Flint Hills Resources, a biofuels company owned by the corporation controlled by brothers Charles and David Koch, has purchased its seventh ethanol plant.
This week Flint Hills completed its acquisition of the plant near Camilla, Ga., from Southwest Georgia Ethanol. According to Flint Hills’ press release, the plant produces about 120 million gallons of ethanol a year and employs about 60 people.
As the Wichita Eagle notes, Flint Hills is now one of the largest ethanol producers in the country. Its biofuels business …
… has a combined annual capacity of 820 million gallons of ethanol, a biodiesel plant and investments in biofuels technology and feedstock development.
Considering that the entire ethanol industry produced 13.3 billions of fuel in 2013, Flint Hills now controls 6.2 percent of the U.S. market. Pretty substantial for an enterprise owned by Koch Industries, which made the bulk of its vast fortune on oil.
The Kochs are hardly greenies. According to a Rolling Stone story from last September:
Thanks in part to its 2005 purchase of paper-mill giant Georgia-Pacific, Koch Industries dumps more pollutants into the nation’s waterways than General Electric and International Paper combined. The company ranks 13th in the nation for toxic air pollution. Koch’s climate pollution, meanwhile, outpaces oil giants including Valero, Chevron and Shell. Across its businesses, Koch generates 24 million metric tons of greenhouse gases a year.
A 2011 story by the Center for Public Integrity contends that while oil is the “core of the Koch business empire,” its influence extends much further.
Koch companies trade carbon emission credits in Europe and derivatives in the U.S. They make jet fuel in Alaska from North Slope oil, and gasoline in Minnesota from the oil sands of Canada. They raise cattle in Montana and manufacture spandex in China, ethanol in Iowa, fertilizer in Trinidad, nylon in Holland, napkins in France and toilet paper in Wisconsin.
Since federal guidelines call for a certain amount of ethanol to be blended into the nation’s gasoline supply, investing in ethanol might be a simple hedge, the story says.
“New or emerging markets, such as renewable fuels, are an opportunity for us to create value within the rules the government sets,” Flint Hills Resources President Brad Razook told his employees …
Still waiting for Debbie Carlson to explain why ethanol “isn’t a good fuel.”
That was the headline of a piece she wrote for The Guardian last week: “Energy hypocrisy: Ethanol isn’t a good fuel, but it’s not going away anytime soon.”
Carlson, a veteran business freelancer who also has written for Barron’s and The Wall Street Journal, makes several uncontested points, noting that ethanol — particularly ethanol made from corn — carries some political baggage. And of course there’s a looming battle over how much ethanol to blend into the nation’s gasoline supply under the Renewable Fuel Standard.
But nowhere in the 1,024-word post does Carlson explain, specifically, what makes ethanol such a lousy fuel.
Ethanol, whether it’s made from corn, sugarcane, biomass or other feedstocks like natural gas or municipal waste, simply burns cleaner, producing far fewer emissions than gasoline. The result is a net gain for air quality, people’s health and the environment. Henry Ford called it the fuel of the future.
Marc Rauch. Credit: The Auto Channel
Marc Rauch, executive vice president and co-editor of The Auto Channel website, takes issue with Carlson’s assertions in a new TAC post, titled “Ethanol Honesty is the Best Energy Policy.” Marc Rauch, a longtime champion of alcohol fuels who appears in the Fuel Freedom-produced documentary PUMP, starts in right away with the title of Carlson’s piece, noting that she “included nothing within her story to support calling ethanol a bad fuel.”
Rauch is just getting warmed up. He continues:
Ms. Carlson doesn’t get any more honest as she thoughtlessly rattles off hackneyed, long disproved criticisms of ethanol like a detached high school cheerleader who doesn’t understand the rudiments of the game she’s cheering for.
Ms. Carlson writes that while ethanol was supposed to help reduce our dependence on foreign oil; combat climate change; be a gateway for more renewable fuels technology, and reduce gasoline prices because it was cheaper; that it hasn’t done any of these things. She is wrong, it has done all of these things.
