Volatile economics hurt ethanol producers

By Bryan Sims | October 06, 2008
Web exclusive posted Oct. 20, 2008 at 10:56 a.m. CST

The economic crisis in the United States has resonated in virtually every market, including the ethanol industry. As a result of volatile economics, several plant operations have been interrupted, others have been forced to restructure their balance sheets, and a few have been forced to shut down. Midwest ethanol plants in particular seem to have been hit hard the most by the turbulent macroeconomics at work.

Ohio-based Greater Ohio Ethanol LLC was the latest in a spate of Midwestern ethanol producers to shut down or declare bankruptcy. The company has filed for Chapter 11 bankruptcy protection in Ohio Northern Bankruptcy Court. Greater Ohio Ethanol, which owns and operates a 54 MMgy corn-based ethanol facility in Lima, Ohio, started up the plant in April. While in Chapter 11 bankruptcy protection a company can sustain plant operations or it can shut down completely while restructuring or reorganizing its financial obligations to creditors (liens) and other liabilities.

According to the filing, Greater Ohio Ethanol has approximately $100,000 to $5 million in assets and between the same amount in liabilities, and approximately 200 creditors, which is a clear recipe for falling deeply into negative profits and sustainable operability. At press time, Greater Ohio Ethanol did not return Ethanol Producer Magazine's messages to verify if its Lima plant is currently operating.

Pratt, Kan.-based Gateway Ethanol LLC, which operates a 55 MMgy corn and milo plant in Pratt, also filed for Chapter 11 bankruptcy protection this month. Sixty-two percent of Gateway Ethanol is owned by its parent publicly traded company Orion Ethanol Inc. located near Wichita, Kan. Gateway Ethanol's bankruptcy protection filing was not a surprise to some in the industry because Minneapolis, Minn.-based Dougherty Funding LLC, which financed the construction of Gateway Ethanol's plant with a $54.3 million loan, moved to foreclose on the facility in May.

Gateway Ethanol didn't provide a thorough listing of creditors in its abbreviated filing, but it's estimated that the company's liabilities stand somewhere between $50 million and $100 million. At press time, Gateway Ethanol had not returned EPM's phone calls to verify if its Pratt facility was operating.

Several other ethanol companies have also declared bankruptcy. Alternative Energy Sources Inc., a publicly owned ethanol company based in Kansas City, announced it was calling off plans to pursue a proposed ethanol projects in Kankakee, Ill., Greenville, Ill., and Ogden, Iowa.

In March, Basehor, Kansas-based Ethanex Energy Inc. filed for Chapter 7 bankruptcy protection after terminating its purchase agreement through the U.S. Securities and Exchange Commission for Midwest Renewable Energy LLC, an ethanol plant in Sutherland, Neb. Ethanex Energy initially agreed to buy the plant for $220 million in addition to Ethanex stock.

In December 2007, Mead, Neb.-based E3 Biofuels Mead LLC shut down the operations of its 25 MMgy closed-loop ethanol facility and filed for Chapter 11 bankruptcy protection. According to an E3 Biofuels news release, the company made the filing in U.S. bankruptcy court in Kansas City.