Is Ethanol Dead? Not So Fast 17 comments
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A few months ago, I wrote about how the number of flex-fuel cars was increasing in Brazil and sugar-cane ethanol has been a thriving industry for years, without causing damage to food production.
Fresh news related to the ethanol industry, both in the US and in Brazil, should point us to the direction where this industry will go in the coming years.
The serious proponents of ethanol for the transportation industry always stressed the fact that using corn for ethanol production was absolutely stupid, as the yield compared to sugar-cane ethanol is seven to eight times lower. Therefore, in a situation where gas prices were to drop, and/or corn prices were to go up, corn ethanol would be totally unfeasible. Well, it did not take long for reality to surface.
Last week VeraSun Energy (VSE), the largest US corn-based ethanol producer filed for bankruptcy. Let's be realistic: no reorganization plan will work for VeraSun if it continues to rely on corn for ethanol production. It simply won't be competitive.
Archer Daniels Midland (ADM), another big corn-based ethanol producer seems to be "seeing the light", and announced this week that it has entered a joint venture for the construction of two sugar cane ethanol plants in Brazil. No wonder: sales of ethanol for transportation in Brazil keep growing, and just this week, the Brazilian National Oil Agency has announced that cumulative sales of ethanol until September have surpassed gasoline by 1.6%, measured in number of gallons.
While sales of ethanol for the year had a 29.7% increase over the same period last year, sales of gasoline remained flat. If we look at the month of September alone, the number of gallons of ethanol surpassed by 6% the number of gallons of gasoline consumed in Brazilian roads. The reason is clear: sales of flex-fuel cars in Brazil corresponded so far this year to 87.6% of total car sales (ANFAVEA), and those numbers have been increasing year after year, meaning that the aged fleet of gasoline cars is being replaced by flex-fuel cars, and thus, the market for ethanol can only increase. This is ADM's bet.
But I would want to believe that ADM has another reason for its bet, a reason related to the US market: last year the car industry committed to make half of their cars and trucks capable of running on alternative fuels by 2012 if enough E85 is available. This commitment may soon be transformed into a requirement if the "Open Standard Fuel Act" is approved by the new Congress. The odds are very favorable: during the electoral campaign, at all levels, one of the top priorities stated by all candidates, independent of the party, was "energy independence".
If the "Open Standard Fuel Act" becomes reality, producers of ethanol like ADM will be more motivated to invest not just in the US, but also abroad, because the US consumption of ethanol will substantially grow to a point where the 54 cents tariff over ethanol imports will have to be dropped. At that point we will have competition between different types of fuel, including the widely expected electric plug-in cars, and sugar-cane ethanol will be alive and well.
Disclosure: Author holds positions in VSE and ADM
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This article has 17 comments:
www.opednews.com/artic...
we knew in 1974 that there were microorganisms available in the vietnam jungle with enzymes that were digesting the soldiers' web belts & producing glucose. can't fight when your pants fall down.
> jack
Oil independance also means the exclusion of imports from Mexico and Canada. Self preservation will ensure that both of these countries will reduce or stop exports here long before Independance is achieved.
Independance will not be achieved without oil. Contrary to all of the Green hype, CNG is not a viable alternative until NG supply exceeds demand, it doesn't. Current NG prices have slowed drilling projects throughout the industry. NG flows into the US from Canada via pipeline on a 24/7 basis. Without this, an NG shortfall would be evident within a few weeks. Last estimate that I saw was that the shortfall was 15%. Corn Ethanol = nitrogen fertilizer = NG.
Remember TBoone? His company, the one that was sure to go up because Pelosi supported it? New All time low in the last few weeks, TBoone and family unloaded 3 million shares, was $19, is around $6.50.
The next year will not be about renewables, it will be about getting the country out of a recession. The $15 Billion promise annually? This is strictly for research not funding.
One other thing, every country in the world is either in, going to be in a recession or will experiencing dramatic slowdowns. Every country has dropped interest rates has started or is about to start stimulus procedures. This will result in a dramatic reversal to the Demand Destruction scenario.
This is exactly backwards. The increase in flex fuel cars is due to the surge in availability of ethanol at a price lower than gasoline or diesel.
There is no such ready supply of ethanol in the U.S. because of tariffs and ridiculous subsidies of corn ethanol.
Or, scrap the protectionist sugar barriers in the US which will get some Republican support and grow our own and import raw sugar at cheap prices and value add the distillation process here.
Ethanol is all politicalm, nothing yet truly economical.
As rising food prices continue to threaten food security around the world, Brazilian ethanol is one obvious solution being largely ignored. Brazil set up its efficient fuel alternative program in the 70s, when the first oil crisis hit the world. Now Brazilians drive cars moved by ethanol or gasoline mixed in any proportion. And since long ago gasoline in Brazil is not pure, but blended with 25% ethanol, resulting that internal consumption of ethanol in the country is already superior to gasoline's. Ethanol in Brazil is already much cheaper than gasoline at current international oil prices.