If America used 13 billion gallons of ethanol in 2014 to help power our passenger vehicles then that means we reduced our dependence on foreign controlled oil by 13 billion gallons — simple mathematics.
Rauch saves his harshest criticism for Carlson’s rehashing of the argument that corn ethanol steals food out of the mouths of starving babies. It’s a line that opponents of ethanol, including the oil industry, have been leaning on for years. She writes that “we’re putting nearly 40% of the US corn crop in our gas tanks, which some argue pushes up food prices.” (emphasis added.)
Rauch writes that Carlson “attempts to re-ignite the preposterous flames of the ‘food vs. fuel’ argument, adding:
Central in trying to make this an alarming statistic is the imagery that just as the corn is about to be distributed to millions of corn-on-the-cob deprived starving people around the world, greedy ethanol producers swoop in and buy up all the food to be turned into fuel. In reality, this is not how the system works.
There is no question that more corn being grown in America today is being used for ethanol production than as compared to, say, 10 years ago. But the reason for this is that the corn is specifically grown to be used for ethanol. There is demand for the crop so farmers grow more. This means that farmers (American farmers) can grow something that is profitable. Moreover, it means that they can grow something without having to turn to public assistance.
In 2000, U.S. corn production was 251,854 metric tons. In 2013, U.S. corn production was about 353,715 metric tons. Despite the increase in the amount of corn grown between the two years the actual amount of corn available for human consumption remained the same. Additionally, although most of the world outside of the western hemisphere does not eat corn the way that we do, world corn production reached record highs in 2014. So it’s safe to say that there were fewer starving Africans being deprived of non-nutritious high-fructose corn syrup products. Considering the obesity problem that we have in America, even if we were depriving someone of corn chips perhaps we would be doing them a favor.
Finally, there’s the issue of ethanol’s price. Carlson writes that: “As of 26 January, Chicago Board of Trade ethanol futures were holding around $1.448 a gallon, whereas New York Mercantile Exchange reformulated gasoline futures prices were at $1.3167, giving the renewable fuel a 13-cent premium.”
Ask yourself: Where have you seen regular gasoline at $1.31 a gallon? That low price doesn’t take into account marketing and distribution costs for gasoline, Rauch says.
As for the price in the real world, FFF blogger William Tucker has observed that ethanol prices have dropped, which is remarkable considering that oil has plunged 60 percent in seven months. According to E85Prices.com, the national average for E85 on Monday was $1.70, compared with $2 for E10 (regular gasoline with 10 percent ethanol).
In some states, it’s more cost-effective than the national average: In Texas on Monday, E85 was 18.2 percent cheaper than E10. In Florida, the spread in favor of ethanol was 24 percent, and in California it was 19 percent. The spread likely will increase if volatile oil prices rise again, which some experts say they inevitably will.
Rauch writes that Carlson is:
assuming the current surprisingly low price of crude oil will remain surprisingly low …
Read Rauch’s full post, and watch his segment in PUMP, to learn the truth about ethanol.
Until then, here’s a clip from the film, in which Rauch says ethanol “has always been the better fuel” for cars and trucks, and David Blume discusses the many crops besides corn that can be processed into alcohol fuels:
Jim Lane, editor and publisher of Biofuels Digest, is one person who thinks alternative fuels aren’t necessarily going to be hurt by the huge drop in the price of crude oil.
In a post on the Digest Jan. 6, Lane lays out the rather complicated case of why it doesn’t pay right now to be dumping your alternate-energy stocks. That’s been the reaction so far to anything related to the price of oil. But Lane says there are special aspects of alternatives like ethanol that will be affected in a different way.
In the first place, Lane notes that while crude oil prices have been falling, ethanol prices have been falling, too. Since last June, crude oil has fallen from $115 a barrel to under $50, a remarkable 60 percent drop. Yet ethanol has fallen as well, from $2.13 a gallon to $1.55 a gallon, a formidable 27 percent drop. This is due mainly to the falling price of corn, which has been at its lowest level in recent years. A bushel of corn fell over the same period from $4.19 a bushel to $3.78, a 10 percent drop. In this way, ethanol is only marginally dependent on the price of oil and can show its own price pattern.
