Ethanol Boom Is Running Out of Gas

Wall Street Journal ^ | 2 October 2007 | LAUREN ETTER and ILAN BRAT

[shrinkermd]

The price of ethanol has fallen by 30% over the past few months as a glut of the corn-based fuel looms, while the price of ethanol's primary component, corn, had risen. That is squeezing ethanol companies' profits and pushing some ethanol plants to the brink of bankruptcy.

Some ethanol companies are "under deathwatch" now, says Chris Groobey, a partner in the project-finance practice of law firm Baker & McKenzie, which has worked with lenders and private-equity funds involved with ethanol.

That could be fine for big efficient players like Archer-Daniels-Midland Co., one of the nation's biggest ethanol producers by output. ADM and other big ethanol companies probably can ride out the storm, even though they might have to scale back on their production. Smaller players may not fare as well, and may be snapped up by bigger survivors.

The downturn exposes the industry's reliance on political support in Washington, which has offered tax credits to refiners to blend ethanol with gasoline, as well as tariffs on imported ethanol and other measures.

...Ethanol companies are seeking increases in pending energy legislation in the amount of ethanol refiners are required to use. At the same time, food, cattle, poultry and other interests are quietly nudging lawmakers to pull back on subsidies that encourage ethanol production and have indirectly led to increases in food costs due to the increase in the price of corn and other grains.

"It's probably going to get worse before it gets better," said Brian Bolster, a vice president in the investment-banking division at Goldman Sachs Group Inc., which has invested in at least one ethanol plant. He nevertheless remains bullish over the long term for the industry, amid expectations of increasing government support, infrastructure improvements and other factors.

[thackney]

Nuclear energy, on the other hand, would immediately substitute for oil

How do you figure that, when only 1.4% of US oil use is for electrical power generation?

[BurbankKarl]

I am sure he is figuring on plug in hybrid technologies.

I always deflate the volt people I meet in LA...saying we cant keep the lights on in this city when it rains or when it is hot, how are we going to charge 15 million cars?

[dangerdoc]

Ethanol has never been about energy independence. It has always been about tax monies changing hands.

Corn based ethanol is too expensive to compete, corn is too precious to burn and it never really changed our net energy importation.

If you really want to be energy independent, you need to increase production and decrease demand. We have a 180,000,000,000 gallon yearly shortfall in domestic oil production.

[ari-freedom]

ah so the question should be: how would the government pursue a n alternative energy policy without picking sides?
Obviously the govt needs to remove obstacles that are in the way of say, nuclear energy.

But if govt needs to push if the market doesn’t want energy independence (comparative advantage will probably still favor Venezuela and gulf states) then a foreign oil tax, with no other subsidies, may be the best way to encourage the market to find its own solutions and avoid boondoggles and gimmicks such as ethanol and windmills.

But this shouldn’t be construed as a return to protectionist trade policy. On the contrary, we should encourage even more free trade for everything else so that South American countries won’t be attracted to Hugo Chavez’ rhetoric and that the arabs will have something else to do besides rely on their oil.

[thackney]

I never understood why they used corn when there were far better sources. Sugar beets, for instance.

Because it is more than twice as expensive. Sugar content is not the only concern.

THE ECONOMIC FEASIBILITY OF ETHANOL PRODUCTION FROM SUGAR IN THE UNITED STATES
http://www.usda.gov/oce/EthanolSugarFeasibilityReport3.pdf
USDA July 2006, see page iv

U.S. Corn wet milling = 1.03
U.S. Corn dry milling = 1.05
U.S. Sugar cane = 2.40
U.S. Sugar beets = 2.35
U.S. Molasses = 1.27
U.S. Raw sugar = 3.48
U.S. Refined sugar = 3.97
Brazil Sugar Cane = 0.81
E.U. Sugar Beets = 2.89

All in dollars per gallon

[RSmithOpt]

As long as it's not made from corn at a cost of $7/gal. We need more nuke plants, more wind and more solar, not to mention less hedge fund greed manipulation on the oil and gas futures.

Oil companies will turn the screws on the thumbs of those in DC not to encourage alternative fuels....there are also a lot of energy saving patents not allowed to be used too because of 'market concerns'.

When you look at our technology and the corporate forces being applied, no real change will come for a while.

[djxu456]

ethanol cuts the ragheads out of the deal...

the -—> LIQUID <-— energy ratio gain
is ten to one

[Vaduz]

Ethanol burns 20% faster than gas,why would any sane person use it?.

[djxu456]

flame speed means what to you, exactly?

reduce spark advance

[all_mighty_dollar]

September 22, 2007
Rapeseed biofuel ‘produces more greenhouse gas than oil or petrol’

“...Measurements of emissions from the burning of biofuels derived from rapeseed and maize have been found to produce more greenhouse gas emissions than they save.....

Rapeseed and maize biodiesels were calculated to produce up to 70 per cent and 50 per cent more greenhouse gases respectively than fossil fuels....

....Scientists found that the use of biofuels released twice as much as nitrous oxide as previously realised......

....The findings illustrated the importance, the researchers said, of ensuring that measures designed to reduce greenhouse-gas emissions are assessed thoroughly before being hailed as a solution......

.....The research is published in the journal Atmospheric Chemistry and Physics, where it has been placed for open review. The research team was formed of scientists from Britain, the US and Germany, and included Professor Paul Crutzen, who won a Nobel Prize for his work on ozone.

Dr Franz Conen, of the University of Basel in Switzerland, described the study as an “astounding insight”....

...Dr Dave Reay, of the University of Edinburgh, used the findings to calculate that with the US Senate aiming to increase maize ethanol production sevenfold by 2022, greenhouse gas emissions from transport will rise by 6 per cent...”

