Ethanol Producers Fight Slump

Posted on April 12, 2009. Filed under: Advanced Biofuel, Field-to-Pump | Tags: , , , , |

Ethanol producers fight slump



April 11, 2009



A year ago, Panda Ethanol was poised to open the nation’s biggest ethanol plant in Hereford and put Texas on the map in the growing alternative fuels business.


But today, the massive plant — visible for miles on the Panhandle plain — still remains unfinished, more than 2½ years after breaking ground, and so far the bill stands at $269  million.

In January, Dallas-based Panda placed the 110-million-gallon-per year facility in bankruptcy, laid off more than half the plant’s workers and put it up for sale after lenders refused to funnel more money to the project.


“Clearly, we believe in the model we were building,” said Bill Pentak, a spokesman for Panda, which has also put plans on hold plans to build four additional corn ethanol plants, including two more in Texas.


But the company was caught in a “perfect storm” of negative factors no one could have foreseen, he said.


The same could be said of the broader U.S. corn ethanol industry, as well as for other producers in Texas.


In recent months, the industry has been nailed by volatile corn and oil prices, seen funding dry up for new projects, and watched demand stall as slowing gasoline consumption and lower pump prices reduce the incentive for blending the fuel with gasoline.


In response, producers have cut output and idled plants, while ethanol powerhouse VeraSun Energy Corp. filed for bankruptcy protection in October.


About 15 percent of the nation’s 12.5 billion gallons of corn ethanol production capacity, 23 of 193 plants, is temporarily shut down, said Bob Dineen, president the Renewable Fuels Association, an ethanol trade group. And he said he wouldn’t be surprised to see more bankruptcies that could drive that figure higher.


“Clearly, it’s a rough environment for this industry, but we’re going to get through it, and the long-term prospects continue to be extraordinarily bright. We just have to get there,” he said.

Texas has four ethanol plants, including the nearly complete Panda facility in Hereford. But just two are operating.


White Energy, the state’s biggest operator, said in January it was halting production at a 100 million gallon-per-year plant until market conditions improve. The Dallas company is still producing fuel at a plant of similar capacity in Hereford, said White CEO David Diwik, adding that he believes demand will pick up as the summer driving season gets under way. “We do honestly believe this market will turn,” he said.


Elsewhere, Levelland/Hockley County Ethanol, which operates a 40-million-gallon-per-year ethanol plant in Levelland, has recently returned to full production after cutting output late last year, plant manager Sam Sacco said. “Economics are tight,” he said. “We’re just kind of moving forward.”


Two purposes

In the U.S., ethanol is blended with gasoline in an effort to reduce dependence on oil and improve air quality in densely populated areas like Houston and Dallas.


The Energy Independence and Security Act of 2007 requires greater usage of ethanol and other biofuels in coming years, growing to 36 billion gallons in 2022 — or about 25  percent of the 140 billion gallons of gasoline U.S. drivers now consume annually. This year, the law requires 10.5 billion gallons of grain ethanol in the fuel supply.


In recent years, ethanol companies seemingly couldn’t build plants fast enough to keep up with rising government mandates, and they saw investments in new plants — mostly in the corn-rich Midwest — quickly repaid.


But the industry’s fortunes began to turn last year, when record corn prices put producers in the red and as political and financial support waned amid widening concerns about the economic and environmental impact of using food crops to make transportation fuels.


But the ethanol industry maintains that corn ethanol has a net benefit to the environment and is an important foundation for getting to biofuels made from nonfood crops and agricultural waste.


Ethanol trade groups are lobbying the Environmental Protection Agency to raise the limit on the amount of ethanol that can be blended in gasoline from 10 percent to 15  percent. Such a move would create a bigger market for the fuel, but critics argue higher blends could harm engines, a point the ethanol industry disputes.


A ‘Rolls-Royce’ of a plant

Panda, meanwhile, has begun accepting bids in bankruptcy court for its Hereford plant, which spokesman Pentak calls a “Rolls-Royce.” A judge is expected to approve a buyer by month’s end. Yet, if a recent high-profile deal to buy ethanol plants in Chapter 11 is any guide, Panda is unlikely to recoup the huge investment in the project.


This month, San Antonio-based Valero Energy Corp., the nation’s largest oil refiner, made a $552 million deal to buy seven ethanol plants from bankrupt VeraSun.



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.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, 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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One Response to “Ethanol Producers Fight Slump”

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The Panda Hereford facility had some construction related issues that not only slowed down the construction progress but cost the company more money. They eventually fired the general contractor and took control of the construction process. In any event they are not a good example of problems facing the ethanol industry as a whole unless of course the whole industry is suffering from construction related delays and cost overruns.

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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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