One thing worth noting is that there is a certain amount of elasticity in American driving. People tend to increase their driving range when the price of gasoline goes down. This is particularly true when it comes to taking vacations, which tend to be a long-term planning effort. If the price of gasoline stays down through next summer, people are more likely to increase gas consumption. The fact is that gasoline demand has actually reached its highest point in the last few months since the price of oil began to fall, as the following graph indicates:
Now drivers are required to include 10 percent ethanol in each gallon of gas. Therefore, ethanol has a fixed market. Driving has been declining in recent years, which is one reason that the Renewable Fuel Standard has been under fire – because the absolute amount of ethanol required has exceeded the 10 percent requirement in relation to the amount of gasoline consumed. Refiners and oil companies must buy this amount of ethanol. This is the reason the Environmental Protection Agency has been holding back on setting an RFS for 2014 — because the original amount prescribed was going to exceed the 10 percent figure. If people start taking advantage of lower gas prices and start consuming more gasoline, the amount of ethanol required will grow. “(W)e should be seeing a 2+% increase in gasoline demand, and that will take some pressure off the ethanol blend wall,” Lane writes. It might make EPA’s decision easier, if it ever gets around to setting a number.
Just to emphasize this point, an RIN — Renewable Index Number — is required by the EPA to prove that a refinery has been adding ethanol up to the 10 percent mark. The price of RINs has actually been rising as gas prices have fallen. As Lane writes: “Part of the reason that the ethanol market is holding up relatively well in tough times is the impact of the Renewable Fuel Standard, and its traded RIN system. RIN prices have jumped as oil prices have slumped — and a $0.76 increase in the RIN value of a gallon of fuel is a striking increase in value.”
So all is not dark for the future of alternatives. Ethanol’s place is secure, despite the fall in gasoline prices. Remember, it’s not that demand for gas is falling, but people are spending less for what they get. If methanol is given a chance, it might turn out to be more invulnerable, since it’s not tied to corn prices but to natural gas, which we seem to have in even greater abundance than oil. Electric cars also don’t lose their appeal, since much of their appeal is getting off gas entirely and unbuckling from the oil companies. It may not be time to abandon your stock in alternative energies quite yet.
We might think of oil and automobiles as inextricably linked. But the earliest mass-produced vehicles were designed to run on multiple fuels, not just gasoline.
Henry Ford brought us the original mass-market flex-fuel vehicle. That fact made him one of the biggest stars of the Fuel Freedom-produced documentary PUMP the Movie, which is available on Netflix and DVD.
Ford’s Model T, introduced in 1908, could run just as well on alcohol fuels as on traditional gasoline. The driver could easily switch from one fuel to the other simply by turning a brass knob to the right of the steering column. This turned a screw in the carburetor, allowing either more or less fuel to enter the engine and mix with air. Alcohol fuel doesn’t contain as much energy as gasoline, so more of it needs to be injected to run the engine as well.
As David Blume, another PUMP star, shows in this video, drivers needed to switch between fuels because they wouldn’t know which fuel source would be available when they were out on a drive.
Ford grew up on a farm in Michigan and always held farms, and farmers, dear to his heart. As historian Bill Kovarik’s fascinating study of Ford’s alcohol-fuel dedication shows, he clearly wanted to help cash-strapped farmers get into new markets by promoting agricultural products as fuel sources — not only corn, but anything else that could be fermented.
In 1919, Ford told The Christian Science Monitor (according to this New York Times account): “The fuel of the future is going to come from fruit like that sumach [a flowering plant] out by the road, or from apples, weeds, sawdust — almost anything.”
The movement to run vehicles on ethyl alcohol, or ethanol, was dealt a severe blow by the passage of the 18th Amendment to the Constitution, known as Prohibition, which banned the “manufacture, sale or transportation of intoxicating liquors,” even alcohol (ethanol is also known as grain alcohol, or “moonshine”) used as a fuel. Prohibition was repealed in 1933, and by then the ethanol market was severely weakened in America. Read Bill Ganzel’s truth-stranger-than-fiction account of what happened next, when the U.S. became convinced that leaded gasoline was the best way to raise gasoline octane levels.
