Blogging Ethanol & Biodiesel

Continental's virgin biofuel flight

The airline industry hasn't always been the most forward looking in solving systemic efficiency problems, but a new effort appears to be taking hold. Following closely on the coat tails of Virgin's publicity stunt in January, Continental is now to perform virtually the same demo in 2009.
       What with the internecine bankruptcies, runway strandings, baggage handling x-games, and mollifying Naomi Campbell you would think there'd be little left in the budget for R&D. But right now, the average jet fuel price for 2008 is $118.8 a barrel, which will raise the 2008 fuel bill by more than $54 billion, according to the International Air Transport Association.
        The Continental flight will use a Boeing Next-Generation 737 equipped with CFM International CFM56-7B engines. CFM is a 50/50 joint company of General Electric Company and Snecma (SAFRAN Group).
        More details, including the flight plan, will be announced closer to the demonstration flight date.

A rolling stone is gathering moss

PetroSun commenced operations yesterday at what is believed to be the first-ever commercial algae-to-biodiesel facility. The Rio Hondo, Texas plant won’t be making fuel immediately, but operations at the algae farm, comprising about 1,100 acres of saltwater pond, have begun.

        Scottsdale, Ariz.-based PetroSun said the facility will produce a minimum of 4.4 million gallons of algal oil and 110 million pounds of biomass on an annual basis. And, plans are in the works to expand the size of the algae farm at some point in the future.
        "Our business model has been focused on proving the commercial feasibility of the firm's algae-to-biofuels technology during the past eighteen months," said Gordon LeBlanc, Jr., CEO of PetroSun.
        "Whether we have arrived at this point in time by a superior technological approach, sheer luck or a redneck can-do attitude," LeBlanc said, "The fact remains that microalgae can outperform the current feedstocks utilized for conversion to biodiesel and ethanol, yet do not impact the consumable food markets or fresh water resources."

Surcharges On A Train

Is the fix in? After paying out more than $250 million in fuel surcharges to the 'Big 5' railroads over the past four years, Archer Daniels Midland now claims that those railroads conspired to fix those surcharges at an artificially high level.
        The Decatur, Ill.-based "Supermarket to the World", which ships millions of tons of biofuel feedstocks such as corn and soybeans every year, is seeking $750 million in damages in a lawsuit filed in Minneapolis this week.
        The suit accuses the five railroads of setting fuel surcharges through the Association of American Railroads (AAR), which as part of its role in being the railroads' main trade group, publishes the indices used by railroads to calculate rates.
        The lawsuit points out that AAR's Board includes the CEOs from the five railroads, which sure enough, might seed cynicism.   
        Then again, the former English majors who like to point out when things are ironic will note that in 1996, ADM itself agreed to plead guilty and pay a $100 million criminal fine to the Department of Justice for fixing prices in the worldwide markets for lysine and citric acid. At the time, it was the largest criminal anti-trust fine ever imposed.

Pacific Ethanol delays earnings

Shares of Sacramento-based Pacific Ethanol, Inc., were down 4% Tuesday following a late Monday announcement by the company that it will delay in the filing of its Annual Report on Form 10-K for the year ended Dec. 31, 2007.
        Pacific Ethanol, the largest ethanol producer on the West Coast, had been expected to release earnings this week but, without giving a reason, said late yesterday that it was holding the results back until Monday, March 31st.
        The unusually protracted two-week delay, together with weaker earnings this season from Pacific Ethanol's peer group, suggests some imminently disappointing news.
        The delay from Pacific Ethanol comes on a backdrop of stronger ethanol prices in recent months relative to gasoline, but Wall Street analysts predict that corn costs will erode any significant profitability for ethanol producers throughout 2008 and into 2009. Meanwhile, co-product sales are not seen as being able to contribute enough in the near term to overcome the high feedstock costs.
        The announcement from Pacific Ethanol also follows downgrades in the ethanol sector in recent weeks, as well as a stock market dive that began with Aventine Renewable Energy's Feb. 22 disclosure that auction-rate securities held may pinch the company's liquidity.
        Pacific Ethanol recently received a $24 million grant award from the Department of Energy for the company's cellulosic ethanol project in Oregon. Meanwhile, the company was forced to suspend construction on the 50 million gallon corn ethanol plant it was building in Imperial County near Calipatria, Calif. Plants in Stockton, Calif. and Burley, Idaho remain under construction.
        Shares closed at $4.60/share on Tuesday.

Andersons exec acknowledges "dark side" of ethanol

Image courtesy: Blame Society Productions
The Andersons, Inc. last week declared its fourth consecutive quarter of record earnings in a conference call that would have been unremarkable if not for statements made by Gary Smith, the Maumee, Ohio-based company's vice president of finance.
        Asked about the impact of high corn prices on the company's ethanol business, Smith made one of the first high-level acknowledgements of validity in the problem of using agriculture as fuel feedstock.
        "In the end, if you have economics driving it and you look at the impact of a dollar increase in corn and what that does to your variable cost for reducing a gallon of ethanol," Smith said, "then you look at it for what it does to your variable cost for producing a pound of beef or a pound of pork or chicken or eggs.
        "It's pretty easy to conclude that you'll keep putting corn to feed before you'll slow down or shut down ethanol plants…before you'll dramatically shut down feeding, and I think most of us would prefer to eat first," he continued in response to a question about the risk to margins from Wall Street Access analyst Charlie Rentschler.
        "So, I think kind of the dark side of ethanol is the combination of what you're talking about, Charlie," Smith said. "It's just that simple."
        Smith quickly added that, on the other hand, the company's grain division had shown an "amazing ability" to increase crop yields on existing land. "I think that's going to continue to occur," he continued. Also, "new" farmland could also come out of the USDA Farm Service Agency's Conservation Reserve Program.
        "There is a substantial amount of land out there that all of us are paying for that is not in production that I believe could be put in production," Smith said. "I think that's terribly unfortunate, especially given the situation like you're describing, Charlie. So I would hope at some point in time we'll see the productive amounts of those lands come back into production to help mitigate the risk that you laid out."
        Following Smith's remarks, Rentschler protested that new ethanol production would require a 15-16% increase in crop productivity "just to feed the incremental ethanol plants coming on-stream" this year.
        "Certainly, yields aren't going to jump up like that year-over-year. There's no way that's possible," the analyst said.
        "I get your point," Smith responded.

