Archive for January 3rd, 2009

Economist: “Blending Wall” Stands in Way of Ethanol Growth

Posted on January 3, 2009. Filed under: Blender's Tax Credit, Hydrous Ethanol | Tags: , , , , |

Economist: ‘Blending wall’ stands in way of ethanol growth

 

WEST LAFAYETTE, Ind. (December 19, 2008) – Ethanol production opened the door to the renewable fuels industry. The industry now must get past an imposing wall of federal regulations and market conditions if it hopes to grow, said a Purdue University agricultural economist.

 

“The ethanol industry is now faced with what is called a ‘blending wall,’” said Wally Tyner, an energy policy specialist. “The ethanol industry will not and cannot grow with the blending wall in place. That means we won’t have cellulosic ethanol and the demand for corn for ethanol will be limited unless the blending wall is somehow changed or we find a way around it.”

Unless the barrier is removed, ethanol production could level off by 2010, Tyner said.

 

The blending wall refers to the amount of ethanol gasoline companies are permitted to blend with petroleum-based fuel. Federal standards set the amount at 10 percent of gasoline consumption.

 

“As a nation we consume about 140 billion gallons of gasoline a year,” Tyner said. “So if we blended ethanol with every single drop of gasoline we consume, the maximum amount of ethanol blended would be 14 billion gallons a year. But for a number of reasons we can’t blend ethanol with every drop of gasoline. Our effective blending wall is actually about 12 billion gallons, or 9 percent.

 

“We’re not at 12 billion gallons yet, but we’ll be there in 2009 or 2010. When we hit that blending wall, the Environmental Protection Agency cannot require gasoline companies to blend more ethanol than they are legally permitted to blend.”

 

Several factors prevent the ethanol industry from breaking through the blending wall, Tyner said. For starters, there are too few cars and trucks on the nation’s roads capable of running on any gasoline with an ethanol blend higher than 10 percent, or what is commonly called E10, Tyner said. A huge gap exists between the E10 fleet and flex-fuel vehicles that run on E85 – an 85/15 ethanol to gasoline blend, he said.

 

“Only about 7 million of our nation’s 300-plus million cars are E85 flex-fuel vehicles,” Tyner said. “Also, we have just 1,700 fuel pumps in the entire country that can dispense E85, and most of those are in the Midwest. All of the E85 that’s marketed nationwide could be produced by one ethanol plant.”

 

Some in the ethanol industry have proposed that E10 be replaced by an E15 or E20 blend, thereby increasing ethanol use. However, automobile manufacturers do not believe today’s E10 vehicles can run on a higher ethanol blend, Tyner said.

 

“Because the automobile fleet in the United States turns over about every 14 years, it would take some time before E15 or E20 cars would be as common as E10 are now,” he said.

 

Ethanol production growth also is held back by environmental and infrastructure factors, Tyner said.

 

“In the South during the warm summer months, the vapor pressure of ethanol blends is higher than conventional gasoline,” he said. “That causes more evaporative emissions and means the blended fuel does not meet Environmental Protection Agency evaporative emission standards.

 

“On the infrastructure side, ethanol cannot be shipped by pipeline because it is so corrosive and would absorb any water in the pipeline. It must move by truck, rail or barge instead. That presents logistical problems.”

 

For ethanol production to push past 12 billion gallons per year the blending wall would have to be eliminated and oil prices would need to increase, Tyner said.

 

The blending wall affects corn prices, as well, by cutting the link between the corn price and the cost of crude oil, Tyner said. In the ethanol era, corn prices have followed oil prices up and down.

 

“In the economic models we’ve developed, corn prices never exceed $6 per bushel with the blending wall in place, even with oil prices at $160 per barrel, because you simply can’t blend any more ethanol,” he said.

 

“So the blending wall is perhaps the biggest issue the ethanol industry will face in 2009-10. Without a resolution of this issue, ethanol industry growth is about finished.”

 

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Source: Wally Tyner, (765) 494-0199, wtyner@purdue.edu

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
Agriculture News Page

 

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally.  On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice.  On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops. 

 

 

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U.S. Weekly Ethanol Margins Fall Deeper into the Red

Posted on January 3, 2009. Filed under: Blender's Tax Credit, Hydrous Ethanol | Tags: , , , |

U.S. Weekly Ethanol Margins Fall Deeper into the Red

 

NEW YORK, Jan 2 (Reuters) – Average U.S. ethanol distillers lost even more money this week on higher corn prices and weak demand for motor fuel, analysts said.

 

“Right now ethanol is just not a profitable business,” said Pavel Mulchanov, an analyst at Raymond James & Associates in Houston.

 

Distillers were losing about 10 to 15 cents per gallon for the week ending Thursday, down about five cents.

 

Mulchanov said the profit margins were not sustainable because as distillers stop making the fuel, the price will go up. “There is a need for ethanol, refiners need it for blending reformulated gasoline,” he said.

 

Corn is the main input cost for U.S. ethanol makers. March corn CZ9 closed at about $4.07 a bushel on Wednesday, up 17 cents from late last month as crude oil futures rose. The Chicago Board of Trade was closed on Thursday.

 

As corn prices gained, ethanol prices have barely budged from low prices since last month. In the Midwest, ETHANOL/US spot ethanol was $1.57 a gallon unchanged from late last month. The poor margins have led to plant shutdowns and opening delays.

 

 

Lawyers for the top U.S. publicly-traded U.S. ethanol company VeraSun Energy Corp. said last this month that eight of the companies 16 ethanol distilleries were in “hot idle” or ready to operate, but not producing ethanol. The company filed for Chapter 11 bankruptcy protection in late October.

 

Even cellulosic ethanol companies that hope to make a new alternative motor fuel from non-food sources like agricultural waste and fast growing grasses and trees, have had troubles.

 

Construction of BlueFire Ethanol Inc’s planned Lancaster, California cellulosic plant will be delayed until the company raises more funding.

 

Despite the troubles, U.S. capacity to make ethanol has jumped 60 percent since last year to nearly 11.2 billion gallons per year.

 

The U.S. Renewable Fuels Standard mandate requires 11.1 billion gallons of biofuels to be blended into gasoline in 2009, which gave producers hope that margins would turn around this year.

 

Long term the RFS could be in trouble, however. The Energy Information Administration, the top U.S. energy forecaster, said last week that the United States would likely blend just 30 billion gallons per year of biofuels by 2022, not the 36 billion gallons the mandate requires.

 

The ethanol crush spread fell about 6 cents to 12 cents a gallon, using the formula of the Midwest ethanol price, minus the corn price divided by 2.8.

 

Operating costs such as natural gas prices and overhead trim the crush spread by about 25 cents per gallon. Some producers make the animal feed dried distillers grains as a byproduct of making ethanol, which can improve margins. (Reporting by Timothy Gardner; Editing by Christian Wiessner)

 

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally.  On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice.  On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops. 

 

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    About

    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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