it was a jolt when the nation's largest oil refiner, Texas-based Valero Energy Corp., said Friday it planned to buy five huge ethanol plants, including a brand-new refinery in Welcome, Minn. And those old oil-vs.-corn battle lines? Looks like they've begun to blur, and some expect them to blur further.

"It would make sense to me that big oil refineries would start to look at biofuels as part of their portfolio, and the main reason is that we're going to start having carbon regulation," said Kevin Reuther, legal director of the Minnesota Center for Environmental Advocacy. If such regulations take effect, it would "create incentives for big (oil) companies" to move into biofuels, he said.

Bill Day, director of media relations for Valero Energy, gave different reasons Monday why a Texas oil refiner wanted corn-ethanol plants in the Midwest: It realized ethanol wasn't going away, and it hoped to buy five bankrupt VeraSun plants cheaply.

But yeah, Day conceded, the oil industry hasn't said much good about ethanol.

"That would include Valero, too," Day said. "We have some history with this issue. Basically, what happened this time around, we realized that ethanol is going to remain an important part of the fuel mix here in the United States. Valero -- as a large refining company -- we purchase a lot of ethanol for blending into our gasoline, so it made sense for us to be in ethanol production."

The Midwest's corn-ethanol industry was built as an alternative to oil, bolstered by billions of dollars in government subsidies. From the start, the oil-vs.-corn lines were sharply drawn: Unlike foreign oil, ethanol was homegrown and renewable, its plants would be owned by farmers and help small towns flourish and its benefits would be local -- cleaner air, a better farm economy, a step toward energy independence.

Minnesota lawmakers enthusiastically embraced that vision, resulting in 21 refineries constructed in the state able to make more than a billion gallons of ethanol a year. But ethanol's success has led to new scrutiny about the real environmental, economic and energy benefits. If oil companies become major players in ethanol, more questions will follow.

"The ethanol debate is in a time of great change," said Sarah Janecek, publisher of the newsletter Politics in Minnesota. "This new twist of outside ownership -- particularly by an oil company -- really blurs the lines of oil vs. corn."

The Valero purchase isn't a done deal. Other potential buyers still can make bids. Valero offered $280 million for the five plants, or roughly 25 to 33 percent of their book value, according to Raymond James Financial Inc.

"Everybody recognizes that the business has changed, and the world has changed," said Janecek, remembering the longstanding oil-vs.-corn feuds. "But, wow."

Source: Saint Paul Pioneer Press

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