Nothing beats the air in Clovis

Photo: Brian A. Morganti
    ConAgra Foods said high costs have forced it to withdraw an application to build an ethanol plant near Clovis, N.M., the latest in a series of project cancellations in the industry over the past several months.
    Plans for the 110 million gallon plant had been tied up over the past year after the state's Environment Department came under fire over a decision to award the plant its air quality permit.
    Members of lower-income and ethnic minority groups protested the Clovis Plant, as it was known, on the grounds that it was being built too close to their communities.
    But as the debate was unfolding, profit margins for ethanol producers were meanwhile being subjected to 2007's dizzying volatility, as well as capacity creep. ConAgra, one of North America's largest packaged foods companies, decided it didn't necessarily need to be in the ethanol business after all, saying Wednesday it was walking away from the project.
    "ConAgra remains committed to its related offerings in the renewable fuels market," said Stephanie Childs, ConAgra's Director of Corporate Communication in a phone interview, "such as the sourcing of feedstock commodities and marketing dried distillers grains."
    As for re-entering the ethanol space more directly, ConAgra has no plans at the present time, Childs said.

First big ethanol plant in the Gulf is opened

        Everything's bigger in Texas, but the state's first large-scale ethanol plant didn't open until this week.
        Dallas-based White Energy's 100 million gallon facility, located in Hereford will use 36 million bushels of corn and grain sorghum per year. A majority of the corn will be purchased from Archer Daniels Midland, while the sorghum will be purchased from the local Hereford Grain Co-op.
        White Energy is building another 110 million gallon plant in Plainview, Texas, which should be completed in the second quarter of 2008. White Energy also owns and operates a 50 million gallon ethanol facility in Russell, Kan.
         Meanwhile, Dallas-based Panda Ethanol is building a production facility driven by what in cattle country is arguably a resource that is among the most abundant.
        Panda's new plant is expected to extract methane from 1 billion pounds of manure—half a million cows, according to Panda —to generate 100 million gallons of ethanol, plus ash by-product, each year.

Not all biofuels made energy bill's 'nice' list

Tom Gilbert for The New York Times

        The energy bill received applause from not just corn but from backers of many advanced biofuel technologies that stand to gain from the increase in the RFS to 36 billion gallons a year by 2022.
         That is not to say that all biofuel interests were politically convincing. Among the most vocal of the disenfranchised has been Syntroleum, the Tulsa, Okla.-based company which is using a chemical process to make synthetic liquid fuel from sources including natural gas and animal fat.
        As recently explained by Richard Bond, CEO of Tyson Foods, which is working with Syntroleum to bring the product to market: "Part of the beauty of those plants is you could take very low-cost, cheap feedstocks, grease that no one else can use, and convert those not only into diesel, but into very high-end jet fuel."
        Lawmakers yanked a provision that would have extended the 50¢/gal  federal tax credit that makes viable the whole project, which is also backed by ConocoPhillips.
        ConocoPhillips officials last week warned that change could shelve the project, including plans for a 75 million gallon plant at which by-product fat leftover from Tyson food operations would be converted into biodiesel.
        House Democrats has hoped to pay for their tax incentives largely by rolling back tax breaks for oil and gas companies that were enacted in 2005, but that didn't sit well with many in the Senate, not to mention the White House.

Ethanol called 'materially oversupplied' for now

           In spite of the mandated market demand increase for VeraSun Energy’s (NYSE:VSE) output, the Brookings, S.D., ethanol producer has been downgraded to 'market perform' by Friedman Billings Ramsey.
        The Arlington, Va.-based investment bank thinks the legislated intervention, undoubtedly welcomed by the industry, may take a while to overcome the current level of mandated demand.
        "VSE has risen nearly 45% over just the past three weeks, and while it remains our favorite name in the space, with the stock trading only about 10% below our $17/share DCF-based price target, we feel compelled to take a more neutral stance," wrote FBR's Kevin Book last week.
        "The recent passage of a new national renewable fuels standard is certainly bullish for this ethanol producer,” the investment banker added. “However, we continue to expect the market to be materially oversupplied next year, resulting in downward pressure on producer margins over the coming quarters."

Senate legislation has two-tiered effect on ethanol stocks

        Equity shares of ethanol producers were mixed Monday after rising 9.7% on anticipation of the energy bill's passage in the U.S. Congress Thursday. As investors took profits and digested the impact of the Senate passage of the energy bill, which mandates a doubling of corn-based ethanol to 15 billion gallons by 2022.
        Large, diversified agribusinesses such as The Andersons and Archer Daniels Midland Co. closed at or near annual highs, benefiting from the fact that they are positioned to take advantage of last week's farm bill as well, which preserves existing subsidy programs for grain and cotton farms.
        "Pure" ethanol producers, however, sank Monday, Aventine Renewable Energy shares fell 38¢, or 3.3%, while VeraSun Energy and US BioEnergy, which announced plans to merge last month, declined around 1% each.
        In addition to not being affected by the subsidy aspects of the farm bill, smaller ethanol-only producers, while benefiting from the increased Renewable Fuels Standard, may not be in as strong a position as the majors to take advantage of the farm bill's cellulosic incentives.