Blogging Ethanol & Biodiesel

More U.S. Companies Dissolve Ethanol Plants

Weeks after a Citigroup analyst speculated that three out of four U.S. ethanol plants were in danger of closing, a Tennessee company canceled plans to build seven plants in Illinois, and a British-owned ethanol producer filed to reorganize under the bankruptcy code.

         Knoxville-based Heartland Ethanol spokesman Mike Craig said last week's decision to dissolve the company was based on the high price of corn. Also, the company was having a tough time borrowing money to build new, 55 million gallon per year plants in Illinois with local investors.

         Meanwhile, U.S. subsidiaries of U.K.-based Renova voluntarily filed for Chapter 11 bankruptcy protection last week, after agreeing to terms with lenders for $4 million in new working capital. The Heartland and Renova developments follow other producers delaying new plant openings, most citing the higher cost of corn.

         Earlier this month, VeraSun Energy, the second-largest U.S. producer, canceled plans for two Midwest ethanol plants totaling 220 million gallons per year, citing market conditions. Pacific Ethanol postponed construction of a 50 million gallon a year plant near Calipatria, Calif., following similar delays by Biofuel Energy, Agassiz Energy, Watonwan Energy and Little Sioux Corn Processors.

"Nobody" understands diversion of food to fuel cars

Tensions on government biofuel policies came to a breaking point Tuesday at the opening of the United Nations food summit in Rome as the head of the UN's Food and Agriculture Organization (FAO) asserted that "nobody" understood the diversion of food to fuel cars.

          Environmentalists and academics have cited biofuels for its part in the 60% increase in food costs since the beginning of 2007 and ensuing food shortage riots in more than 30 countries. Diversion of land from food crops to biofuels has added to about a third of the rise, Washington D.C.-based International Food Policy Research has said.

"Nobody understands how $11 to $12 billion a year on subsidies and protective tariff policies had the effect on diverting 100 million tons of cereals from human consumption, mostly to satisfy a thirst to fuel for vehicles," said Jacques Diouf, FAO director-general.

The position of the United Nations is that biofuels such as ethanol and biodiesel can help decrease global warming and create jobs for the rural poor, but the benefits may be counteracted by serious environmental problems and higher food prices. However, Brazilian President Luiz Inacio Lula da Silva soundly rejected criticism that ethanol production in Latin America's biggest nation has cut food output, blaming higher oil prices and farm subsidies instead.

It seems to be the never ending debate: one side cites all the evidence for increasing food prices, while the other side continues to reject it.

President Bush to veto farm bill?

Criticizing Congress's "massive, bloated farm bill" that would support millionaire non-farmers, President Bush's comments from the Rose Garden Tuesday indicate that he will veto the package if changes aren't made.

Looking to offset the increased spending that would doom the bill, congressional negotiators on April 25 reduced the volumetric ethanol tax credit for a second time in the talks. Incentives for biodiesel and renewable diesel were removed entirely. Negotiations on the now-$280 billion bill are ongoing, with discussions focused on finding ways to compensate for the proposed $10 billion increase to the farm direct payments program.

A major breakthrough occurred late last week when senior lawmakers agreed on a $1.7 billion package of tax breaks, and ways to finance the overall package. The 51¢/gal tax credit for corn-based ethanol would drop to 45¢, which would save over $1 billion alone. But another $500 million would be netted out by a new $1.01/gal cellulosic tax credit, assuming of course, that any gets made.

Start brewin' your own ethanol

A new start-up company out of California wants to sell you a $10,000 home upgrade for the true blendstock fanatic. E-Fuel's 100 MicroFueler is about as big as a stackable washer-dryer and will use sugar as its main fuel source, along with "specially packaged time-release yeast" the company has developed.         

         Depending on the sugar cost (plus water and electricity), the company claims it could cost as little as a dollar a gallon to make ethanol with the MicroFueler. We're not sure if the math works out, though. It takes up to 14 pounds of sugar to make one gallon of ethanol, and raw sugar is currently selling in the U.S. for about 20 cents a pound.

         And are you supposed to blend your labor-of-love into the gasoline yourself? It's illegal in the U.S. to run a car on 100% ethanol, except for off-road vehicles like Indy cars and farm equipment.

Domestic fuel prices increase dramatically

A Department of Labor report will probably add fuel, so to speak, to the continuing discussion over the effect that biofuels growth has on food prices. The new data released April 16 showed that domestic food prices rose 5.1% in just the first three months of this year.

      Economists surveyed by Dow Jones Newswires were forecasting that the Labor Department's report would show the consumer price index increased at a rate of 4% annually through March 2008, compared to the 2.8% rise over all of 2007.

     The Labor Department's producer price index for finished goods, released April 15, showed a 1% increase on a seasonally adjusted basis – about twice what economists had expected. Food prices rose 1.2% in March, after falling 0.5% the previous month.

     Work by the Washington D.C.-based International Food Policy Research Institute suggests that biofuel production accounts for a quarter to a third of the recent increase in global commodity prices.

     With gasoline prices steadily rising, people are more anxious than ever to find an alternative. However, if it starts costing people at the grocery store, is there really a difference in the minds of consumers? Most people could find a way to cut back on driving, but eating might be another story.

