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Arctic Leaf

The best and worst of times for ethanol

/in , /by

For ethanol it is the best and worst of times. Silos are bursting with a bumper crop and the price of corn has fallen by half, from $7 to $3.50 a bushel over the past year. Refiners are buying feedstock at rock-bottom prices.

“This is the most profitable time I can remember,” Dan Syekh, plant manager at Southwest Iowa Renewable Energy of Council Bluffs, told the Lexington Clipper-Herald of Nebraska. “People are beginning to pay off debt and invest in ever more advanced technologies.”

Yet hanging over all this is the question of what the U.S. Environmental Protection Agency will do about the Renewable Fuel Standard, which specifies how much ethanol the refining industry must buy next year.

“I feel like [the EPA is] playing politics instead of doing what’s right for America,” Iowa Gov. Terry Bradshaw told a Farm Progress Show in Boone last week. “Farmers aren’t buying equipment and John Deere is laying people off. What EPA has done is not only damage farm income but cost us jobs in farm machinery and manufacturing.”

At issue is the EPA’s announcement last spring that it would cut the mandate from the 14.4 billion gallons, originally required by the law, to 13.01 billion gallons, in order to deal with overproduction. With gasoline consumption having fallen since 2007, although numbers are now starting to rise again, the federal requirement had pushed ethanol additives past the 1 percent “blend wall,” where auto and oil companies claim it will damage engines. Many people dispute this but the auto companies are refusing to honor warranties in cars that use blends higher than 10 percent without authorization. Others say the solution is E85 — a blend of 85 percent ethanol and 15 percent gasoline — is the answer but it is not yet widely available outside the Midwest.

The EPA was supposed to make a decision on the mandate last November but has delayed after the furor over its initial proposal. Only last week it sent a final proposal to the White House for review. Rumors are that the EPA has settled on a figure somewhere between the original mandate and its April number, but there is nothing definite. In any case, the Obama administration could take several weeks to approve, even pushing its verdict past the November elections. This is the longest delay in the program’s history.

For several years now the ethanol industry has seen its influence waning in Congress. In 2011, Congress repealed the tariff on foreign biofuels, opening the door to cheaper sugar ethanol. Then it allowed a production tax credit to expire. Perhaps most significant has been the loss of support from large portions of the environmental community. Last year the Associated Press ran a story documenting how the mandate has led to over intensive cropping and the removal of land from conservation soil banks. “Corn ethanol’s brand has been seriously dented in the last 18 months,” Craig Cox, director of the Environmental Working Group in Ames, Iowa, told Politico. “The industry is still politically very well connected but it doesn’t occupy the same pedestal it did two years ago.”

Yet oddly enough, all this is happening at the moment when the industry may be on the verge of a huge breakthrough. On September 3, POET, the South Dakota refiner of ethanol, and Royal DSM, a Dutch maker of enzymes, will hold opening day ceremonies in Emmetsburg, Iowa for the inauguration of what could be the country’s first cellulosic ethanol plant — long considered the holy grail of biofuels. King William-Alexander of the Netherlands is scheduled to be in attendance.

Cellulosic ethanol uses the non-grain parts of the corn plant — the shucks and stalks that cannot be eaten. By cultivating certain enzymes and bacteria from the stomach of cows and other ruminants, several companies now believe they are able to break down the starches in these plant “wastes” and turn them into fuel. Various inventors have made the same claim over the years but have never been able to achieve cellulosic digestion at a commercial level. Now it appears POET may be about to break the barrier.

They aren’t the only ones. In fact, there is now $1 billion worth of cellulosic ethanol investments in the Midwest about to bear fruit:

  • In Nevada, Iowa, DuPont is investing $200 million in a cellulosic plant that will have a capacity of 30 million gallons annually. Operations are slated to begin before the end of 2014.
  • In Hugoton, Kansas, Spain-based Abengoa Bioenergy is spending $500 million on a plant to make ethanol from corn leftovers, wheat straw, milo stubble and prairie grasses. It will produce 21 million gallons of ethanol plus 21 megawatts of electricity.

Should any of these plants succeed, it would change the face of the industry.

So ethanol finds itself in a very strange position. Just as it may be on the verge of a huge breakthrough in production, it finds its markets drying up. Several Midwestern agricultural professors have suggested that the real solution is E85, which readily substitutes for gasoline and would create an almost unlimited demand. There are 15.5 million flex-fuel vehicles on the road — 6 percent of the entire fleet — all of which accept E85. There are also 3,200 gas stations that dispense it. But there is a huge mismatch between them. Most of the stations are in the Midwest where support for ethanol is strong while the flex-fuel vehicles are concentrated in cities on the East and West Coasts. So far no one has come up with a solution for making a better match.

