Novozymes cuts prediction of U.S. ethanol production because of drought

Source: E&E • Posted: Monday, August 20, 2012

Novozymes, the world’s biggest supplier of enzymes used in biofuels, cut its forecast for U.S. ethanol production because of the ongoing drought’s impact on corn prices and availability.

The Danish company, which commands more than 60 percent of the biofuels enzyme market in the United States, forecast yesterday full-year ethanol production of 13.4 billion gallons, down 6 percent from its previous forecast of 14.2 billion gallons.

“The expectation in the biofuels industry is coming a little bit down, and we see production now ending up around 4 percent lower than last year,” said Benny Loft, chief financial officer at Novozymes.

The Department of Agriculture said last week that domestic corn output will drop 13 percent to a six-year low of 10.78 billion bushels this year. The agency forecast that 4.5 billion bushels will go toward ethanol production.

The governors of Arkansas, Delaware, Maryland and North Carolina have asked U.S. EPA to waive the requirement for refiners to blend ethanol into gasoline, citing the drought’s impact on corn prices.

Novozymes said calls to waive the renewable fuel standard were “adding to the fear and public misconception about U.S. energy.”

“The ethanol industry is already using less corn,” Adam Monroe, president of the company’s North American unit, said in a statement. “It’s not driving feed and food prices. Oil is.”

He added, “We understand poultry and meat producers are concerned about grain prices. But ethanol is not the reason for the real issues at hand, especially since ethanol does not consume as much corn as the livestock sector.”

Food for fuel, a brewing debate

“The worst drought in 50 years has inflicted huge damage on the U.S. maize crop,” said Thina Margrethe Saltvedt, an analyst at Nordea, Sweden’s biggest bank.

“Biofuels account for around 800,000 barrels per day of oil supplies in the U.S., or close to 5 percent of the country’s oil consumption,” added Saltvedt, who predicts oil will reach $112 per barrel in the third quarter. “Worries are growing that with the loss of these [ethanol] barrels, gasoline prices may rise and pressure may increase to tap into the nation’s Strategic Petroleum Reserve.”

The United States mandates the use of 36 billion gallons of renewable fuels by 2022, with 16 billion gallons of that coming from cellulosic, or second-generation, ethanol, which is made not from corn but from switch grass, wood chips and agricultural waste.

The drought may shine a spotlight on the slow arrival of cellulosic ethanol, which is not yet being produced on a commercial scale in the United States.

“The logic, of course, would be that now we have to move faster into second-generation ethanol, but I don’t know for certain that if you look into the U.S. you will see that argument a lot,” said Loft, the Novozymes executive.

“I would expect a discussion about the drought in the U.S., and no doubt some will use this in the discussion of food for fuel, while some will use it as an argument for doing nothing at all,” he added. “It’s too early to say if it will have a decisive effect.”