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Ethanol plants focus on efficiency

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Old 11-01-2009, 06:05 PM
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Default Ethanol plants focus on efficiency

Ethanol plants focus on efficiency

By Gene Lucht, Iowa Farmer Today
Thursday, June 11, 2009 10:26 AM CDT

Ethanol producers, such as Owen Shunkwiler, think the tracks still lead toward corn as a source for their product. IFT photo by Gene Lucht

COON RAPIDS -- Owen Shunkwiler scoops up a handful of a product his company calls Dakota Germ, an ethanol co-product made here.

The product was not made here a few years ago, before the plant made a variety of improvements.

“This isn’t the same as it was when it opened in 2002,” Shunkwiler says of the POET facility he manages here. “We are constantly making improvements in efficiency.”

That story is repeated at many other ethanol plants throughout Iowa and across the nation.

“We’re not seeing a lot of demand for new plants here,” concedes Monte Shaw,

executive director of the Iowa Renewable Fuels Association. “But, we’re seeing improvements in efficiency.

“And, I think we’ll see an explosion of innovation in our existing plants in the next few years.”

However, perhaps the biggest thing Shaw sees is the survival of an industry that went through difficult times in the past year.

“The last year we saw mostly red ink,” he says. “There’s no sugar-coating it. Times have been tough.”

But, he says plants that were operating before the past year were very profitable before that, and Shaw says the situation appears to be much better now than a few months ago.

“I think we’ve turned a little bit of a corner,” he says. “Today, most plants have their heads above water.”

Still, this is an industry that has gone from 30 years in the darkness trying to find a larger market to a couple of years in the bright sunshine of unbounded growth and optimism.

It then experienced clouds of being told while ethanol will continue, the future is not in corn-based ethanol but in cellulosic ethanol.

Shaw, though, doesn’t see corn-based ethanol going anywhere anytime soon.

“There is this irrational belief that it (cellulosic ethanol) is going to be here in two or three years and then we won’t need corn-based ethanol,” Shaw says.

“I don’t see an economic model that says cellulosic will replace corn soon.

Sano Shimoda, president and founder of BioScience Securities Inc. in Venice, Calif., works with investors in ag biotechnology.

He says there is little doubt the ethanol industry is going through a shake-out, but he says Shaw is right cellulosic ethanol won’t replace the corn-based product in the next few years.

While cellulosic ethanol may be the future, Shimoda says it will take years to develop the processes and technologies for it to dominate the market.

In the meantime, from an investor standpoint, several items stand out, he says.

One is the industry is in an adjustment period, and that means less-profitable plants are being sold.

A second is the business model needs to eventually move toward being less reliant on government subsidies.

And, a third is this is a commodity business, so being a low-cost producer will be important for existing ethanol producers.

That, in turn, could mean single-location business entities could be at higher risk than multiple-location ones because of the possibility of a localized weather-related crop problem.

Iowa State University economist David Swenson says the ethanol industry has brought good jobs to rural areas in Iowa and other Midwestern states.

He also says it appears the first push into cellulosic ethanol appears likely to involve corn stover rather than some new plant. That means the existing plants could benefit from that move in the next few years.

“We’re in a good position for the next round of expansion (into cobs and stover),” Swenson says.

However, he and Shimoda say the industry depends on high energy prices. And, high energy prices should help reduce domestic use (or at least reduce the rate of growth) as consumers respond.

Flat fuel use means the market for ethanol may not see a great deal of growth after the next round of expansion into the cellulosic world.

Nathan Schock, director of public relations for POET, says his company’s efforts to expand into cobs and stover at its Emmetsburg facility should lead to actual cellulosic production there by 2011.

But, he says government support has been and probably will continue to be important to the industry in at least the near future.

“We are a very big challenge to the status quo,” he says.

Schock and Shaw say a number of government policy decisions will be important in the coming months and years.

Those include the effort to move from an E10 standard (10 percent ethanol) to an E12, E13 or E15 standard.

They also include the present battle over the idea of indirect land use — whether incentives should be based on the idea increasing corn demand here leads to increasing corn acreage and clearing rain forest in other parts of the world.

Shaw says the bottom line is the past year was difficult for the ethanol industry and its farmer-investors. Things look better now, and during the past month or two ethanol companies have become profitable again.

There is promise for the future, but expansion likely will be in the areas of improving efficiencies at existing plants rather than in building a huge number of new ones.

Also, challenges remain, but they are challenges the industry does not see as insurmountable.

Iowa Farmer Today
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