Ethanol industry seeks to protect employees during pandemic

By Erin Voegele | March 19, 2020

The U.S. ethanol industry is struggling with demand destruction resulting from COVID-19, an oil price war, ongoing trade disputes, and small refinery exemptions (SREs). “Folks, this is not going to be good, and our biggest concern by far is our people,” said Randy Doyal, CEO of Al-Corn Clean Fuel, during a media call hosted by the Renewable Fuels Association on March 19.

Geoff Cooper, president and CEO of the RFA, opened the call by stressing the ethanol industry is facing unprecedented economic hardship. “We were already experiencing demand destruction and challenging economics before the coronavirus began to roil energy markets,” he said.

Cooper explained that demand for motor fuel is plummeting and most analysts today are expecting about a 20-25 percent drop in consumption over the near-term. “We’ve seen ethanol prices fall to record lows,” Cooper said, adding that April ethanol futures closed at 95 cents per gallon on March 18. Ethanol producer margins have also fallen and have been in deep negative territory for the past several days. “These are some of the worst margins that we’ve seen in the industry’s history,” Cooper said.

COVID-19, the oil price war between OPEC and Russia, trade disputes with China and other markets and SREs are factors that have conspired to create not just the perfect storm for ethanol, but the perfect tsunami, Cooper added. Over the past week many ethanol plants have significantly reduced output and some have idled, he said. “We expect to see substantial reductions in ethanol production in the weeks ahead as producers contend with lower demand, record low prices and negative margins,” Cooper added.

Scott Richman, chief economist at the RFA, said average spot margins are at roughly negative 25 cents per gallon at yesterday’s prices. “That’s very far in the red,” he said, noting that some plants are slowing production, others are idling and some have stopped buying corn.

“Our absolute first concern in this is our people,” said Jeanne McCaherty, CEO of Guardian Energy Management, a company that manages operations at three ethanol plants. She said her company is working hard to follow Center for Disease Control recommendations, including social distancing, enabling employees to work remotely where possible and ensuring proper cleaning and hygiene.

“The second concern is job security,” McCaherty said. “Our people are sacred to us…We are concerned about them,” she added, noting that ethanol plants and their workers are integral parts of local rural economies.   

Demand destruction the industry is facing is devastating, she said. Ethanol plants are also worried about physical logistics problems. Ethanol plants and their customers have limited amounts of storage space, she said. Some plants may need to shut down simply because of physical restrictions related to storage.

Doyal noted the ethanol indsutry was negatively impacted during the financial collapse of 2008, but said the impact from that event was relatively short. “This one, I think, we will feel for much longer,” he said. “Folks, this is not going to be good, and our biggest concern by far is our people. This is going to directly impact our folks, and we’re doing everything we can to mitigate that,” he said, whether that impact comes from risk of exposure to the virus or trying to keep plants open and operating so that workers can stay employed.

Chad Friese, general manager of Chippewa Valley Ethanol Co., discussed the unique position his company is in as a producer of not just fuel ethanol, but also pharmaceutical grade ethanol that can be used to produce hand sanitizer and other cleaning products. Currently, the company is trying to shift its focus to producing as much alcohol as possible for the hand sanitizer market. While the vast majority of fuel ethanol plants aren’t designed to produce pharmaceutical-grade ethanol, Freise said Chippewa Valley Ethanol has had the capability to serve that market for nearly 20 years, since 2001. It’s a big shift at the plant level to make that change, he said. Fuel ethanol production, however, is the first step in the plant’s process to produce pharmaceutical-grade alcohol.

Friese said his company is concerned over logistical problems impacting their ability to produce the alcohol needed for hand sanitizers, specifically whether the plant will have access to the rail cars and trucks it needs to move products. “We need those logistical channels to stay open,” he said. Friese also expressed concern over how plant operations could be impacted if a member of his staff becomes infected with COVID-19. “These are highly specialized jobs,” he said.

Cooper described several actions needed to keep ethanol plants operational. To help the ethanol indsutry survive the current disastrous market conditions, Cooper said the RFA is calling on Congress and the Trump administration to take immediate action to prevent a potential collapse of the industry. The top priority, he said, is to retain the industry’s highly-skilled workforce and save jobs. “The ethanol industry’s most valuable asset is its workforce,” Cooper said. Every effort should be taken to retain these jobs, especially given the likelihood that many plants will be forced to temporarily idle production and suspend sales of ethanol and coproducts.”

Beyond that, Cooper said the RFA is asking the administration to immediately announce that it will not appeal the Tenth Circuit Court decision that struck down three SREs approved by the U.S. EPA and announce it will apply the court’s decision nationwide. “This would send positive market signals that RFS demand will not be undermined by further small refinery exemptions,” he said. “That’s a signal our industry desperately needs today.” In addition, Cooper said the EPA should also announce it will immediately add 500 million gallons to the 2020 Renewable Fuel Standard requirements as ordered by the D.C. Circuit Court in 2017, and should announce it will not approve any pending SREs that do not meet the criteria of the Tenth Circuit Court.

“We are also joining many other businesses and industry groups in calling for more general forms of relief for our industry,” Cooper added, noting that the RFA joined with 96 other groups on a letter to President Trump and Congressional leaders this week calling for action to ensure continued access to credit for member companies and small businesses. The letter also advocated for some tax relief measures.

Cooper said the RFA expects fairness and equity in how assistance is being provided to various energy industries. Trump has already directed the U.S. Department of Energy to purchase millions of barrels of crude oil for the strategic petroleum reserve, he said, and noted other relief measures are also in the works for U.S. oil producers. “We’re simply calling on the government to ensure that all fuel producers receive equitable support during this period of marketplace uncertainty and unrest,” he said.

“I am incredibly proud of the men and women of the ethanol indsutry for their tenacity, resolve and compassion during this very difficult time,” Cooper added. “Not only are we continuing to deliver cleaner fuels to the market during this national emergency, but our indsutry is also part of the solution for mitigating the spread of the virus and protecting American families.”