Confused lawyers seek piece of oil companies 'ethanol profits'

Kabateck Brown Kellner, a plaintiffs-only law firm that has made a name pursuing consumer class action suits is targeting "oil companies" for its next payday. It's filed a baffling  lawsuit against a disparate array of corporations such as ExxonMobil, Chevron, BP, Shell, Valero, and ConocoPhillips, cha rging that ethanol causes serious damage to marine engines and fuel tanks.
        Why oil companies? Deep pockets, apparently. A press release put out by the law firm itself points out "ExxonMobil last year recorded the largest-ever profits in U.S. history."
        Sure, but ExxonMobil (not to mention Chevron, Shell, ConocoPhillips and BP) are integrated oil companies whose 2007 profits mostly came from upstream operations. Meanwhile, refiners like Valero and Tesoro did not show increased earnings last year. In fact, crude oil prices being what they are, Tesoro lost $40 million in the fourth quarter.
        Kabateck, which in the past few months also has filed class actions against Apple (false advertising) and Network Solutions (sitting on domain names), is now ranting dementedly in a kind of guy-on-a-street-corner way about how the oil industry really works.
        "The oil companies know this fuel is corrosive, but they are keeping consumers in the dark to pump up their profits," the suit says.
        Speaking of being in the dark, Kabateck seems also to have missed the opportunity to do a Lexis look-up on the motivations surrounding ethanol blending. The lawyers' crackerjack research team does not even correctly identify the parties who really are profiting from the Renewable Fuels Standard.
        Have you or your loved ones been involved in filing a frivolous lawsuit? Pick up the phone and call Kabateck, they're on your side.

EIA: Use of ethanol to climb significantly in first half of 2008

The U.S. Energy Information Administration said this month in a new report, Motor Gasoline Market Spring 2007 and Implications for Spring 2008, that it expects a year-on-year ethanol use to rise 50,000-120,000 b/d in the first five months of 2008:

        “Recalling that the 2006 switch from MTBE to ethanol put additional pressures on the gasoline markets and that ethanol is a growing source of gasoline volume, EIA also looks at projections of ethanol use in 2008.

        "While the new RFS that was included in the [recent] energy bill will require increased ethanol use, the speed of penetration into new regions may vary through the year, with slower increases expected for the first half of 2008 than in the second half. The year-over-year increase for January to May might vary between 50 and 120 thousand barrels per day.

“The lower volume (50 thousand barrels per day) is based on the average ethanol use increase seen in late 2006 through early 2007. This low estimate assumes that work on terminals and service stations and arrangements for transportation slow penetration in the early months.

Unfortunate turn of events for German automakers

Amid rising fuel prices and anxiety as to whether the higher blend level could be run in German car engines, the country's Environment Minister Sigmar Gabriel said Friday that plans to raise the ethanol level from 5% to 10% had been utterly cancelled.
        The government had previously warned the 10% blend level plan would be abandoned if more than one million vehicles could not run the fuel. He said that the government was now estimating that, in fact, the engines of 3.3 million vehicles would have been unable to tolerate E-10.
        In a dynamic familiar to that which has transpired in the U.S., German automakers, whose cars generally do not score well in efficiency, had been supportive of the E-10 strategy as a way to forestall legislation that might enforce better fuel economy.
        Industry association Verband der Automobilindustrie, anchored by BMW and Mercedes-Benz's had previously submitted what they thought was the correct figure for the number of cars on German roads not capable of running E-10, but somehow, at 360,000 their number was way, way off.
        Now, with the cancellation of E-10, the German car industry will "have to come up with other technical measures" to meet European Union emission targets of 120 grams per kilometer, Gabriel said, joking that auto parts makers would be pleased.

Corn costs will head even higher this year

Margin squeeze ahead. U.S. farmers are expected to switch significantly more acres back from corn to soybeans to cut down on costs, the U.S. Department of Agriculture said this week.
            According to the latest Prospective Plantings Report, farmers intend to seed about 86 million acres of corn this year, down 8% from 2007, largely because the stuff takes so much fertilizer to produce.
           Some analysts are already nervous, including BB&T Capital Markets' Heather Jones, who said Monday that if indeed the USDA's call on corn acreage is right, either "demand must be rationed or there needs to be a big supply response from other growing regions of the world."
        Less informed observers are also weighing in.
        Biodiesel producer, take heart! In contrast, the USDA's forecast for U.S. soybean planting this year is way up at 74.8 million acres (versus 63.6 million acres that farmers planted in 2007.) That's because soybean prices have shot up in recent months, making the crop more profitable in relation to corn even though soybeans produce far less per acre.
        Soybean prices, according to ag economists, generally need to be at about 2.5 times higher than the price of corn to equalize the revenue between the commodities.

It's about time...

TIME takes a moment from declining to name a Person of the Year to open up a discussion about ethanol - about four months and one "Energy Independence and Security Act" passage too late.
        The cover article, by Michael Grunwald, brings biofuels back into the spotlight for the time being, but the timing (apologies) is somewhat baffling. The issue, which hit newstands today, is basically a re-hash of the false environmental promise of corn-based ethanol.
        But this argument is already so well-documented that most journalists, at this point, have moved on and are now trying to be cynical about next-generation feedstocks, like biomass. No doubt the presses of the venerable weekly were held up so the author could coalesce a compelling lead ("I watched him grab a small anaconda with his bare hands") and spend a day in the Amazon with the Kamayura tribe.
        The article also falls short in that its foot-wide exploration of the negative consequences of biofuel mandates does not at all consider the harm to consumers who must pay more for food, or even the taxpayers who are essentially subsidizing the rural redevelopment of the interior Midwest. 
        But the worst offense of the article is that it wants to lump all biofuels, existing and future, together. This, in turn, forces Grunwald to make an entirely unsupported jab at technology that is not hurting anybody, let alone the environment, because it is not yet being practiced on any meaningful scale.
        "Even cellulosic ethanol made from switchgrass ... looks less green than oil-derived gasoline," Grunwald writes.
        This is not only a glib statement, it is likely wrong. The USDA's Agricultural Research Service is presently developing switchgrass for use on marginal, highly erodible lands. A recent study, meanwhile, showed that switchgrass yielded 93% more biomass per acre than corn.