Brazilian ethanol is produced from sugarcane without any governmental subsidies and the fuel has a very competitive price. Researchers are increasing the productivity (more fuel extracted per sq.km. of crops) by adapting sugar canes species to each type of land and topography. The productivity now is more than 3 times the records of 30 years ago and it keeps on raising, being expected to soar very soon when the technology to extract ethanol from cellulosic materials (crop waste) will be available for large scale production.
Ethanol production in Brazil uses just one percent of total arable land, and the country can expand its sugarcane fields without disturbing sensitive land areas (like Amazon), just by tapping land such as depleted pastures. Just raising intensity of cattle production from the current 0.8 animals per hectare to 1.2 animals (a target already far exceeded in many parts of the country) would release about 80m hectares of land for crops. There remains plenty of room for expansion: the country has 355 million hectares of farmable land, of which 7 million hectares under sugarcane of which the amount used to make ethanol fills 3.4 million hectares (compared to 200m hectares of pasture). Another 105.8 million hectares remained available, which allows Brazil to increase ethanol production without affecting the environment or food. By comparison, the additional terrain for Brazilian crops could surpass all of the land now under cultivation in the European Union.
Meanwhile, Brazilian food production has doubled in the past decade and that’s the most impressive thing about ethanol from sugarcane: in contrast to corn-based American ethanol or biodiesel derived from soybean oil, there is no cost pressure and no competition with food.
Another persuasive fact for incentiving ethanol production in Brazil is the electric energy that is generated as a by-product of ethanol processing: taking into consideration the energetic balance, the electricity generated in sugar cane processing in Brazil is almost as large as its ethanol equivalence. It's like a two large scale hydroelectric plants generating electricity exactly when it's more necessary: in the Brazilian dry season! So the producers of ethanol are also having increasing revenues by selling electricity to the country's national electric system, which has become an strategic and reliable source of electricity. For all these reasons, ethanol in Brazil is a win-win game for the country, the farmers, the consumers and the environment.
Off course Brazilian ethanol does not intend to concur with petroleum, but it could ease up current oil crisis by supplying a small part of the world energy demand. It is only necessary to look at the increasing demand from the non-oil countries like India and China to understand that the very high price of oil is here to stay. With the existing price of oil, the permanent threat of war in the Middle East, the international geopolitics, and the environmental problems, there seems to be no other easy solution for the energy problem away from the liquid ethanol produced out of sugarcane. This is certainly a very important aspect of the Brazilian economy for the next few years and the rest of the world will have to accept the reality of the liquid ethanol from sugarcane as the right and best solution for the oil crisis.
The problem is that much of Brazil’s ethanol exports continues to face prohibitive tariffs and other barriers to developed markets in the US and Europe. The United States currently places a 54-cent-a-gallon tariff on ethanol imported from Brazil. Consumers in the country are being severely affected, particularly in areas such as the Southeast, where corn does not exist and the logistics to bring ethanol from the center of the country is practically impossible. It is difficult to understand the maintenance these tariff levels, except for political reasons. The developed world appears purposely myopic in relation to the opportunities Brazil presents, maybe it's because that would upset wealthy US and European farmers – a price apparently not worth paying.
Almir R. Américo – Sao Paulo, Brazil
Sugar based is by far the more reasonable and food eco way to go...CZZ (Cosan) is easily the best play in this regard.
Abin..of course..needs to get a life. What Brazil does is none of his business....
How many countries in the world have raised interest rates in the last month? Name two, since countries implies plurality.
Will Obama allow farmers to follow in the footsteps of the rest of the country? A yes or no please, none of the mindless rants you include in every post.
For anyone interested in joining GEO's stock picking prowess over the last 6 months, just click on the comments next to his name. Click on number 8 and move forwards. You name it, its down, sometimes so massively that it must go up by 75% just to get to his initial BUY. But here he is pushing the same drivel.
Mind you, even a blind squirrel finds a nut occasionally and I even agree with some of his assessments occasionally, but he has no sense of timing whatsover.
Take PWE, not only has it dropped from around $28 when he was pushing it but its dividend has been reduced by 20%. It pays out .34 Canadian, which is then converted into USD or about .28 currently depending on the Loonie's value on the ex date.
Thats your history, your rant about others but do not follow up on your own record of stock selection. Do you even hold CCJ anymore? Your record speaks for itself, but your Narcissistic outlook does not allow for other opinions.
Seeking Alpha is about making observations on what has been written in the Articles. It is not about attacking the views of others which do not coincide with yours.
My turn.
Thanks again- Dan
On Nov 09 07:38 AM Bobby Fontaine wrote:
> You might find this article on ethanol informative
>
> www.opednews.com/artic...