‘Irresponsible’ RFS rollback would spur U.S. plant closings, layoffs — Abengoa CEO

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, November 6, 2013

Backing down from aggressive renewable fuel policy in the United States would be an “irresponsible” decision that could lead to unemployment and lost opportunity, the CEO of one of the world’s largest ethanol producers warned.

In an interview, Abengoa Bioenergy CEO Javier Garoz Neira predicted many U.S. ethanol plants would close and investment in new technologies would likely go abroad if the Obama administration rolls back its biofuel targets.

The rough time ethanol producers had last year because of the drought would become merely an “anecdote” compared with 2014, he said.

“This would be a tremendous step backward and a tremendous reversal in policy for the administration,” Garoz said. “It simply puts the U.S. in the same bucket as every other country that promises something but then fails to deliver.”

According to a leaked draft proposal, U.S. EPA is considering setting a renewable fuel target of 15.21 billion gallons next year, down from the 18.15 billion anticipated by statute, largely on concerns voiced by the oil industry over the limit to the amount of ethanol that can be blended into gasoline. The proposal would require 13 billion gallons of conventional corn ethanol use next year, down from the 14.4 billion gallons that companies were expecting based on the 2007 Energy Independence and Security Act.

The agency’s proposal is currently at the Office of Management and Budget for review. A proposed rule could be issued as early as this week.

Since the draft was leaked, biofuel producers have fumed over the prospect of an apparent backtrack by the Obama administration from its support for their industry. Producers say that the proposal would represent a historic bow to the oil industry and has already dampened investment in second-generation fuel.

Abengoa is one of a few major companies operating in the United States that is both an ethanol company and an advanced biofuel producer. The company headquartered in Spain is Europe’s largest biofuel producer and one of the largest U.S. and Brazilian producers.

Since the early 2000s, Abengoa has focused most of its biofuel efforts in the United States, beginning with the takeover of High Plains Corp. and the purchase of three ethanol facilities. The company opened its biofuels headquarters in Missouri and now has about 5,400 employees in the United States, and its operations here represent about 30 percent of Abengoa Bioenergy’s $10 billion in annual revenue.

With the advent of the most recent renewable fuel standard in 2007, the company has pumped more than $1 billion into developing second-generation ethanol that does not depend on corn as a feedstock.

Abengoa is building its first 23-million-gallon cellulosic ethanol plant in Hugoton, Kan., and expects to complete construction by the first quarter of 2014.

By the second half of next year, it plans to begin selling second-generation ethanol into the market made from the stalks and other agricultural residues left on the field after the corn harvest. The company is then aiming to build more plants for the oil companies and investors that have approached it with an interest in the technology.

But Garoz said that Abengoa is counting on stable policy to reach its goals.

“No one is going to invest in the second generation if, after investing in the first generation, a change in the law, let’s say, is going to dump all that money down the drain,” Garoz said.

Recovering from drought

First-generation ethanol producers are just recovering from a downturn last year tied to high corn prices from the record drought that stretched across most of the nation’s major corn-producing regions.

Earlier this year, Abengoa idled production at two ethanol plants in Nebraska because of unfavorable market conditions tied to the drought. Nationwide, about 25 ethanol plants were idled as drought took hold; in September of last year, monthly production fell below 1 billion gallons for the first time since 2010.

Many plants have just started operations back up in the first half of 2013 as corn prices fell to the $4-a-bushel range, down from $7 or $8 a bushel seen for most of the second half of 2012. Ethanol production rebounded to a 17-month high in the week ending Oct. 25, according to the latest information released by the Energy Information Administration. Production averaged 911,000 barrels per day, or 38.26 million gallons daily

But if EPA decides to drop its conventional ethanol target for next year, it would create less demand in the U.S. market for ethanol, Garoz predicted. The plants that shut down last year would likely be the first to shut down again.

“We regretfully will see more plants stop, more shutdowns, more people unemployed, and this is going to be a big drama for the industry,” Garoz said. “I would like to think that such an irresponsible decision is not going to be taken by a government that has been consistently supporting energy independence for this country, which is really concerned about turning around from a big economical downturn.”

U.S. ethanol producers could be spurred to increase exports of their product in the absence of a strong corn ethanol mandate here, but ethanol groups believe such a scenario is unlikely.

Exports totaled 49.8 million gallons in August, up 42 percent from last July. Earlier this year, though, Europe slapped a nearly 10 percent anti-dumping tariff on U.S. imports of conventional corn ethanol after an investigation. And with the release of the leaked EPA draft, Brazilian producers are warning that their nation could raise trade concerns if U.S. ethanol producers begin exporting their product into the Brazilian market in greater levels.

Advanced biofuel producers have warned that decreases in investment in first-generation ethanol will have a damaging effect on the next generation of fuels from cellulosic material and algae because those fuel producers are depending on conventional ethanol partners and the infrastructure that’s been built up because of the renewable fuel standard.

For a first-generation company like Abengoa that now has its sights on cellulosic ethanol, Garoz said, the rocky road ahead means that it may be compelled to look elsewhere to build up advanced fuels.

South Africa, Hong Kong, South Korea and countries in Latin America have all expressed interest in the company’s technology.

Garoz said, “They are calling us to say, ‘Hey, we would like to explore an option to develop a plant, cellulosic ethanol production in our country. We are trying to develop a similar law to what the United States has done.'”

E&ETV’s OnPoint: Abengoa CEO Garoz discusses company’s timeline for commercializing cellulosic ethanol

After years of assurances that commercially scalable cellulosic is “on the cusp,” how close is industry now to reaching that goal? During today’s OnPoint, Garoz discusses his company’s latest timeline for rolling out commercially scalable cellulosic ethanol and explains why his industry has had multiple misfires at predicting success. He also talks about how changes to the renewable fuel standard could affect investments in his company.