But ethanol has staged an epic comeback: More than 13 billion gallons was used in 2013, according to the Renewable Fuels Association. That figure could reach 36 billion gallons by 2022 if the federal government continues to mandate blending an increasing amount of ethanol into the nation’s gas supply, under the Renewable Fuel Standard guidelines.
Make your voice heard: Sign Fuel Freedom’s petition urging major independent fueling retailers like Costco and Walmart to offer ethanol as an option for their customers.
Because unlike back in the day, you don’t even need a knob to make the switch to ethanol.
A new school of thought has emerged that ethanol may actually benefit from the recent fall in oil prices, to nearly half their level of a few months ago.
The main exponent of this theory is Andrew Topf, writing on OilPrice.com. His logic is sound, and there are a few recent developments to back him up. It isn’t a sure thing, but there is a strong possibility that ethanol could emerge from the current oil price plunge as a winner.
Here’s the argument Topf makes: He acknowledges that ethanol prices have fallen along with gas prices, so the market doesn’t look very promising. Also bedeviling the industry is the foot-dragging by the Environmental Protection Agency, which has not yet set a renewable goal for ethanol for 2014. The EPA is supposed to set a number every year that specifies how much corn ethanol will be consumed. This is supposed to be enough to meet the 10 percent standard that ethanol is supposed to meet in replacing gasoline every year.
Buffeted by this uncertainty, however, the industry has taken its own initiative and started exporting ethanol. To its surprise, the market has proved very favorable. Canada, the Philippines and Japan have all proved to be receptive to the idea of stretching their gasoline supplies with ethanol. Green Plains, Inc., one of the major U.S. producers, is going to export 15 percent of its product in the fourth quarter of 2014. “We are booking export sales into 2015, extending into the third quarter of next year,” Green Plains president and CEO Todd Becker told investors in a conference call in October. “We typically have not seen export interest that far out in the future.”
The U.S. has pursued contradictory policy on ethanol from the beginning, giving the encouragement of the 10 percent mandate, coupled with subsidies and tax breaks going back to the 1990s. Then became President Bush’s mandates, which guaranteed a market for ethanol through 2023 and also specified a market for cellulosic ethanol, which has never materialized — even though the EPA has charged refiners for a product that didn’t exist.
So what will happen with ethanol amid falling oil prices? One straw in the wind came in South Bend, Indiana, where a corn ethanol plant that had been closed for several years finally reopened. The chances for the plant to succeed are much greater now that corn prices are at their lowest in five years, Purdue University agricultural economics professor Christopher A. Hurt told The Times of Northwest Indiana. “I think the prospects appear to be quite favorable for that plant if they can get it up and running as quickly as possible,” he said. And that doesn’t take into account the possibilities for export to countries that are dependent on imported oil.
The ethanol effort is often criticized as one that wouldn’t even exist were it not for government support that has boosted it all the way. The entire farm bloc are now supporters of ethanol. However, to everyone’s surprise, when the subsidies ended, ethanol production kept increasing!
Now that ethanol has found a market abroad, it is possible that even amidst falling oil prices, the industry will be able to even keep growing. Ethanol still has a high octane level and substitutes for much more noxious chemicals by blending with gasoline. Its role as at least a 10 percent additive seems secure. Now let’s find out if ethanol can find a place in the world market as well.
Everyone is saying that falling gas prices will ruin the market for alternative fuels and vehicles. But it isn’t time to give up on them now.
Ethanol and methanol are still two liquid fuels that will easily substitute for gasoline in our current infrastructure. Ethanol is making headway, particularly in the Midwest, where it is still cheaper than gasoline and has a lot of support in the farm economy. The big decision will come when the EPA finally sets the quota for ethanol consumption for 2015 – if the agency ever gets around to making a decision. (The decision has been postponed since last spring.) A high number should guarantee the sale of ethanol no matter what the price of gasoline.