Timesonline.co.uk
http://tinyurl.com/2gecg2

Looks like it is possible small investors will ‘have to be taken to the cleaners’ to save planet from pollution in a manner of speaking.

Also, the more capital the West invests and loses in non-competitive alt-fuels the better the chance ME oil interests will eventually accumulate even more capital to ‘control’ world finances as the West runs out of capital. I hope my logic is wrong!

[RinaseaofDs]

This is excellent news, to be sure. Definitely will moderate inflationary pressures.

Morons.

We DID corn based ethanol before. Some people have the memory span of goldfish.

[wbill]

Interesting report, bookmarked for later read. Thanks for the link!

[William Tell]

mysterio said: "The future is nuke, coal, biodiesel, and eventually hydrogen, in my opinion."

Unless you expect to pipe elemental hydrogen from the Sun, it doesn't belong on this list. It is not a source of energy, but only a reservoir that can be filled from some other energy source, such as crude oil, coal, or nuclear. Some would argue that biodiesel may not belong on the list, since the energy to create it may be a very large fraction of the energy released.

[all_mighty_dollar]

>>>>>>>only 1.4% of US oil use is for electrical power generation<<<<<<<

you must be a lawyer? Are U saying 98.6% of the oil used for elec power generation is non-US oil? or, that 98.6% of US oil is used for auto petrol or other non-electrical uses because light US is better for autos etc?

If true, You’re making the case for nuke energy if we could avoid buying 98% of our electrical power generation needs in the form of non-US imported oil.

Do you have a link, BTW?

I use bulk oil for heating but would switch to electrical heat in a flash if it was price competitive. My apt had electric heat 30 yrs ago during college days and I now remember how clean the apt was vs forced air in my house today. Also, my sinuses would love electric heat again as quality of life would improve greatly.

Forty years ago experts thought nuke energy would allow for free non-metered service to residential homes, but how times have changed because of LAWYERS!

[calcowgirl]

The price of ethanol has fallen by 30% over the past few months as a glut of the corn-based fuel looms, while the price of ethanol's primary component, corn, had risen. That is squeezing ethanol companies' profits and pushing some ethanol plants to the brink of bankruptcy.

I just took a peek at how Bill Jones [California's ex-SecOfState and US Senate (non) candidate] is doing in his ethanol venture he entered with the ex-Enron dudes--Pacific Ethanol (PEIX).

So far, the stock went public (through a reverse acquisition) in the $10 dollar range, rising above $40 in May 2006, and currently trading under $9 dollars per share at a whopping P/E ratio of over 220. Since April 2006, insiders have cashed in 4.9 million shares of stock for income exceeding $1,200,000,000, with Jones and his son in law being on the receiving end of $530 million (Jones still holds 1.3 million shares). Insiders have now reduced their ownership to less than 20% (The DFA ownership % is also declining significantly). In 2006, after losing millions for three years, they were almost in a position to break even but issued $84 million in preferred stock dividends bringing them to a net loss of $87 million for the year (on sales of $226 million). That preferred stock is owned by none other than Cascade Investment, LLC (a Bill Gates investment arm) so all of the common shareholders now subordinated their interest to Gates.

I liked this paragraph from their 10K:

On January 18, 2007, California’s Governor signed an executive order directing the California Air Resource Board, or CARB, to implement a Low Carbon Fuels Standard for transportation fuels. The Governor’s office estimates that the standard will have the effect of increasing current renewable fuels use in California by three to five times by the year 2020.

I could go on, but you get the idea.

[thackney]

you must be a lawyer?

No, an electrical engineer, specialty in power systems, and a couple decades working in the energy industry.

Are U saying 98.6% of the oil used for elec power generation is non-US oil? or, that 98.6% of US oil is used for auto petrol or other non-electrical uses because light US is better for autos etc?

No, I said only 1.4% of US oil use is for electrical power generation

That means for every 1,000 barrels of oil consumed in the US, only 14 barrels is used to generate electrical power. And a significant portion of that oil is coke or residual oil, low value "leftovers" from the refinery process that has little other use.

Do you have a link, BTW?

Sure and some graphs to make it clear. Relatively little oil used in the US goes to generating electrical power. More nuclear power plants would do very little to reduce the amount of oil the US consumes.

Great sources of energy information, historical, present and future projects at:

Energy Information Administration
statistical agency of the U.S. Department of Energy
http://www.eia.doe.gov/

[NY.SS-Bar9]

RhightWhale:

If ethanol provides no net energy gain, how would it reduce dependence on foreign oil?

Cracker Jack:

Two independent studies (and I would NOT categorize the US government as independent in this case) have each come to the conclusion that ethanol production results in a net loss of energy. While some earlier studies suggesting a 70% loss have been debunked, the current consensus is that ethanol requires more energy to produce than it yields.

Ethanol costs more to produce than gasoline, yields less energy (which lowers your gas mileage) and competes for feed grains (bought steak lately?)

Ethanol can be made much more efficiently from sugar cane - but there is not a lot of domestic production.

[Mr. Lucky]

One of the (increasingly many) things that bugs me about 21st Century America is the general lack of understanding of agriculture. The reason that crop prices have declined even during years of hyperinflation is becauses of the continuous, even dramatic, increase in productivity.

Corn yields are well over twice as great now as they were 35 years ago, while chemical (including fossil fuel) inputs are less. Far from leveling off, this trend is accelerating. If farmers were unable to take advantage of genetics and new markets, the yields would stagnate and prices would float at about the rate of onflation.

The surest way to see $14.00 corn is to penalize farmers for producing $3.50 corn.

[RightWhale]

• how would it reduce dependence on foreign oil?

  Do you remember the Arab oil embargo?

  This is not a discussion about the free market.

[RightWhale]

• The downturn exposes the industry's reliance on political support in Washington

  Alternative energy is totally political, goldfish.