Ethanol 101: FEW event examines industry's past, future
The Ethanol Industry 101 seminar held in Minneapolis June 4 featured 17 speakers and four moderators who gave attendees a whirlwind lesson on the ethanol industry from a variety of perspectives including the industry’s history, the science of ethanol production, ethanol economics, policy and looking to the future with cellulosic ethanol.
About 100 people were in attendance, the majority of which indicated by a show of hands that they had been a part of the industry for three years or less. Ethanol 101 was held in advance of the International Fuel Ethanol Workshop & Expo (FEW,) which kicked off with the Expo Grand Opening and Welcome Reception in the evening and will wrap up June 6.
Mark Yancey, vice president of BBI International Consulting Services and cofounder of NEATech, gave a year-by-year run down of the industry’s growth. In 2000, there were 55 ethanol plants in operation and four more plants started production by the end of the year. Although only two more plants come online in 2001, BBI International completed 25 ethanol feasibilities studies that year, indicating the boom on the horizon, he said.
Yancey described the conditions during 2006, during which 21 new ethanol plants come online, as a “perfect storm” to encourage rapid expansion. That includes factors such as the MTBE market converting to ethanol as a fuel oxygenate, record profit margins, bipartisan support for ethanol in Congress and more. By the next year, when 30 ethanol plants complete construction, it is becoming clear that the industry will hit the blend wall and production will exceed the requirements of the renewable fuel standard—causing lenders to withdraw and equity to dry up.
The year 2008 is significant for several reasons. First, 51 new plants begin producing ethanol. The cost of construction has risen from $1 per gallon of capacity to as much as $2 per gallon and many new plants come online burdened with significant debt, Yancey said. It’s also the year that the global financial crisis hits. In the next two years only seven and three ethanol plants complete construction, in 2009 and 2010 respectively.
Yancey also showed a slide that illustrates the rising number of bankruptcies from 2003 to 2008. Of the 10 ethanol plants starting up in 2004 only a few of them went bankrupt. The difference is dramatic when those numbers are compared to the results for 2008. “More than half of these shut down or went bankrupt,” he said. “The boom was over, it really was over overnight.”
Still, as Yancey and other speakers pointed out, the majority of the plants that shut down due to bankruptcy have restarted. Donna Funk, member of the biofuels group for Kennedy and Coe said about 40 ethanol plants have been sold since 2009—some of them due to bankruptcies and some of them voluntarily. The industry has seen increasing amounts of consolidation by the industry in recent years, with companies purchasing multiple plants rather than building new facilities.
John Christianson, principal of Christianson & Associates PLLP, said he expects the industry will go through more consolidation over time. Still, bankruptcies and consolidation are not a sign that the industry as a whole is failing—both can be found in any industry. “All of these things are part of a normal emerging market,” he said.
Brian Jennings, executive vice president of the American Coalition for Ethanol, joined other speakers that talked about policy issues. He addressed what he called a “growing minority” within the industry that has been questioning the role of government in the ethanol industry. Some seem to be ashamed of the fact that the ethanol industry needs government support. “We need to get over that and we need to get over that fairly quickly,” he cautioned, adding that the government must play a role in certain things, such as police and fire services, the U.S. military, food, agriculture and energy. “Government will continue to play a role within ethanol and energy for a very long time,” he said.
He also encouraged members of the ethanol industry to contact members of Congress to develop relationships and foster new champions for the industry. Those that think paying their membership dues to organizations like ACE, Growth Energy and/or Renewable Fuels Association is enough need to realize the power they have to influence lawmakers—power lobbyists don’t always have. When these groups send out emails, asking their members to contact members of Congress about a particular issue, Jennings hopes more people will follow through—particularly now, with the RFS potentially under assault. “Think just one or two minutes before you hit the delete button,” he said.
Wes Bolsen, vice president and chief marketing officer of Codexis, wrapped up the day by stressing that the cellulosic ethanol industry is becoming a reality right now. “Physical steel is going into the ground,” he said, naming off a variety of companies either in the process of building plants or on the verge of breaking ground.