Big Oil vs Farm Majors: Ethanol Tussle Is Heading to Asia

Source: By Alfred Craig, Bloomberg • Posted: Friday, September 13, 2019

One of the booths at Asia’s biggest oil shindig this week was occupied by the American agricultural industry.

Pummeled by the trade war with China, U.S. farm companies are scouring the world for additional sources of demand. That means for instance that crop handler The Andersons Inc. has now decided to compete with the likes of Royal Dutch Shell Plc and BP Plc for a slice of the global fuel market.

“We’re moving away from ethanol being seen as an agricultural product and moving toward it being an energy product and gasoline component,” James Pirolli, president of the company’s ethanol business, said in an interview at the Asia Pacific Petroleum Conference. The company is seeking to boost sales to Southeast Asian countries such as Indonesia and Vietnam, which both rely on overseas fuel supplies, he said in Singapore.

U.S. ethanol production drops

The S&P Global Platts conference featured the U.S. Grains Council as its first agricultural sponsor this year, and Pirolli delivered a speech promoting the benefits of U.S. ethanol. The corn-based biofuel averages about $200 a ton cheaper than aromatics, its competitor for blending into gasoline, based on delivery in Southeast Asia, Pirolli said in the interview.

Margins at U.S. ethanol plants have taken a beating as President Donald Trump’s trade war locked out sales to China, worsening a domestic glut. More producers will have to shut down if trade talks remain deadlocked, and sales to other parts of the world fail to pick up, Pirolli said.

‘Easily Double’

The U.S. now exports about 10% of its ethanol output, or about 1.6 billion gallons a year (roughly 100,000 barrels a day), mostly to countries in the Americas such as Brazil and Canada, said Pirolli. Supplies to Southeast Asia are around 200 to 300 million gallons a year, according to Tim Tierney, the U.S. Grains Council’s regional head for ethanol marketing in North Asia.

Sales to Asia including India could “easily double” to more than 1.2 billion gallons a year if the U.S. and China reach an agreement, Pirolli said. Demand in Asia will increase as countries introduce measures to boost renewable energy consumption, even as compliance needs to be improved and trade barriers lowered or removed, he said.

Andersons, which recently acquired grain trader Lansing Trade Group, is optimistic U.S. ethanol demand will increase in the next five to seven years as a result of the adoption of E15 gasoline containing 15% ethanol. There’s maybe only 2% of U.S. convenience stores and gas stations offering E15 right now, and the industry needs long-term investment to increase that, Pirolli said.

The company’s joint venture with ICM Inc., which is a generation 1.5 ethanol plant and able to convert corn starch, kernel and cellulose, is expected to increase yields and benefit from its lower carbon intensity, even as costs now are “way more expensive” than the traditional process, Pirolli added.

(Adds comments on cellulosic ethanol plant in 9th paragraph)