Ethanol producers see modest stock gain after EPA fuel mandate

Source: By Russell Hubbard, Omaha World Herald • Posted: Thursday, December 7, 2017

Wall Street has given ethanol producers a modest boost since last week’s as-expected announcement by federal regulators of how much of the corn-based motor fuel must be added to the nation’s gas tanks.

Shares of Omaha-based Green Plains, the nation’s second-largest producer, spiked as much as 5 percent to $17.15 last week after the Environmental Protection Agency requirements for 2018 were released, before settling this week to around $16.50.

The stock of Chicago-based Archer Daniels Midland, with ethanol plants in Nebraska and Iowa as well as a wide variety of other businesses, has risen about 5 percent since last week.

 And shares of Ohio-based the Andersons, with an ethanol plant in Denison, Iowa, and five Nebraska grain-buying elevators, climbed as much as 7 percent last week to $32.75, and are now trading around $31.70.

The optimism among investors stems from the EPA’s decision on how much ethanol fuel refiners must blend into gas-pump mixtures such as E10, with 10 percent ethanol and 90 percent clear gas. The agency, charged with administering bipartisan federal laws passed last decade to encourage renewable fuels, stayed within the projections floated in the summer for addition of conventional biofuels, which in practice means corn-derived ethanol.

“The renewable volume obligation announcement from the EPA for the 2018 conventional ethanol target is what we expected to see from EPA Administrator Scott Pruitt,” said Todd Becker, chief executive of Green Plains, with 17 ethanol plants.

“The EPA’s announcement indicates to us that the administration continues to be very supportive of the ethanol industry and leads us to believe they understand the positive economic impact ethanol has on the Midwest economy,” he said.

It is an impact reckoned to be worth billions of dollars to Iowa and Nebraska, the top ethanol-producing states. An analysis by the University of Nebraska-Lincoln concluded that the industry is worth about $5 billion annually from about two dozen plants. In Iowa, with more than three dozen plants, it is probably worth more. Both states are among the top corn producers, and analysts say ethanol plants buying the crop adds at least 5 cents a bushel to market prices.

And ethanol blends also help bring the cost for a gallon of fuel down for consumers, said Jan tenBensel, chairman-elect of the Nebraska Ethanol Board.

“Consumers have the opportunity to save hundreds of millions of dollars by gaining access to higher ethanol blends and more choices at the fuel station,” he said.

The 15 billion gallons of corn-derived ethanol mandated by the EPA about fits with levels laid out by Congress in the 2007 Energy Independence and Security Act. But the EPA has wide discretion in the final levels for a given year, and has on occasions required more or less than the law has dictated, inevitably leading to lawsuits either from ethanol companies or oil refiners.

Not everyone likes the idea of distilling corn into an alcohol-based motor fuel. Boaters and motorcyclists say it gums up the parts, and some motorists say the cost-per-gallon savings over clear gas is an illusion because fuel with ethanol gets lower gas mileage from lessened energy content.

While conventional ethanol producers were generally pleased, there was some discontent among people connected to advanced biofuels such as those known as cellulosic, or those produced from waste products such as wood, corn stalks and the like. The 2018 EPA requirement cut the amount of such advanced biofuel from summer forecasts by about 100 million gallons, to about 288 million gallons.

While such amounts connected to advanced biofuels such as cellulosic ethanol are a blip — U.S. motorists used about 143 billion gallons of motor fuel last year — proponents say the sector is a key to innovation and investment in additional methods and technologies to reduce reliance on fossil fuels.

One of them is Edeniq, a California-based company with an Omaha office. It has technology that allows ethanol producers to measure additional gallons of cellulosic ethanol produced at their facilities.

“While we would have preferred that the 2018 RFS rule include a cellulosic renewable volume obligation number closer to the EPA’s original proposed 384 million gallons, we anticipate continued momentum for our technology and the value it adds for our customers,” said Brian Thome, CEO of privately held Edeniq.