Ethanol Looks for Right Formula
August 12, 2009
The ethanol industry remains stuck in low gear but continues to be fueled by hopes of government policies aimed at boosting use of the fuel additive.
Plants no longer make $2 per gallon profit on millions of gallons of ethanol, a fuel additive produced from corn and blended with gasoline.
An average ethanol mill in Iowa is earning 10 cents a gallon, and a mill in Illinois is pocketing 12 cents, according to Ag Trader Talk, an online grains information service in Clive, Iowa.
After a boom period, the market became awash in the fuel additive produced largely in the Midwest.
Production costs soared out of control, profits bottomed out and the industry hunkered down in hard times.
"A year ago the pain was incredible," said Brian Jennings, executive vice president of the American Coalition for Ethanol, hosting a three-day conference that began Tuesday at the Midwest Airlines Center.
When the price of corn spiked to $8 per bushel, about double the normal price, it was a gut punch for ethanol operators.
Some plant owners went into bankruptcy, including Wisconsin's largest ethanol operation -- Renew Energy in Jefferson. Renew Energy officials did not return Journal Sentinel calls Tuesday.
Overall, ethanol still isn't out of trouble, partly because gasoline use is down and there's less demand for the additive.
"Some plants are hurting, no doubt," Jennings said.
But the ethanol supply and demand gap has narrowed, and profits are as good now as they've been in a year, according to Jennings.
"Most plants probably are making money," he said, provided they were built at the right cost.
A few more ethanol plants are going to open, Jennings added, if the business model makes sense.
"But we are not going to experience the horse race that we had before, when plants were being built everywhere."
Investors aren't interested in pursuing ethanol until they're convinced that supplies aren't outstripping demand.
"We would love to see this industry grow, but we also need to have some discipline on how we do it," Jennings said.
Ethanol producers have high hopes for government policies that would encourage or mandate more use of biofuels.
They've asked the Environmental Protection Agency to raise the allowable ethanol blend to 15 percent, from the existing 10 percent limit, for most vehicles.
It would give the ethanol industry a needed boost. It also would lessen the nation's dependency on foreign oil while other biofuels are being developed, according to Growth Energy, a coalition of ethanol producers.
"Ethanol is the alternative we have today. It's here right now," said retired Gen. Wesley Clark, Growth Energy's co-chairman.
Supporting ethanol now, through various subsidies and government mandates, is important to help create markets for renewable fuels, according to ethanol backers.
"You have to expand the marketplace if you want to see promising, next-generation technologies," said Matt Hartwig, spokesman for the Renewable Fuels Association.
"There's a role for the federal government to partner with industry," he said. "It moves the ball forward and gives investors a reason" to put money into new technologies.
At this point, ethanol couldn't survive on its own, said Masood Akhtar, president of CleanTech Partners, a Middleton energy consulting firm.
It's questionable whether the industry could do much better even if the fuel blend were increased to 15 percent, according to Akhtar.
"I think it's a good idea to do that," he said, but ethanol needs a sustainable business plan beyond raising fuel blends.
Bloomberg News contributed to this report.
Source: Milwaukee Journal Sentinel
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