Slow but Steady

By Craig A. Johnson | January 01, 2008
n the December issue of EPM, we noted that several plants were finishing construction and starting production, but fewer plants were starting construction. For example, from September to press time in November, 10 plants had completed construction. During this same time, only two plants began construction. This time frame is a microcosm of the ethanol industry's construction slowdown. 2008 is likely to begin with the continuing decline in construction capacity until something changes.

A project can take several years to get from concept to production. Sometimes the equity drive ends up taking the longest. Unfortunately, when equity drives slow significantly, so does everything else. "Once ethanol's price went down [during the summer of 2007], it became much harder to close equity drives," said Art Wiselogel, a manager in BBI International's Project Development division. Wall Street investors lowered the amount of money they were willing to loan to projects, decreasing the bank's risk and, in turn, making it harder for a project to raise more money in an unfavorable season. "The only plants you're going to see get started [at the beginning of] the fourth quarter are those that are self-financed," Wiselogel said.

This may explain the lack of plants that began construction between September and November, but it doesn't discourage all project developers. In Casselton, N.D., Tharaldson Ethanol LLC is building a 100 MMgy facility. The project began construction in May, and despite the severe weather that threatens the region every winter, crews will be on the ground until the job is complete. "Everyone's got their eyes on us," said one engineer at the site. This isn't a self-promoting statement. Rather, with so much at stake, getting the job done at close to 100 percent efficiency has become a necessity.

Competition is increasing with each passing month. Wiselogel said he expects ethanol capacity coming on line in the third and fourth quarters of 2007, and possibly into the first quarter of 2008, to exceed 1 billion gallons before there is a slowdown in completed projects. According to Wiselogel, 14 billion gallons of corn-based ethanol capacity may be all the U.S. market can bear. "This will probably continue until the financial environment dictates otherwise," he said.

In keeping with this trend, no new plants were added to the list this month. However, three plants completed construction. Advanced BioEnergy LLC in Fairmont, Neb., began production Oct. 25 and is currently running at full capacity. Renew Energy LLC in Jefferson, Wis., started production in November. Likewise, Western New York Energy LLC in Shelby, N.Y., began production just before Thanksgiving. In addition, two facilities completed expansion projects. Big River Resources LLC in West Burlington, Iowa, and Husker Ag LLC in Plainview, Neb., completed 40 MMgy expansion projects in November.