That leaves methanol, the fuel that has the most potential to replace gasoline and would it fit right into our present infrastructure but must still run the gamut of EPA approval and would require a change in habits among motorists. Methanol is still relatively unknown among car owners and is hindered by people’s reluctance to try new things. But the six methanol plants that the Chinese are building in the Texas and Louisiana region could break the ice on methanol. The Chinese have 100,000 methanol cars on the road now and are shooting for 500,000 by 2015. Some of that methanol might end up in American engines as well.
Another alternative that is still in play is the electric car. In theory, electric cars should not be affected much by gas prices because that is an entirely different infrastructure. The appeal is not based on price so such as the idea of freeing yourself from the oil companies completely and relying on a source of energy.
The Nissan Leaf has not been badly hit by oil prices. Tesla’s cars, of course, have not gone mass market yet, but the company is relying on a new breed of consumer who does not worry too much about the price and will appreciate the car for its style and performance. Elon Musk has shown no indication of backing down on his great Gigafactory, and Tesla is still aiming to have the Model III (its third-generation vehicle, which will come at a much lower expected price point of $35,000) ready by 2017.
This leaves natural-gas-powered vehicles as the only group that might be hurt by falling gas prices, and here the news is not too good. Sales of vehicles that have compressed natural gas as their fuel declined 7.2 percent in November. As David Whiston, an analyst at Morningstar, told the Houston Chronicle’s Ryan Holeywell: “I hear all the time from dealers: As soon as gas starts to go down, people look at light trucks.”
CNG’s appeal has always been that it will be cheaper than regular gasoline, so plunging gas prices make it lose much of its appeal. It costs $5,000 to install a tank for CNG fuel, and that is not likely to attract a lot of takers with oil prices low. For a gas-electric hybrid, there is similar math. For the Toyota Corolla, the electric portion adds another $7,000 to the price. That’s why the CNG-based solutions never caught up with the light-duty vehicle. They are still attractive for high-mileage vehicles like buses and garbage trucks. “For the consumers doing the math, if gas goes below $3 per gallon, the payback period goes out a number of years,” Whiston told Holeywell. “And the break-even point makes sense for fewer people.”
The collapse in gas prices is not the end of the road for alternative fuels. In a couple of months, the price may be up again, and all those people who have rushed out to buy light trucks will be stuck with them. The changeover to alternative fuels is a slow process, fraught with false starts and misleading signals. But in the end, it will be well worth it to reduce our dependence on imported oil and achieve some kind of energy independence. Car buyers have very short memories and an inability to look very far into the future. Remember, it’s always a passing parade. Consequently, their reaction has been only short-term. But once people buy those trucks, they’re stuck with them for the next 5 to 10 years. If the price of gas goes up again, they may live to regret it.
BusinessWeek’s Matthew Phillips reflects on the EPA’s decision to delay proposed changes to the renewable fuel standard, a revision that was expected to reduce the amount of corn-based ethanol to be blended into the nation’s gasoline supply.
Now that the new RFS standards have been put off until sometime in 2015, ethanol producers have the chance to regroup and fight another day, Phillips writes.
The ethanol industry just avoided a death blow. Rather than deciding to permanently lower the amount of renewable fuels that have to be blended into the U.S. gasoline supply, as it first proposed a year ago, the Environmental Protection Agency last week opted to wait until next year to decide. The delay (official notice here) means this year’s ethanol quotas won’t be set until 2015 and ensures they will be lower than the original mandate envisioned. That’s not great news for ethanol producers, but it gives them more time to fight and avoids an outcome that could have been far worse.
…
Ethanol industry leaders pretended to be angry at the EPA’s decision to delay on Friday: “Deciding not to decide is not a decision,” Bob Dinneen, chief executive of the Renewable Fuels Association, said in a written statement. But the reality is that they’re relieved the White House didn’t choose a more aggressive plan pushed by refining and oil companies.
The federal government’s new threshold for the amount of ethanol blended into America’s gasoline supply was already 10 months overdue. So officials have gone ahead and delayed the decision further, into 2015.
