Rosy time for U.S. exports

Source: Amanda Peterka, E&E reporter • Posted: Monday, February 24, 2014

ORLANDO, Fla. — U.S. ethanol exports are poised to rise and expand to new markets on the latest agricultural projections and policy uncertainty at home, experts said this week at a major industry conference here.

Barring a major drought in the central part of the country, corn prices are expected to remain at about $4 a bushel for the next decade — a price that allows U.S. producers to make the cheapest ethanol in the world.

At the same time, ethanol producers are looking outward because a proposed reduction in the federal ethanol mandate and trouble getting more ethanol into the fueling system could mean less demand at home.

“2014 is looking very promising” for exports, Cora Dickson, senior international trade specialist at the Department of Commerce, said at the National Ethanol Conference here, sponsored by the Renewable Fuels Association.

The makeup of the export market, though, is changing, because of a nearly 10 percent anti-dumping tariff set by the European Union last year on U.S. ethanol imports. Canada and Brazil remain major customers, but because of the tariff, the United States is now selling more ethanol to Asia — mostly to the Philippines and India — than to Europe.

For the first time last year, the United States sold more ethanol to Tunisia than to the United Kingdom. Dubai, United Arab Emirates, has also become a major hub for ethanol, sending U.S.-made product to other nations in the region, including Iraq.

It is a “very startling reality that octane is being priced and ethanol is being valued for that in places which we hardly imagined could be relevant, like Iraq,” said Plinio Nastari, president and CEO of Datagro Consulting.

The complex export market has been a relatively recent factor in the U.S. ethanol industry. Until 2009, U.S. exports hovered around a negligible 1 percent of total production.

Demand then was not driven by global markets but by the U.S. refiner, which used ethanol to boost the octane, or the power, of gasoline.

But the picture changed with the advent of the federal ethanol mandate, cheaper corn and more production at home. U.S. companies started producing a lot more ethanol, driving the price down. Importing U.S. ethanol suddenly became the cheapest option for other nations to increase their octane and meet their own ethanol mandates.

The United States, which now produces 57 percent of the world’s ethanol, has experienced a “paradigm shift” in terms of the amount of product that it is exporting, said Chad Martin, CEO of Eco-Energy, an alternative energy company.

“It is not solely the blender today that is driving ethanol demand. It is a large percentage, but ethanol demand is being driven by exports,” Martin said. “It competes globally. We are the cheapest ethanol in the world today, and we are also the cheapest octane in the world today.”

The United States is now a net exporter of ethanol. Exports reached a high point of 1.2 billion gallons in 2011. Last year, U.S. producers sent 621 million gallons to other nations, despite the tariff being in place in the European Union.

“Since 2009 we’ve, you know, been kicking their butt. I can’t say it any plainer than that,” said Ed Hubbard, general counsel for the Renewable Fuels Association.

In all, the United States shipped ethanol to 60 markets last year. A little more than half went to Canada. The Philippines took in 52 million gallons, while Brazil imported 47 million gallons of U.S. ethanol. Other markets were China, Mexico, Peru, Jamaica, Thailand and the United Arab Emirates.

U.S. ethanol producers see themselves well-positioned again to both increase overall exports and grow new markets in 2014, especially because finding room for more ethanol within the United States may be a challenge going forward.

The nation has reached a 10 percent plateau in the amount of ethanol blended into gasoline as gas stations have been slow to sell higher blends. Because of the difficulties with the “blend wall,” U.S. EPA is poised to reduce the ethanol mandate for the first time since the most recent renewable fuel standard was put into place in 2007.

“One of the solutions to that problem is the export markets because the folks around the globe see the benefits, especially these emerging markets, which are having difficulties with respect to emissions issues, and we are the answer to that,” Hubbard said.

Experts project that the policy uncertainty here, combined with continued cheap ethanol production at home and federal mandates abroad, will drive ethanol exports up to 800 million to 1 billion gallons in 2014. Increases will likely come in South America, India, the Philippines, Central and South America, and Brazil.

 Complicated relationship with Brazil, E.U.

The trade relationship with Brazil, though, remains complicated.

“Brazil is the big wild card,” Martin said.

Since the U.S. renewable fuel standard, Brazil and the United States have had a unique trading relationship. Brazilian producers ship sugar cane ethanol to U.S. refiners to comply with the advanced biofuel mandate, while U.S. producers export corn-based ethanol in exchange. The trade on both sides of the aisle has decreased in the last couple of years due to the exchange rate and Brazilian biofuel policies.

But exports to Brazil picked up at the end of the year thanks to a fall trade mission there organized by advocates and the U.S. Chamber of Commerce. The mission, which paired U.S. producers with Brazilian importers, resulted in at least $20 million in sales, according to Dickson of the Department of Commerce.

And there may be some opportunities to increase exports to some northern regions of Brazil this year.

“It is cheaper to bring ethanol from the Gulf Coast in the U.S. than it is to send it from places like São Paulo,” Nastari said.

The European tariff will also be in play again in 2014, pending the outcome of a challenge filed by the U.S. industry with the World Trade Organization. The European Commission set the duty after an investigation into U.S. companies.

Before the tariff, the United States sold about a third of its exports to the European Union. The duty has remained a source of tension between U.S. and E.U. producers.

“There was no dumping that was found. The E.U. came over and did a forensic audit of several ethanol plants and found not one scintilla of evidence that there was dumping,” said Bob Dinneen, president and CEO of the Renewable Fuels Association. “The fact of the matter is, U.S. ethanol is able to be produced far more than E.U. [ethanol] is able to be produced.”

Europe imports about 20 to 25 percent of its ethanol. Rob Vierhout, secretary general of ePURE, Europe’s renewable fuels association, said that his industry is looking for fair trade.

“We are not against trade, but if you start dumping product, we have instruments at our discretion to use, and that has happened,” Vierhout said.

U.S., European and Brazilian producers would be best to put their squabbles aside and look west, said Joel Velasco, an adviser on the board of the Brazilian Sugarcane Industry Association.

“We’ll continue growing but not at the rates close to Asia. That is where I think the ethanol industry and the biofuels industry really needs to focus. Because those are huge markets,” Velasco said. “A very small sliver of it is a lot of gallons, and for all of us. Talk about a market we’d have a challenge supplying in the beginning.”