Ethanol Producers Face Price Pressures, Fundamental Questions

The profitability of ethanol producers has been hit by rising commodity prices and a sharp reduction in the price of ethanol. The price of corn has risen to about $3.80 a bushel on the Chicago Board of Trade from less than $2.50 in September 2006, whereas the price of ethanol has fallen to about $1.86 a gallon versus $4.33 in June 2006. Ethanol production in August, at 10.3 million barrels, was 32% higher than a year earlier. But restrictions by Georgia and Florida on use of ethanol during the summer, when the fuel easily evaporates, cut demand by about 3 billion gallons -- or 45% of current national demand -- according to Friedman, Billings, Ramsey. Despite ethanol plant closures, new mills are expected to come on line next year, raising output to 11.3 billion gallons by year-end. Without a relaxation in fuel regulations by Georgia and Florida, demand is likely to grow slower than supply. David Pimentel, a professor of ecology and agriculture at Cornell, claims that manufacturing ethanol from corn requires 29% more energy than ethanol itself produces. Michael Wang, an environmental engineer at the Argonne National Laboratory outside Chicago, disputes the inclusion of energy spent on making fertilizers and pesticides in the calculation, and therefore estimates that ethanol production results in a 33% gain in combustible energy. According to Ron Oster, a principal at Broadpoint Capital, "Ethanol companies are near breakeven at best; that's not a good recipe when you have $100 oil."

Sources: Bloomberg
Commentary: Ethanol : A Few Myths Debunked • Ethanol's Sweet Side • Now There's An Ethanol Glut?!
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Comments

[Lee Johnson, former dep. dir., Portland (OR) Energy Office]

Dr. Pimental is correct and has low net energy results for corn-ethanol have been proven over and over again for the last 35 years. Mr. Wang is lying. He is a government laboratory employee who, if he does not come up with "the right numbers," will get neither promotion nor retention if there is a future RIF (reduction-in-force) affecting gov't energy agency/lab employees. In sum, it is much safer and wiser to trust Dr. Pimental's numbers, and all the other independent and unbiased experts when it comes to asking, "What is the real return in energy for all the energy invested in this technology?" Any other way of looking at it is stupid and naive or specious and special interest.