New renewable fuel numbers cut favorable path for ethanol

Source: By Russell Hubbard, Omaha World Herald • Posted: Wednesday, November 30, 2016

The Nebraska and Iowa ethanol industries see an open field ahead, with beneficial new EPA requirements, a revival in gasoline demand from motorists and a presidential administration with favorable views of the corn-based motor fuel.

Last week, the U.S. Environmental Protection Agency set quotas on the level of renewables such as ethanol and diesel made from soybeans or recycled cooking oil that refiners must mix into the nation’s motor fuel supply. The agency settled on 19.28 billion gallons for 2017, including up to 15 billion gallons of corn-based ethanol. The quotas are higher than initial proposals released in May and also above last year’s overall requirements of 181. billion gallons of renewables from all sources.

And for the first time, the requirements match the 15 billion-gallon mark that Congress established for conventional renewable fuels such as traditional ethanol when the programs were created 11 years ago. It is widely seen as a boost for the economies of Iowa and Nebraska, the largest and second-largest ethanol-producing states, respectively.

The states also rank first and third in corn production, with Iowa’s 40-odd ethanol plants and Nebraska’s two dozen or so providing additional bidders for the cascade of corn that farmers produce each year.

“EPA’s announcement of a Renewable Fuel Standard final rule for 2017 increases the volumes from the levels initially proposed by the agency,” said Todd Sneller, administrator of the Nebraska Ethanol Board. “The increased RFS volumes may help reassure fuel retailers that offering E15 and flex fuels like E30 and E85 represents a viable opportunity to expand ethanol sales.”

Use of gasoline-ethanol blends such as E15 are seen as aiding the industry, which the University of Nebraska-Lincoln estimated last year has a $5 billion per-year economic impact in the Cornhusker State. The ubiquitous E10 blend with 10 percent ethanol put the industry up against a wall — unless there was an increase in driving miles or ethanol percentage, there was no way to fit all of the EPA-mandated ethanol into the nation’s gas tanks.

Rebounding gas demand has also helped squeeze the required ethanol into the fuel supply, as oil and pump prices have plummeted. Americans are expected to consume a record 144 billion gallons of gasoline this year, according to an October forecast from the U.S. Energy Information Administration.

“The increase in ethanol was made possible by a revival in gasoline use, which makes it easier to deal with the 10 percent blend wall,” said John Campbell, an investment banker who follows energy markets for Omaha’s Ocean Park Advisors.

Campbell also said it appears President-elect Donald Trump supports the Renewable Fuel Standard quotas and ethanol in general.

“Going forward on the RFS, all we really know is what was said on the campaign trail, and this would indicate that Trump supports it,” Campbell said. “Under current rules and law, EPA has a lot of flexibility and has not lost on any major points despite multiple lawsuits by both the oil industry and the renewable industry.”

The quotas uphold Congress’ intent, said Iowa Renewable Fuels Association Executive Director Monte Shaw, and ensure competition at the fuel pump and a boost for rural America, source of the corn and soybeans that get turned into ethanol and biodiesel.

“The RFS ethanol volumes mean higher income for farmers and lower prices for consumers,” Shaw said. “They mean more jobs in rural Iowa and less dependence on foreign oil.”

Renewable fuels nevertheless motivate debate and criticism. Some decry the lower energy content of ethanol, which generates only about two-thirds of the juice as clear gasoline, while others cite damage to small engines, a complaint the industry denies. Others object to the government setting any quotas, requirements or incentives.

“While we appreciate the difficulty of the task before EPA, the agency’s decision to increase the 2017 RFS volumes is completely detached from market realities and confirms once again that Congress must take immediate action to remedy this broken program,” said Chet Thompson, president of the American Fuel & Petrochemical Manufacturers.

The petroleum industry, ethanol’s traditional foe, also objected. Frank Macchiarola, downstream group director at the American Petroleum Institute, said the EPA “has taken a step backwards with this final rule.”

Things might be changing, however. The nation’s third-largest ethanol producer is now a traditional oil company — Texas-based Valero Energy, which now operates 11 ethanol plants.

The Renewable Fuel Standard was created by Congress in 2005 and amplified two years later. Objectives included reducing foreign crude imports and greenhouse gas emissions.

“The finalized numbers from the EPA are positive,” said Todd Becker, chief executive of Omaha-based Green Plains Inc., the world’s second-largest ethanol producer. “We have built our business of producing ethanol to compete with oil for a share of the consumer’s gas tank with or without the RFS mandate, and we continue to believe that ethanol is a permanent part of the fuel supply worldwide.”

As for the incoming presidential administration, Becker said “rural America helped elect Donald Trump and he is very supportive of the ethanol industry and the Midwest economy.”

Corn farmers too welcomed the latest EPA quotas, said Kelly Brunckhorst, director of the Nebraska Corn Board. Corn prices have fallen by more than half from their record high of about $8 a bushel reached in 2011 and 2012. Without ethanol buyers, Brunkhorst said, in Nebraska alone “another 600 million bushels would be back on the market” for sale as cattle feed, corn syrup production and for other uses.

“That would be devastating,” Brunkhorst said.