Regaining Ground

Year-end U.S. fuel ethanol exports are expected to exceed 800 million gallons, second only to the record-breaking 1.19 billion gallons exported in 2011.
By Holly Jessen | January 20, 2015

Since startup in 2008, 10 percent or more of the ethanol produced at Patriot Renewable Fuels LLC has been exported. Judd Hulting, plant commodity manager, emphasizes the plant’s proactive strategy to exports. It’s an approach he believes more ethanol producers need to adopt. “We need to be more proactive and do what we can to open new markets, expand markets and educate, whether it’s the consumer in America or the consumer in any of these destination markets,” he says.

The 130 MMgy plant exports the majority of the distillers grains produced there and the amount of fuel ethanol exported is growing. To handle production of anhydrous ethanol for export markets and also meet domestic specifications, the company has installed additional mole sieves. “We continue to believe exports are very important, not only for our business but for the whole ethanol industry,” he says.

Patriot Renewable Fuels has participated in U.S. Grains Council-led trade missions overseas and has hosted foreign distillers grains buyers at its plant, something Hulting would like to also offer to fuel ethanol buyers from other countries. “You’ve got to go out there and meet those customers, face to face, shake their hand, and at the same time, welcome them back to your plant and your local community and develop that trust,” he says. 

Green Plains Inc. is another ethanol producer that sells its fuel into the export market. During the company’s Oct. 28 third-quarter financial results call, Todd Becker, president and CEO, said a minimum of 15 percent of its fourth-quarter ethanol production had already been sold into export markets. “We have volumes sold and destined to India, the Philippines, Brazil and other developing countries, along with our normal buyers like Canada and others,” he said. “Interestingly enough, we're booking export sales into 2015, extending into the third quarter.” This is not typical, he said, adding that Green Plains has more gallons booked ahead for export than it’s had in the history of the company.

Becker also talked about how the specs for export gallons actually result in slower production speeds for Green Plains. “I don't think people think about that, but there is definitely an inverse relationship because of the water spec that we have to produce,” he said during the call. 

Ideal Combination
It’s been an interesting year for exports for the industry as a whole.  “We have seen demand growth in a number of existing markets, places where we have been exporting for the last several years, but we have also seen the emergence of several new markets,” says Geoff Cooper, senior vice president of the Renewable Fuels Association.

Looking at the data through October, the latest numbers available at press time, year-to-date exports sat at 669.3 million gallons, roughly 40 percent higher than exports through October in 2013. By the end of the year, the U.S. ethanol industry is expected to export about 803 million gallons, the RFA estimated, considering that exports are typically up in the fourth quarter, following seasonal patterns. “I think we could be as high as 825 or 830 million gallons, somewhere in that range,” Cooper said in December, adding he expects continued growth in 2015. “Based on what we know today, we would expect 2015 to be quite similar to what we saw this year, or maybe a couple hundred millions higher. We could end up seeing about a billion gallons of exports.” 

On the import side, only 67.5 million gallons of ethanol from other countries had come into the U.S., through October. In fact, imports have averaged less than 7 million gallons per month. This puts the U.S. in the net exporter category, a title it had held 14 months consecutively at that time. 
Cooper pointed to two factors for growth in exports. One is the price of ethanol, which created favorable blending economics for the high-octane fuel. A second stimulant is demand created in countries with renewable energy programs. “In many cases, their local or domestic capacity isn’t adequate to meet the requirements or targets of those programs so the alternative is to import from countries that have surplus capacity,” he says.

Max Thomasson, director of global ethanol trading at CHS Inc., sees the same thing. “There’s been an increase in exports with the cheap price of ethanol on the forward curve, which is brought about mostly by relatively cheap corn,” he says.

CHS has offices in Brazil, Switzerland and Singapore, and exports U.S. ethanol to Brazil and Asia, primarily the Philippines. “That demand has grown by about 12 percent, year on year, for the last three years, which is driven by government mandates in the Philippines,” he says, adding that the company has exclusive marketing agreements with eight ethanol plants and also owns the 133 MMgy plant in Rochelle, Illinois. After first sourcing from those nine plants, CHS purchases ethanol from third-party sellers for export.

By the Numbers
Like last year, Canada is on pace to be the No. 1 export destination for U.S. ethanol, Cooper says. Through October, the nation’s neighbor to the north was the destination for 44 percent of total U.S. exports. Brazil was in the No. 2 slot, importing nearly 80 million gallons through October, nearly double the total for last year. “We don’t really know exactly how things are going to go with Brazil until we know what their sugar crop looks like every year, and their market dynamics, whereas Canada has been much more consistent,” he says.

Exports to Canada, Brazil and the European Union helped the U.S. cross the record-setting 1 billion gallon mark in 2011. In all, about 800 million gallons went to those three markets alone, Cooper says. Then, exports dropped 38 percent from 2011 to 2012 and another 16 percent from 2012 to 2013. Two of the biggest impacts were a rebound in the Brazilian sugar and ethanol sector and the EU tariff placed on ethanol imported from the U.S.

Interestingly, U.S. ethanol is still making its way to the EU, most of it via Peru, which doesn’t have to pay the tariff, Cooper says. In 2013, Peru was the fifth largest market for U.S. ethanol. Although the numbers are down somewhat this year, the country does continue to import U.S. ethanol, the majority of which then ends up in the EU. It’s a pattern of shuffling products around that develops as a result of trade barriers and restrictions on free trade. “Obviously the solution would be to not have any of those tariffs or trade barriers and let ethanol flow to where it makes sense, based on the economics,” he says.

Despite the tariff, a small but growing number of gallons is going directly from the U.S. to the EU. By the end of this year it’s expected to end up at about 50 million gallons. “That’s almost double from where we were last year, but still a long way from the high-water mark,” Cooper says, adding that 250 million gallons of U.S. ethanol were exported to the EU in 2011.

Looking ahead, lower gas prices at the end of the year may erode demand in export markets where ethanol was being blended due to the price, Cooper says. However, ethanol is also blended for its octane content. For example, through October, the United Arab Emirates had imported 68 million gallons of U.S. ethanol. “That’s about twice what they did last year, so they very likely will be the No. 3 market in 2014,” he says, adding that the catalyst is the country’s oxygenated fuel requirement. Ironically, the country is a member of OPEC and has its own crude oil resources.

In addition, a handful of countries are rapidly opening up as new markets for U.S. ethanol, Cooper says. On the top of that list is South Korea. In 2013, the country imported 4 million gallons of ethanol and it’s on pace to bring in 31 million gallons by the end of this year. Tunisia is another interesting new market. Until October, when the country imported 11.3 million gallons of U.S. ethanol, Tunisia had only imported U.S. ethanol in three separate months.

Cooper believes there is plenty of opportunity for future growth both in existing markets like Canada and new and emerging markets. One example of the latter is China. It’s the second largest market for gasoline in the world, second only to the U.S. “They’ve put their toe in the water on ethanol imports, and we just think there is a huge opportunity to forge a long-term trade relationship with China,” he says. He also mentioned Singapore as a market to watch. It’s a major crude oil refining hub for Southeast Asia. “If we can get more U.S. ethanol into Singapore, where gas is formulated for that part of the world, I think that’s a big opportunity,” he says.

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine