How Will the U.S. Feed the Ethanol Appetite?

One could argue that there was a shortage of corn before this year's harvest even began. As of Oct. 1, 105 ethanol plants dotted the U.S. landscape, with a combined ethanol production capacity of 5 billion gallons.

The Renewable Fuels Association tells us there are 42 more plants under construction and 7 plant expansions underway. Those efforts will add 3 billion gallons to the U.S. ethanol production capacity. Looking further down the road, there are more than 300 business proposals for additional ethanol plants. If those are built, it would add more than 20 billion gallons of ethanol.

Keith Collins, USDA chief economist, says in 2010 90 million acres of corn will be needed to fulfill ethanol, livestock and export demands. He says corn prices would need to be in the $3.10 to $3.20 range to attract that many acres to corn. Corn futures for 2007 are pushing close to those levels, indicating that the price signals have begun to entice a substantial increase in corn acreage. "But where will that acreage come from?" asks Chad Hart, Iowa State researcher.

"The last time this country planted more than 90 million acres of corn was in 1944. In 1932, over 113 million corn acres were planted," he notes. "In that year, Texas was the sixth largest and Georgia was the tenth largest corn producing state, with nearly 10 million corn acres between them. So a historical analysis would indicate the possible return of corn acreage in the Southeast and Great Plains."

But the prospects for more corn acres in the Southeast and western Great Plains is much lower today. Large amounts of land planted to corn during those earlier decades is no longer in agricultural production. In 2006, Georgia corn producers planted 280,000 acres and Texas had 1.75 million acres. Total cropland in Georgia is now less than 5 million acres.

Due to population and land use, the upper Midwest and the eastern Great Plains are the mostly likely candidates for expansion, says Hart.

One potential pool of acreage is in the Conservation Reserve Program. However, it appears that only 7.7 million acres are scheduled for release, much of which is more better suited for wheat than corn. "So while some CRP land can be brought into corn production in the short term, CRP acreage will only be part of the shift," he notes.

The most likely source of new corn acreage will come from shifts in crop rotation from soybeans to corn. That raises the question of whether the two-year rotation between corn and soybeans will disappear -- which also will reduce annual yields. Hart believes a three-year rotation -- two years of corn followed by one year of soybeans-- could surface.

"Given the crude oil price outlook for the next several years, ethanol’s expansion is apt to continue for some time," says Hart.

As Collins points out, ethanol plants can compete for corn even at record high corn prices. Other corn users, such as livestock producers, other processors and the export market will feel the pinch. Certainly more corn acreage will be found, where that will occur, whether it will be enough, and what else will be displaced, is a long and evolving scenario.

I was trying to be funny.
it seems the point of alternate fuels is
to remove our dependence on others for energy needs.
buying ethanol from someone else kinda defeats that purpose.

I always wondered why chrysler never followed up on the turbine engines. (They darned near could use anything to power the turbine.)

Most plants being built today are designed to be easily converted to take advantage of cellulosic ethanol technology. Older plants wouldn't require that much effort to convert. Cellulosic ethanol production is not that different than any other ethanol production. Ethanol production just requires that starches be converted to fermentable sugars and those sugars are coverted into alcohol and the resulting "beer" is distilled separate the alcohol from the beer. The main difference with cellulosic ethanol is that the before fermentation and distillation the cellulose must be broken down into starches. When they get the cellulose broken down and then further covert starches into fermentable sugars, like they do with corn today, they'll add yeast and ferment, and then distill the "beer." Existing ethanol plants will have to add the capability of breaking the cellulose down, but other than that not many changes will have to be made.

Because sugar beats farming is not economically viable except for a a few small parts of the country. These are rather finicky plants and soil conditions and climate have to be just right to get really good yields. Also, sugar beats are kind of expensive to harvest and process. These things grow enormous tap roots and they are hard to get out of the ground. And it's not easy to dry them and store them for use as an ethanol feedstock later as is generally done with corn. Given the right conditions these beets will yield more ethanol per acre than corn, but it's just not economically viable to do it here. If it was, we'd see a lot of corn farmers switching to sugar beet farming. Beets get plenty of subsidies too, and they are a profitable crop in areas where they grow well. A very large percentage of the sugar sold in this country comes from beets. If these beet farmers could make more money selling their product to ethanol plants, they probably would do just that, but table sugar is more profitable for them.

I realized the point you were making, and it is a good one. There is great irony in the fact that we may find other nations have a significant cost advantage in producing ethanol, which would create a lot of market pressure to import the fuel that was supposed to lead to our energy independence. It is a point that must be made. If we banned oil imports, we would find a way (albeit much more expensive) to power our transportation infrastructure with domestic production. We would be independent of oil imports, but we would pay much more than the global market rate for gasoline. Without the subsidies that many on this thread have decried (and rightfully so, in my opinion), even now we would be importing ethanol from countries with lower production costs. Clear the Amazon Rainforest and Brasil might be able to provide enough alcohol for the world.

Of course Brasil would then become OPEC.

Fossil energy has everything to do with the issue. The world is consuming petroleum at (roughly) million times faster than it was formed. NG and LPG were produced from the same source materials (phytoplanktons and zooplanktons), albeit at different rates. If we consume fossil hydrocarbons of all types to make a derivative material such as ethanol, we are playing a zero-sum game.

Consider the dynamics. The U.S. had one of the three largest original petroleum reserves in the world. Our production has been declining since 1970-71. That decline is about 2.25% per year. Eventually, world production has to follow a similar pattern.

By 2050, our petroleum supply, including imports, could be less than half its current value, i.e., 2.99 gallons per person-day; that is assuming that we could continue to consume 25% of world production, which is unlikely.

By the end of the century, supply could be 10% of current levels. In this context, the problem should be clear.

Of course the point I was making with my original reply is that an energy market with multiple kinds of fuel sources might thwart energy monopolies from jacking up prices. If we could burn Brasilian alcohol or domestic CNG in our vehicles when Arab oil grew too expensive, maybe the market would correct the oil prices. Monopolies only work when there is no alternative for the monopolized commodity.

who gives a flying f''' about 'fossil', as long as it doesn't come from the a-rabs

The problem is it does. The process of producing ethanol also consumes some petroleum products which we import more than we produce. Even if it was solely power from the electrical grid, we would use less energy with electric cars than consuming the electric power to make ethanol to run the cars.

What is a "true price" for gasoline? The government already interferes in the energy market so much we would have a hard time deciding on a "true price." My point here is the global price for oil is the dominant market factor in determining gasoline prices currently. There are many domestic oil sources that are no longer or have never been tapped because the production price would be so great that a profit could not be turned in competition with oil imported from regions where extraction is much cheaper. For example, if we banned oil imports and the price of crude went to, say, $150 a barrel, extraction of oil from the oil shales of the Mountain West might become economically feasible (then oil shale extraction may become the dominant market force in setting gasoline prices). We have already seen some new exploration in very deep waters in the Gulf of Mexico since oil prices have been holding above $50 a barrel.

What is a "true price" for gasoline? Maybe the easy answer is whatever I will pay to fill the tank of my big red Cadillac. That is the true price to me.

What is a "true price" for gasoline?

Some models throw in the costs of externalities like pollution and what not. Most add in the costs of foreign policy and foreign intervention; these costs are not reflected at the pump. Biofuels are not as concerned with such things so the tax credits and breaks on excise taxes are certainly justified.

>>
Fossil energy has everything to do with the issue. The world is consuming petroleum at (roughly) million times faster than it was formed.
<<

Nonsense. What counts is the price of fuel in the form and quality necessary for the application, whether it is #2, Jet-A, 100LL, auto, boiler, etc. In a free market, there is no better signal of supply than price.

Where will this fuel come from? We are *awash* with hydrocarbons. Some areas of the US, like Illinois, eastern Utah, western Colorado, Alaska, Montana, Wyoming, Pennsylvania, etc are almost floating atop deposits of coal and oil shales.