The Environmental Protection Agency announced Friday that it would defer an announcement on the renewable fuel standard (RFS), which stipulates that ethanol should make up 10 percent of gasoline.
The standard, first established under a 2005 law, calls for the amount of renewable fuels in gasoline to progressively increase each year. But the law was written at a time when demand for gasoline was expected to keep going up. Slackened demand around the world, combined with stepped-up U.S. production, has dropped domestic prices below $3 a gallon.
Based on that reality, the EPA recommended, in November 2013, that the amount of corn ethanol in the should be reduced, from 14.4 billion gallons a year to 13.01 billion gallons.
This upset the corn growers and ethanol producers, most of them clustered in the Midwest and Great Plains. They said the delays deterred investment in biofuels, and even the oil companies complained that the regulatory vacuum created too much uncertainty in the fuels market.
The EPA’s recommendations had not been finalized. They had been sent to the White House Office of Budget and Management for review, but that office “ran out the 90-day clock to review the agency’s proposed standards, which for the first time signaled a retreat by the EPA on the percentage of biofuels that must be blended,” The Hill reported.
Since the EPA was already so late in setting the 2014 guidelines, the agency “intends to get back on track next year, though details on how it would do that weren’t available Friday,” The Wall Street Journal wrote. The EPA statement said: “Looking forward, one of EPA’s objectives is to get back on the annual statutory timeline by addressing 2014, 2015, and 2016 standards in the next calendar year.”
The reaction among the affected parties was mixed Friday. The WSJ tries to untangle the various interests:
The debate over the biofuels mandate triggers strange bedfellows, with trade groups representing the oil and refining companies, car manufacturers, livestock and even some environmental interests all opposed to the policy for different reasons. Proponents of the standard include the corn industry, which is the most common way ethanol is produced, and producers of ethanol.
The EPA’s announcement gave cautious hope to ethanol-industry leaders that the agency will fundamentally rethink how it proposes the annual biofuels levels. The draft 2014 biofuels levels, which the agency proposed almost a year ago, were much lower than the ethanol industry lobbied for.
“I am truly pleased that they’re pulling away from a rule that was so bad,” said Bob Dinneen, president and CEO of the Renewable Fuels Association, a trade group representing biofuels companies. “But I recognize as well we have to work with the agency to try to figure out a path forward that everybody can live with.”
Executives in the oil-refining industry criticized the delay, and said it was evidence the renewable-fuel standard was itself inherently flawed and should be repealed.
“Each year is dependent upon the previous year, and to some extent dependent upon the following year,” said Charlie Drevna, president of the American Fuel & Petrochemical Manufacturers, a trade association representing the nation’s refining industry. “The problem is, every year EPA is late in getting this out, it exacerbates it. They’re never going to be able to catch up.”
A Renewable Fuels Association analysis of model year (MY) 2015 warranty statements and owner’s manuals reveals that auto manufacturers explicitly approve the use of E15 (15 percent ethanol, 85 percent gasoline) in approximately two-thirds of new vehicles. E15 is approved by U.S. EPA for all 2001 and newer vehicles — accounting for roughly 80 percent of the vehicles on the road today.
While the debate rages about what the threshold for biofuels should be in the government’s next (and long-delayed) Renewable Fuel Standard, Breaking Energy’s Jared Anderson has a timely post about the makeup of the current RFS, as it was proposed by the EPA last November.
There are thresholds within the larger thresholds, and it looks like the cellulosic ethanol target will go down. But as Anderson notes:
“While the battle over the RFS continues, the cellulosic ethanol industry took a major step forward today with the inauguration of a commercial-scale plant in Hugoton, Kansas. The biorefinery has the capacity to produce 25 million gallons of cellulosic ethanol per year, which alone exceeds EPA’s proposed 17 mm gallon blending target under RFS. The plant also generates 25 MW of electricity, which supplies its own needs and provides excess power to the local community.”
Anderson signs off with:
“The RFS will remain controversial, but this new plant is a big win for the cellulosic ethanol portion of the equation.”
(Photo credit: Shutterstock)
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