There remains one potential market, however, that could tide over the ethanol industry until better auto markets develop. This is the U.S. Navy. The Department of Defense burns 300,000 barrels of oil a day, 2 percent of national consumption. For some time the Navy has been trying to find “drop-in” biofuels that would substitute for imported oil in jets and other vehicles. This year, for the first time, the Navy will include biofuels in its annual procurements. It is trying to get 50 percent of its fuels from renewable resources by 2020. “Up in the air you don’t have any other choice but liquid fuels,” said Tyler Wallace, professor of agricultural economics at Purdue. “The U.S. uses 21 billion gallons of aviation fuel annually and cellulosic ethanol would make a perfect drop-in.”

So would a huge order from the Navy be able to galvanize an infant cellulosic industry? Or will ethanol have to continue to holds its breath waiting for a decision on the Renewable Fuel Mandate from the White House and the EPA? For the industry, it remains the best and worst of times.

Arctic Leaf

The oil industry and API, at it again. When will they ever learn?

/in , /by

Never a dull moment! The API is at it again. Just a few days ago, it dramatically issued a survey indicating that close to 70% of all consumers were worried that E15 (a blend of 15% ethanol and 85% gasoline) would damage their cars. While the survey was done apparently by a reputable firm, it was not attached to the press release, preventing independent experts or advocate group experts from commenting or verifying the questions and the sample. More importantly, the survey was preceded by an expensive oil industry media blitz that illustrated or talked about the so-called evils of ethanol. The survey and media show reflected an attempt by the oil industry to eliminate or weaken the renewable fuel mandates and lessen competition from alternative transitional fuels.

Americans are usually not Pavlovian in demeanor or behavior; we do ask for second and even third opinions from our doctors. But when only one group, in this case, the oil industry, has put out a continuous flashy very expensive multimedia message, the API’s survey results were almost preordained to reflect the published results. Whatever the industry wanted it got! If you tell a misleading partial story to create fear and uncertainty, long enough, it will likely influence many. In this case, the API, if it had a nose, its nose, similar to Pinocchio’s, would be growing and growing and growing.

Let’s look at the facts — never acknowledged by the API in its “Fuel for Thought” campaign.

  1. DOE effectively demolished the API-supported study many months ago indicating that the sampling approach was wrong and the analysis was faulty. DOE’s study used a much larger number of vehicles and was far more rigorous concerning methodology. (Just to let you know, API is an oil industry funded group.)
  2. Many countries around the world have used E15 and higher ethanol blends as a fuel without significant problems. They are seen as a way to reduce environmental problems. They are cheaper than gasoline and they reduce the need, at times, for oil imports. Put another way, they improve quality of life, lower costs to the consumer, and are good for the economy and security.
  3. Although oil company franchise agreements with gas stations have limited the number of stations able to sell E15, several states (mostly in the Midwest) with multi-fuel stations, have demonstrated the merits of E15. Early data appears to discount engine problems.

Hell, Henry Ford’s initial car was designed to run on pure ethanol until the temperance movement supported by Standard Oil banned the use of manufactured alcohol. I know Standard Oil was very concerned that Americans would drink ethanol at their favorite bars or in front of their favorite fire place with their favorite significant other. Praise be to Standard Oil for salvation!

The law (RFS) requires a 10% ethanol blend with gasoline. More than a year ago, EPA OK’d the sale of E15 (for most cars particularly those produced after 2001). In June, the Supreme Court refused to hear the appeal by the oil industry of EPA’s standards.

API’s media campaign raises the food versus fuel fight canard because ethanol is produced mostly from corn as the feedstock. But the narratives neglect to raise the fact that the evidence concerning the negative impact on food is disputed by reputable analysts who indicate that, for the most part, the corn used for ethanol production is not your friendly grocery counter corn. Put another way, most of the corn to ethanol conversion comes from corn not able to be used for food. Yes, there still maybe some impacts on corn production and prices because of the growers reallocation of land, in light of the differential between corn and ethanol prices, to ethanol. However, many studies suggest that if a negative food impact exists, it is relatively minor. It is a worthy debate.

It appears, that API, conveniently, forgets to mention that ethanol can be produced efficiently and effectively from natural gas and that cellulosic based ethanol is now being manufactured or will soon be manufactured in large volumes by several companies. Further, Clean Energy Fuels announced this week that it will start selling fuel made from methane in landfills and other waste sources in over 40 stations in California. Success of these initiatives, likely, will mean the end of the fuel versus food issue. If success is combined with the inexpensive conversion of existing cars to flex fuel cars permitting them to use alternative fuels, America will be blessed with a much cleaner, environmentally safe, and cheaper alternatives to gasoline- assuming the oil industry doesn’t block their sale at fuel stations.

Clearly, the oil industry does not want competition at the pump from ethanol…whether corn, cellulosic, garbage or natural gas. The American public should be wary of misleading guerilla marketing through industry funded surveys or not so benign expensive media blasts by captive organizations like API. Hopefully, the American consumer will not be confused for long. Paraphrasing a song by Peter, Paul and Mary about war and peace and a statement by President Lincoln, when will the oil companies ever learn?, and, if they don’t learn, when will they recognize “they can fool all the people some of the time and some of the people all the time but they cannot fool all the people all the time.”