If this is not enough, one firm, that is presently converting hundreds of tons a day of waste from butchering turkeys into biodiesel, claims there are enough usable hydrocarbons in *sewage sludge* to replace our present level of oil imports.

The only issue is our will to convert these hydrocarbons to the desired form. It should be no mystery that a high market price for crude oil does wonders to resolve that issue.

Ah, sugar subsidies. Another market triumph for the United States.

I would think, though, that a significant enough cost advantage would lead some to find a way to import alcohol. Contribute to enough campaign war-chests and anything can happen.

The cost advantage would probably be significant, as well. Land is much cheaper down there, as is labor. Overhead is much lower as there is no OSHA or EPA to speak of. Getting rid of waste would be much easier, as well. It comes down to the same trade issues as everything else: if we can buy it cheaper from another country, is it fair to make the American consumer pay more for the domestic product (either directly or through subsidies)?

if we can buy it cheaper from another country

I'm trying to remember the name of the speaker on a video that should be up at C-SPAN where they discuss sugar and ethanol from a trade perspective in detail; it gave me a headache but I'll post the link if I can find it.

I think the main problem was that it was sugar producers domestically that wanted the protections and made it harder to get sugar from places like Brazil or Mexico. Something like that anyway.

Price is an abstraction in an economic system loaded with subsidies, tax credits, etc.

We probably have enough coal to last 3-4 centuries if we assume that it doesn't have to replace some of the energy of petroleum, NG, and LPG. We depend on coal to produce electrical energy. Zero-sum game time again. Eventually, decisions will have to be made about what must be sacrificed.

Exploitation of shale oil (btw, neither oil nor shale) requires large quantities of energy and water. The area in which our largest deposits of kerogen exist, i.e., the Green River Basin, is arid. What will be the source of input energy over the long-term.

The show-stopper is ERORI, or energy return on energy investment. That killed the embryonic shale oil industry
in the early 80s. If the ERORI is negative, no amount of financial sleight-of-hand can change the fact that we would be consuming more energy than could be produced.

Consider a variation on the theme. The Canadians are producing heavy grades of oil from tar sands in Alberta. They are limited by the rate at which they can "mine" the material and by a long-term source of input energy. They have been using natural gas. But when NG supplies begin to decline, what then? The U.S. would have to face that problem , too. U.S. per well NG production has been declining for several years.

Economics are a function of resources. Ultimately, resource availability is the controlling factor.

Give me a month off work and I will create a pricing model that includes the externalities of biofuels. First, we clear a lot of wildlife habitat, probably violating international treaties on conservation. We certainly would screw Pheasant hunters. Then we have all the WTO issues that will occur if Brasil, or Argentina, or Indonesia try to gain access to our biofuel market. Then we have the pollution aspects of biofuels themselves. The carbon cycle may remain intact, but combustion of any fuel still has particulate issues, as well as significant nitrate and sulfate emissions. When alcohol use was at its peak in Brasil, the pollution from the alcohol-burning vehicles would just about knock you down. It reminded me of being down-wind of a moonshine still. Then we have the competition for land with food crops and livestock, which would, beyond doubt, increase the price of food in the U.S.. More land for biofuels means less for trees, which means higher prices for lumber and, hence, housing and construction.

What, then, would be the "true price" of biofuels?

Of course, I'm not saying biofuels are not worth trying. The issue of a global market for biofuels must be addressed from the beginning, as it is bound to be cheaper to produce them in low-wage tropical country.

Then we have the competition for land with food crops and livestock

Remember to throw in the fact that the production process still leaves you with a usable byproduct, namely cattle feed. That makes the land usage numbers a bit harder to determine.

The factor that is the hardest to determine will be what happens when the market for biofuels matures. Growing crops is a pain in the neck...but all the enzymes and algae harvesting and what not shows promise of being easier and cheaper but without a mature market industry is less willing to spend money on research.

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