Some U.S. ethanol producers reduce production to sell natural gas for a profit

Source: By Stephanie Kelly, Reuters • Posted: Wednesday, February 17, 2021

NEW YORK, Feb 15 (Reuters) – Sky-high U.S. natural gas prices have prompted some Midwestern ethanol producers to reduce processing in the last week, hoping instead to sell off some of their natural gas to take advantage of current high spot prices caused by the spike in cold weather, industry sources said.

Ethanol margins in the Corn Belt have dropped sharply due to the frigid weather, falling to negative-$3.92 a gallon, lowest since at least 2010, Refinitiv Eikon data showed. Natural gas prices have soared because of power needs, hitting their highest levels in years due to the cold snap.

At the Waha hub in the Permian basin in Texas, next-day gas prices <NG-WAH-WTX-SNL> rose last week to as high as $157.714 per million British thermal units (mmBtu).

The astronomical prices forced some ethanol producers who have not yet purchased all their needed natural gas to consider whether to reduce processing to avoid the high prices. It has forced others who have their natural gas bought to consider whether to reduce production rates to sell into the spot market.

One ethanol producer reduced his company’s run rate by more than 25% last week to sell natural gas that he earlier had bought at a contracted price.

He calculated that his typical cost for gas used to produce ethanol comes to just over $30,000 per day in the spot market. But the surge in prices means that cost would amount to $2 million if he were buying gas daily. As a result, this producer said, he had to try to sell off his natural gas, cutting ethanol production in the process.

“The price is so ridiculous that I can’t do anything else that makes that kind of money,” said the producer, who wished to remain anonymous for market purposes. (Reporting by Stephanie Kelly; Editing by Steve Orlofsky)