Koch Industries Now Fifth Largest US Ethanol Producer

Source: By DTN's Washington Insider • Posted: Friday, November 11, 2016

Growing to be the fifth-largest U.S. ethanol producer, Koch Industries jumped into the renewable fuels market despite opposition to federal policies like the Renewable Fuel Standard (RFS) by the Koch brothers who lead and own much of the company.

In 2010, oil-refining executive Jeremy Bezdek urged brothers Charles and David Koch to expand into renewable fuels, a struggling industry promoted by government mandates the billionaire brothers actively oppose. Since then, Koch Industries’ role in the industry has boomed, and in August it opened a $100 million plant that makes biodiesel.

The potential for robust profits ultimately lead Koch to step into the renewable fuels industry. Six years ago, the ethanol industry was in crisis, with new plants built to capitalize on the fuel mandate struggling due to surging costs for corn, the main raw material, and surplus fuel-making capacity. More than a dozen ethanol producers filed for bankruptcy protection starting in 2008.

That created opportunities “to buy some of the best plants” to make renewable fuels, as they could be acquired cheaply enough to make them profitable investments, especially for a big oil refiner like Koch, Bezdek told Bloomberg BNA. Koch has become “a big player” in renewable fuels, noted Jason Ward, an analyst at Northstar Commodity Investments in Minneapolis. “They weren’t five years ago.”

Koch’s initial foray into renewable fuels — through its Flint Hills unit — was the 2010 purchase of two ethanol plants in a bankruptcy sale from Hawkeye Energy Holdings LLC. Later, Koch made additional purchases as the industry was rocked by high debt, oversupply and volatility in crude oil and corn prices. The company now has a total of six plants in Iowa and Nebraska, and another in Georgia. Their plants have a combined capacity to produce 820 million gallons of ethanol annually.

Flint Hills then dived deeper into the renewables industry with a $100 million investment to complete construction of a biodiesel plant in Beatrice, Nebraska, with partner Benefuel Inc. The facility opened in August and is unusual because it can convert multiple feedstocks into fuel and products used in food and pharmaceuticals.

The goal is to create a business that does not need government mandates, which the Koch brothers continue to oppose, Bezdek noted. An April 2015 letter to U.S. lawmakers from the company’s Washington lobbyist, Philip Ellender, argued the mandate system needs to be dismantled. “The RFS is an unqualified failure that should be repealed in full,” Ellender wrote. “We bought these ethanol plants despite the RFS, not because of it.”

The Koch brothers remain firmly opposed to renewable fuel mandates and subsidies. “Charles is a big believer in free markets,” Bezdek said, adding that the company still wants the government to end its mandate on renewable fuel use. “We’re fine if [the RFS] goes away.”