Ethanol producers: Industry may plateau

Source: By The Associated Press • Posted: Monday, September 9, 2013

Without demand, mandates, ethanol may fall under big business

WICHITA — Ethanol producers say they are running up against market and regulatory pressures that are putting a crimp on the industry’s future, despite lower prices for a key commodity to produce the fuel.

The ethanol industry is distilling enough product to satisfy the government mandate for blended fuels, usually about 10 percent ethanol. But without increased demand or mandate for more ethanol content in fuels, the industry has hit a so-called “blend wall” that is forcing small, higher-cost plants to close.

One such facility was the Abengoa plant in Colwich that closed in 2011 after 25 years in operations.

Dave Vander Griend, president of ICM, a Colwich-based designer and operator of ethanol plants in south-central Kansas, told the Wichita Eagle ( that the ethanol industry won’t cease to exist but is stagnating and could lead to the eventual takeover by the large oil companies.

“Ethanol at E10 (10 percent of a gallon of fuel) will not go away,” he said. “The government established it, and the petroleum industry likes it.”

Congress created the Renewable Fuel Standard in 2005 requiring refiners and blenders of gasoline to purchase ethanol each year, increasing to 36 billion gallons by 2022, with the goal of reducing the demand for foreign oil and boosting domestic agriculture. About 12 billion gallons were purchased in 2012.

Most of the fuel is made from corn, though regulations gave hope for the feasibility of developing ethanol from other sources such as wheat straw or switch grass.

According to the U.S. Energy Information Agency, Kansas produced 41.5 million barrels of crude oil in 2011, the most recent statistics available, compared to nearly 10.7 million barrels of ethanol. Nationally, more than 2 billion barrels of crude were produced and 331.6 million barrels of ethanol produced in 2011.

Other regulations were at play including the Environmental Protection Agency’s rule on how much ethanol could be added to fuel without damaging engines. Tax incentives were passed to help develop the industry.

The ethanol industry grew from 2005 to 2011, but the Eagle reports the effect was to also raise the prices of corn and other grains. That helped the incomes of crop farmers but raised the price of feeding livestock and food production that relied on corn.

The EPA approved regulations in 2012 increasing ethanol content in fuel to 15 percent, but the petroleum industry isn’t required to sell the blended fuel.

Carlton Carroll, spokesman for the American Petroleum Institute, said the reluctance to sell the fuel was out of concern for damage to vehicle engines not designed to burn the fuel.

“We’re in the business of selling fuel to our customers, and we don’t want to sell fuel that will damage their cars,” he said.

Jason Searl, executive vice president for Poet Ethanol Products, which markets ethanol nationwide, said the reality of increasing ethanol use and requirements should have been anticipated.

“None of this is news,” Searl said. “But rather than investing in the higher levels of infrastructure to market the ethanol, there has been a really amplified effort to repeal that law rather than comply with it.”

The EPA decided in August to reduce the Renewable Fuel Standard in 2013 and is likely to do the same in 2014, citing flat demand for gasoline and lower levels of cellulosic ethanol production.

The cost is likely to be passed on to consumers for the price of requiring petroleum companies to purchase more ethanol to meet the increasing mandates, the experts said. But Vander Griend said there were options, such as moving forward with selling fuel with higher ethanol content or federal action allowing the ethanol industry to market directly to the public. That, however, would require converting gasoline pumps and vehicles to handle the new blend.

“Politics short-circuits a lot of things,” he said. “If this industry stagnates, I’m afraid we’ll go back to a total dependence on fossil fuels.”