Ethanol Industry Sees Change
Posted on: Tuesday, 5 February 2008, 18:00 CST
From the outside, the ethanol industry looks a bit beat up, but insiders say they're ready to go another round.
From canceled plants, like Panda Ethanol's in Wallace, Neb., to blame for pushing food costs up, the news has not been good for ethanol.
"The ethanol industry is really in its adolescent stage, and like an adolescent, it's going through some growing pains," said Bill Pentak, spokesman for Panda, which is building a plant near Hereford.
"It's not unusual, and in fact, to a certain extent it's a good thing in that the industry is taking shape and growing."
That's not to say the ride has been smooth.
"We've had an interesting 18 months," said Kevin Kuykendall, CEO of White Energy, which started production at its Hereford plant in January. "The good, the bad and the ugly all showed up."
Corn, the basic ingredient in the alternative fuel, has gotten more than just expensive, with some futures prices at $5 or more than double the 2004 price. Credit markets pulled back from funding what looked like an industry with too much product coming online. And then the price for ethanol went from a sustained level of about $2.60 a gallon to a high of nearly $5 to a low in the neighborhood of $1.40.
"It's hard to get construction started now," Kuykendall said. "But operating plants will be all right. I think we'll see a slowdown in construction."
White Energy is completing a plant east of Plainview that will produce 110 million gallons of ethanol annually to join its 100-million gallon plant in Hereford.
Panda expects to finish its 100-million gallon plant in the second or third quarter of this year.
While domestic production was almost 7 billion gallons in 2007, new plants almost completed will boost that to more than 9 billion this year.
But the new energy bill has a Renewable Fuel Standard that requires 20.5 billion gallons blended with gasoline by 2015 and 36 billion by 2022. So the market for more ethanol will have to grow, moving the industry toward the optimistic expansion it saw more than a year ago.
"There was a point to that momentum that was unhealthy," said Omer Sagheer, vice president of marketing and public policy at White Energy. "I think the fever will come back to the market, but not what we had a year or year and a half ago."
The industry has strong, bipartisan support in Washington that netted it the Renewable Fuel Standard.
Ethanol producers also could benefit from more E85 pumps that dispense fuel that is 85 percent ethanol and 15 percent gasoline to run flexible fuel vehicles, more of those flex-fuel vehicles and dedicated pipelines for transport to market because ethanol can damage existing pipelines, Pentak said.
Flex-fuel vehicles can run on E85 or pure gasoline.
More settled financial markets also would help.
"There's a lot of nervousness out there," Pentak said. "Part of it will just take time. It's something new, and analysts on Wall Street are learning how to value the industry."
And as far as the almost daily reports of ethanol being to blame for higher prices in the supermarket because it boosted corn prices, the insiders can't disagree fast enough.
"The ethanol demand for corn was priced into the market early in 2007," Kuykendall said. "It's not ethanol completely."
"Crude oil has more to do with the rising price of food," Pentak said.
"Only about 19 percent of the cost of food has to do with the agricultural component," he said, pointing instead to the large amount of fuel used to get that component from the farm to the consumer.
QUICK FACTS:
Ethanol production:
--Ethanol facilities in the U.S. currently operating: 143
--Total annual capacity: 7.9 billion gallons
--2006 U.S. ethanol production: 4.89 billion gallons
--Ethanol plants currently under construction: 66
Ethanol market share:
--Ethanol is currently blended into 46 percent of America's gasoline, most as E10 (10 percent ethanol, 90 percent unleaded gasoline)
E85 and Flexible Fuel Vehicles:
--About 50 million gallons of U.S. motor fuels are E85 (85 percent ethanol, 15 percent gas).
--E85 is available at about 1,300 U.S. gas stations.
--There are about 6 million flex-fuel vehicles on America's roads.
Source: American Coalition for Ethanol
Source: Amarillo Globe-News
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