Ethanol industry’s looming challenges are focus of 2-day Omaha gathering

Source: By Russell Hubbard / World-Herald staff writer • Posted: Thursday, April 10, 2014

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Ethanol industry’s looming challenges are focus of 2-day gathering
Nebraska’s ethanol industry officials are gathered in Omaha today and Friday as a spate of contentious new issues bears hard on the nation’s Corn Belt.

Those issues include the proposed Environmental Protection Agency reduction in the amount of ethanol that must be blended with the nation’s gas supply; rail-transport snarls; food-grade hygiene requirements for the animal feed that is a byproduct of ethanol production; and the prospect of a carbon dioxide pipeline stretching from Iowa through Nebraska to Wyoming.

The 2014 Ethanol Emerging Issues Forum hosted by the Nebraska Ethanol Board starts today and runs through Friday afternoon at the Magnolia Hotel in downtown Omaha. The ninth annual conference, limited to about 125 participants, is expected to draw people involved in the production, technology, policy and marketing of ethanol and related products.

Confirmed speakers include Doug Durante, executive director of the Clean Fuels Development Coalition; Steve Bleyl, ethanol marketing chief for Omaha’s Green Plains Renewable Energy, now one of the state’s largest publicly traded companies; and Alvaro Cordero, manager of global trade for the U.S. Grains Council, an ag-supported nonprofit advocacy group.

There is scarcely a better spot for such a gathering. Nebraska’s 24 ethanol plants make it the nation’s second-largest producer of the motor-fuel additive, and the state is the third-largest producer of corn, its main ingredient. Iowa ranks first in both and has 42 ethanol plants.

“The ethanol sector is integrated with agriculture in many ways that are essential to our economy,” said Todd Sneller, director of the Nebraska Ethanol Board. “Corn and other grain processed in ethanol plants creates extensive economic impacts in manufacturing, livestock, engineering, transportation and other sectors. We are expecting a good turnout and really interesting speakers.”

Certain to get a lot of attention during discussions, presentations and tonight’s cocktail reception and dinner is the federal Renewable Fuel Standard. Last year, the EPA proposed cutting biofuel requirements by 8 percent, to 15.2 billion gallons; ethanol accounts for the vast majority of the requirement, with fuels from other organic material such as wood, waste and grass making up the remainder.

In its annual revision to biofuel mandates, the EPA, charged with overseeing the Renewable Fuel Standard created by Congress in 2007, said more fuel-efficient cars and modified driving habits created a saturation point called the blend wall.

That is the point at which gasoline-ethanol blends higher than 10 percent ethanol, such as E15 and E85, are required to fit all of the mandated ethanol into all of the nation’s gas tanks. Hence, the proposed cut in the mandate for the number of ethanol gallons to be blended with gasoline.

“It is a little scary to spend all these millions and then have them say, nope, sorry,” said Paul Kenney, chairman of KAAPA Ethanol in Minden, Neb.

The history of KAAPA, short for Kearney Area Ag Producers Alliance, illustrates the growth of the state’s ethanol industry. The ethanol part of the farmer-owned cooperative was started in 2003 with a capacity of 40 million gallons a year. Construction financing was not easy to find, Kenney said.

“No one had any money for ag then,” Kenney said.

Fast-forward and KAAPA now produces about 60 million gallons a year, employing about 45 people. It has been consistently profitable, owned by about 500 area farmers who receive handsome dividends. In 2012, sales were $277 million; assets were $82 million, liabilities $16 million.

KAAPA Ethanol also now owns stakes in plants in Ohio, Minnesota and North Dakota, and a share of the third-largest ethanol marketing company in the nation.

Along the way, it has contributed to Nebraska passing Texas as the nation’s largest cattle-feeding state, said board member Andy Tomsen, referring to the leftover grains from ethanol production known as “wet cake.”

“Part of the reason is wet cake,” Tomsen said. “We can now feed cattle cheaper than Texas.”

Regardless of the EPA final decision of the Renewable Fuel Standard, litigation will probably follow. In past years, the petroleum industry has sued in federal court when the mandate was raised, and the ethanol industry has done the same when it was cut.

“Raising the mandate would be of concern to us,” said Bob Greco, a group director at the Washington-based American Petroleum Institute, a trade and lobbying organization.

Greco said his group has no quarrel with ethanol; he said the quarrel is with the legal requirement under federal law for a minimum amount that must be blended with gasoline. Consumer demand, he said, should establish how much is blended, not legislation.

Greco also said there are not enough cars on the road, only about 5 percent, that can safely use E15 and E85 without voiding manufacturer warranties — a contention disputed by the ethanol industry.

“But the biggest myth is that we want to do away with ethanol,” Greco said. “It is a product people want, it is economical to blend with gasoline and it helps octane and the environment.”

Another looming challenge for the ethanol industry is increased regulation via the Food and Drug Administration. The issue is distiller’s grains, or the corn remnants left over from ethanol production. They are high in protein and sold as cattle feed.

Now, the FDA wants the plants that sell their distiller’s grains to follow food-grade safety procedures because the byproducts go to feed animals that later enter the human food supply.

“Whatever gets fed to the animal, they want to know what’s in it,” said Dan Wych, plant manager at Southeastern Iowa Renewable Energy in Council Bluffs. “There will be a lot more documentation and a lot more tracking.”

Wych said ethanol plants will be required to keep track of all additives and chemicals used to ferment grain, and to comply with rules on food-grade hygiene.

Shipments of distiller’s grains will have to be carefully labeled and documented at every stage of production and shipment. The point, Wych said, is for government regulators to be able to trace every lot of distiller’s grains that reaches a feedlot in case something goes wrong, much in the same way they can track grocery store comestibles during a recall.

Enforcement of the already-enacted regulations is slated for next year, Wych said. He doesn’t know what it all will cost, saying that no new equipment is really needed, but that a lot of new procedures and documentation will be required.

Some novel ideas will be bandied about at the conference. One scheduled for discussion during a Friday forum is the construction of a pipeline from Iowa and Nebraska to Wyoming carrying another leftover from ethanol production, carbon dioxide, or CO2. It is produced in copious amounts when corn is fermented and distilled.

The idea is the brainchild of Elk Petroleum, a Wyoming oil driller. Chief Executive Scott Hornafius said injecting CO2 into oil wells stimulates them to give up their last bits of crude. And oil produced in this fashion qualifies for low-carbon incentives from California, because the use of waste CO2 for oil production generates a net reduction in greenhouse gases.

Hornafius said he is attempting to generate interest and investment in a pipeline to carry Iowa and Nebraska’s CO2 to Wyoming, where he said oil wells are desperate for it. He described it as a $1 billion project that will probably require the participation of major energy companies.

Getting Corn Belt ethanol plants on board is a first step, he said. They would earn revenue from selling their CO2, as “there is enormous demand” from the oil industry. Hornafius doesn’t expect major environmental opposition, as with the contentious Keystone XL pipeline proposed to carry crude oil across Nebraska. CO2 is everywhere, exhaled by every living organism.

“There is no potential for pollution,” Hornafius said. “If there is a leak, it just vents into the air.”