Ethanol industry continues to evolve as usage levels off

Source: By Loretta Sorensen, Midwest Producer • Posted: Thursday, April 2, 2015

 Greg Krissek

However, delayed support for the Renewable Fuel Standard (RFS) and the failure of the Environmental Protection Agency (EPA) to finalize 2014 and 2015 renewable volume obligation requirements (RVOs) is hampering the growth of ethanol demand and advance of biofuel production across the nation.

Kansas Corn CEO Greg Krissek said there is some slowing of ethanol production on the eastern and western edges of the cornbelt. But ethanol industry leaders are responding to market conditions by implementing new technology and finding added income streams from ethanol byproducts.

“Ethanol is still a strong market for corn producers,” Krissek said. “Typically, during the summer driving season, ethanol demand rises. Although current ethanol production in Kansas is slow, I’m aware of two Kansas plants building renewable diesel facilities and another one that’s added an additional feed co-product. Diversifying revenue streams will help ethanol facilities spread their risk if product demand decreases.”

Other familiar hurdles that still loom for ethanol producers are RFS and RVO concerns. The etha-nol industry also struggles yet to make E15 and E85 blends readily available to consumers. On the retail side, one of the largest hurdles is EPA’s refusal to acknowledge the one-pound waiver for E15 blends.

“About 40 percent of gasoline/ethanol blends are used in large, metropolitan areas,” Krissek said. “Gasoline volatility (Reid Vapor Pressure or RVP) is already accounted for there in the gasoline base feedstock. For the rest of the country, and most of Kansas, RVP of the base gasoline blend and lack of the waiver means retailers can’t sell the E15 blends for all vehicles in the summer, which means they have to change fuel supply and labels on pumps for winter and summer. Many don’t want to deal with that.”

When gasoline evaporates, volatile organic compounds (VOCs) enter the atmosphere and contribute to ozone formation. The warmer air temperatures are, the more the problem is exacerbated. In response to the issue, EPA set regulations disallowing sale of gasoline with an RVP in excess of 9.0 psi in “volatility attainment areas.”

Ethanol producers say E15 has nearly identical or better physical characteristics of E10 and doesn’t contribute to the problem, but the blend doesn’t qualify for the Clean Air Act exemption from fuel volatility limitations.

“Resolving that issue would make it possible for retailers across the country to offer E15 year round,” Krissek said. “It’s one of the main barriers keeping retailers from offering E15 in areas with conventional gasoline.”

Among the bright spots in the ethanol industry for Kansas and the U.S. in general are the cooperative efforts between the ethanol industry, corn industry and the U.S. Grains Council to further develop ethanol export markets.

“I’d rather see our ethanol used here,” Krissek said. “But a strong export market is the next best thing.”

Because much of the U.S. sorghum crop is helping meet a strong Chinese demand for the grain, the current market price of sorghum makes it unappealing in the ethanol industry. That means corn will be the primary product used to produce ethanol.

“Kansas sorghum traditionally played an important role in ethanol production,” Krissek said. “With prices for that grain remaining strong, ethanol plants are focused on almost 100 percent corn, which is good for corn growers.”

Krissek believes ethanol has made significant advances in the gasoline market over the past 6 or 7 years. While volatile commodity prices will continue to play a role in the industry’s stability, governmental action implementing the RFS as enacted would advance development of all the nation’s biofuels.

“The gasoline refining industry today is pretty much set on using 10 percent ethanol blends,” Krissek said. “There’s better understanding of ethanol markets today than there was 6 or 7 years ago. Some Kansas plants are approaching their 10th anniversary. Many plants have added technologies to make production more efficient and they’re diversifying income streams, all of which adds an air of stability.”