Ethanol Fumes: After VeraSun, More Trouble for Midwest Ethanol Makers?

Posted on December 10, 2008. Filed under: Hydrous Ethanol, Rural Development | Tags: , , , , |

The Wall Street Journal Environmental Capital Blog (December 9, 2008)

 

Ethanol Fumes: After VeraSun, More Trouble for Midwest Ethanol Makers?

Posted by Keith Johnson

 

There’s one industry that’s definitely not cheering lower oil prices—old-fashioned ethanol. The sector’s latest troubles are a reminder that not even the savviest clean-tech investors have found a way to cash in on first-generation biofuels.

 

After the implosion of VeraSun last month, which sent the Sioux Falls, S.D.-based ethanol producer into bankruptcy, ethanol makers have been braced for more fallout from a collapse in ethanol prices.

 

Another big name appears to be quivering: AltraBiofuels, an Omaha, Neb-based ethanol producer backed by celebrity venture capitalists such as Vinod Khosla and Kleiner Perkins. Altra is suspending production at its plants in Indiana and Ohio in part due to the collapse of ethanol prices.

 

An Indiana paper initially reported that Altra would shutter its two plants; Altra later described the December layoffs at its Ohio plant as a “furlough” and said it aimed to re-start production in January. The Indiana plant isn’t so lucky: “Due to the poor margin environment, we have made the decision to stop producing ethanol at our Cloverdale facility,” Altra said in a statement.

 

U.S corn ethanol makers might be getting a break from lower corn prices, but ethanol prices have also collapsed. Ethanol nearly hit $3 a gallon in June; today it trades just under $1.40 a gallon. That spells zero or even negative margins for most ethanol makers. Spare capital was already spent on higher corn prices earlier in the year, construction of new facilities, or on hedges on corn prices that went south.

 

That leaves much of the industry with little wiggle room to weather a prolonged period of depressed oil and ethanol prices, says David Woodburn, an alternative fuels analyst with ThinkEquity in Chicago. Temporary shutdowns can lower operating expenses, but don’t stanch the bleeding entirely. “What’s the timeframe for resuming production?,” he asks. “The real answer depends on what market conditions look like at that future decision point.”

 

Altra says it hopes to reopen the Indiana plant if the market recovers. “We have and will continue to monitor the margin environment on a daily basis and will assess a restart of the plant as soon as margins improve,” the company said in the statement.

 

Altra is a poster child of sorts for the corn ethanol business, attracting investment from Mr. Khosla and Kleiner Perkins. Former vice president Al Gore touted Altra as an example of the alternative-energy companies that could underpin a green revolution in the U.S.

 

But with oil prices hovering in the $40s, and ethanol prices halved since the summer, biofuel investors are setting their sights now on the next generation of biofuels made from inedible things like switchgrass. The idea is that oil prices will inevitably rebound just as the second-generation biofuel makers finally come to market.

 

 

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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    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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