Ethanol producer backs lobby against increasing ethanol blends

By Ryan C. Christiansen | March 05, 2009
Web exclusive posted April 3, 2009, at 8:45 a.m. CST

The newest ethanol producer in the U.S. is also one of the largest, but Valero Energy Corp. is not a member of the organizations that typically represent ethanol producer interests. Instead, Valero continues to retain membership in the National Petrochemical & Refiners Association, a lobbying group that testified before the U.S. Senate Subcommittee on Clean Air and Nuclear Safety earlier this week that ethanol should not be blended into gasoline at levels higher than 10 percent for use in non-flexible fuel motor vehicles and non-road gasoline-powered engines. The NPRA suggested that levels above 10 percent have not been sufficiently tested for their safety.

Meanwhile, ethanol producer member organizations, including the American Coalition for Ethanol, Growth Energy, the Renewable Fuels Association, and the National Ethanol Vehicle Coalition have formally petitioned the U.S. EPA to allow the use of up to 15 percent ethanol in gasoline for motor vehicles, citing scientific data on the use of blends beyond E10 in standard, non-flex-fuel vehicles.

Valero, which is primarily a Texas-based petroleum refiner and marketer, completed its purchase of eight former VeraSun Energy Corp. ethanol plants earlier this week, including facilities in Aurora, S.D.; Albert City, Fort Dodge, Charles City, and Hartley, Iowa; and Welcome, Minn.; Albion, Neb.; a development site in Reynolds, Ind. Together, the plants have a 780 MMgy production capacity. They were purchased for the aggregate price of $477 million, representing approximately 30 percent of the plants' replacement cost. The purchase price excludes working capital and inventory currently estimated at approximately $75 million.

A petroleum refiner and marketer first and an ethanol producer second, Valero stands behind the NPRA's position against raising the ethanol blend level.

"We typically let the NPRA do the speaking for the industry on those issues rather than us taking a lead on that," said Bill Day, director of media relations for Valero. "We think we've been very open in talking about our partnerships with ethanol producers, because before we got into ethanol production, we were a large purchaser of ethanol. But what we have said about ethanol before we were an ethanol producer remains true: ethanol is an industry that is relying on government subsidies, a government renewable fuel mandate, and tariffs on imported ethanol. Without those things, the ethanol industry probably couldn't stand on its own.

"We recognize that ethanol is going to be an important part of the fuel mix in this country and the renewable fuels standard isn't going anywhere," Day said, "and so as long as we're required to buy ethanol, we might as well make it. That's why we're in the business and we're looking forward to working with our partners in the industry."

Day said Valero has been approached about joining ethanol industry organizations. "Everybody has been very nice about it," he said. "Everybody has been very good to work with and welcomed us to the industry. The amount of capacity that Valero purchased makes us the third leading ethanol producer in the country but, for us, it's actually a very, very small part of our operations and a small part of our bottom line. And so we're still overwhelmingly a petroleum refiner and not an ethanol producer.

"Whether we would join an organization, I don't know," Day said. "Because we bought these assets out of bankruptcy and everything had to be approved by the court, the timetable is pretty compressed. It happened relatively quickly for a transaction of this type. There are things that we're still deciding. We haven't reached any decisions on memberships, (but) Valero is still a member of the NPRA, which has been fairly outspoken about some of the subsidies and breaks that the ethanol industry gets."

Valero's acquisition of VeraSun's plants means a loss in members for some ethanol industry organizations. "VeraSun was a member of [the American Coalition for Ethanol] and I know that in talking with a representative of VeraSun that he had indicated that he had a conversation with Valero about membership in various ethanol industry organizations, but I don't know where that stands right now," said Brian Jennings, executive vice president for ACE. "I have not talked with anyone at Valero yet. It's a bit early."

Will ethanol industry organizations seek Valero's membership? "We very well could reach out to them," Jennings said. "That's probably a discussion that needs to take place with the ACE Board of Directors to find out what direction they would like to give on that important question. They meet next in May and so we will have that opportunity to talk about how and if we intend to reach out to Valero about membership."

No matter which side of the political arguments Valero stands upon, those who depend on ethanol for their livelihood are looking forward to seeing the plants become operational again, Day said. "The communities where we bought the plants are very excited about a company like Valero coming in and keeping the plants in operation and keeping the employees on the job," he said. "We recognize that it's an important industry for the Midwest. Everybody has been very supportive."