Ethanol Producers Will Surprise Many 12 comments
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Sector Snap: Analyst says end of ethanol oversupply in sight
In Alternative Energy Hunt, Ethanol Under the Gun
These two news items were right next to each other on the summary page for VeraSun Energy (VSE), the largest pure play ethanol producer.
The first article reported that an analyst from Oppenheimer & Co. announced he believes the current oversupply of ethanol will disappear in the next 5-12 months. I am not sure there is really an oversupply because, as far as I can tell, all ethanol producers are selling every gallon they are producing and I have not heard of any idle production. There has been a worry of an overbuilding of ethanol plants, but many have been canceled or put on hold, and it appears production capacity will really level off the middle of 2009.
The second article focuses on the twin problems of corn ethanol’s bad public image and high corn costs that really cut into margins. There are some interesting comments on the politics of ethanol and the belief that the next administration would not be a supporter of corn ethanol as a renewable fuel.
The article also discusses the hard times ethanol companies have fallen on, stock price wise, and getting financing for new plants. Again the cry for cellulosic ethanol is raised, but the article does point out that there are currently 134 producing grain ethanol plants and 61 under construction and exactly zero cellulose ethanol plants producing ethanol.
My own belief is that the U.S. will continue towards about 10% ethanol blend in all gasoline, for both clean air and reduced oil dependence reasons. This give an annual requirement of 18 million gallons and current production is about 7.5 million gallons with capacity peaking in 2010 at about 14 million gallons. The current Renewable Fuel Standard calls for 36 billion gallons by 2012 and the Democratic presidential candidates are calling for 60 million gallons by 2030. But of course they do not want it to be corn ethanol. I do not see any way to meet the RFS without significant corn ethanol production.
I also think that when/if cellulose ethanol becomes viable, it could benefit corn ethanol producers in several ways:
- Corn ethanol producers are natural candidates to switch to cellulose with their already built and functioning plants.
- Competition from cellulose feed-stocks should drive down corn costs as less is needed for fuel. Cellulose ethanol producers may be surprised what their feed-stocks cost once there is a market for them. See this story.
- The government will need to support ethanol prices so all of their “friends” who build cellulose ethanol plants can get a decent return on their investments.
I think VeraSun Energy, on its way to
becoming the largest ethanol producer, will surprise many with its
profitability over the next few years. I have started picking up a
small position at current prices.
Note: I am long VSE.
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This article has 12 comments:
2) 50% of corn is consumed by the animals we eat, but that part of the corn stalk is NOT the part that humans eat
2) Corn ethanol plants cannot be converted easily to cellulosic ethanol plants -- they are very different processes. Cellulosic means moving tons of "hay" all around, something the corn infrastructure can't do right away.
3) Profitable cellulosic is many years away -- they haven't found the right enzyme yet (after 30 years of trying). Corn is a sugar -- easily broken down. Cellulosic is plants and wood -- much harder to break down.
4) CNG production in the U.S. has plateaued for 30 years, with every new well depleting faster than the last. The rest of the world pays $15 to $20 per million BTUs for LNG, versus us paying $11 presently. They will outbid us. CNG & LNG isn't the answer either.
5) We Americans are just going to have to used to living less.
The idea behind cellulosic is that corn waste is converted to alcohol and not the corn itself. However, having said that, 'switchgrass' is apparently more generous in it's conversion rate (if I remember correctly, 4X that of corn cellulose.) and it grows like a weed and can grow in salty water.. Sounds like a better choice than corn, but then what would be the point of opening election year in Iowa?? ;-)
Thx jegan
1) There is no free hydrogen on earth. It has to be created using energy.
2) Gas hydrogen has basically ZERO energy density. A "tank full" would allow you to start your car and back out of the driveway. Then, you'd be empty.
3) Gas hydrogen can't be stored as it's too small a molecule. It leaks out at all times.
4) Liquid hydrogen can be created using MASSIVE, MASSIVE amounts of energy. Sort of defeats the purpose.
5) Liquid hydrogen will also boil off and leak out, emptying the tank within a week even if you don't drive.
I grow tired of hippies, actors and others who know nothing parroting something as silly as the "hydrogen economy". Never gonna happen.