Ethanol producers struggle with difficult market

PEKIN, Mar 10, 2009 (Journal Star - McClatchy-Tribune Information Services via COMTEX) -- AVR | Quote | Chart | News | PowerRating -- Ethanol producers have a tall order in front of them in 2009: They have to produce more ethanol despite a rise in economic pressures and a drop in demand.

"It's likely to be a tough year. Markets are not in good shape," said Ron Miller, CEO of Pekin-based Aventine Renewable Energy Holdings Inc.

The federal mandate for ethanol (to be blended with gasoline) rises to 10.5 billion gallons this year -- a billion more than last year, said Miller. Despite an increase in the number of U.S. ethanol producers -- from nine plants to 176 in the past eight years -- not all that capacity is likely to be realized, he said.

"Last year, one of the largest U.S. ethanol producers, South-Dakota-based VeraSun, declared bankruptcy and closed seven of their plants around the country," said Miller.

Locally, MGP Ingredients announced last month that it will no longer produce ethanol at its Pekin plant, choosing to target the food industry instead.

Problems in the ethanol industry were recently the subject of a congressional hearing. "Renewable fuel producers are being hit on both sides. Volatility in energy prices has affected demand. Meanwhile, they are feeling the effects of the credit crunch and an inability to access capital," said Rep. Nydia Valazquez, D-N.Y., chairwoman of the House Small Business Committee.

With a decline in investments in renewable fuels, efforts to advance cellulosic ethanol production -- making ethanol from sources other than corn, such as grasses or waste -- have been slowed, the House committee was told.

One effort to give the ethanol industry a boost involves blending more of it in U.S. gasoline. Ethanol proponents have filed a waiver request with the U.S. Environmental Protection Agency to approve gasoline blended with 15 percent ethanol -- up from the present standard of a 10 percent blend.

On Monday, Agriculture Secretary Tom Vilsack said the government should move quickly to increase the amount of ethanol allowed in gasoline.

"We can, we believe, move fairly quickly to move the blend rate to 12 or 13 percent in the interim," said Vilsack.

"Increasing ethanol blending above 10 percent is important to the long-term viability of America's ethanol industry," said Bob Dinneen, CEO of the Washington, D.C.-based Renewable Fuels Association.

Opponents argue that increasing the percentage of ethanol in gasoline beyond E10 would invalidate warranty coverage on non-flexible-fuel vehicles and further reduce gas mileage.

"Going to E12 wouldn't require new analysis by the EPA. It would be a good interim step while they look at E15," said Matt Harwig, RFA spokesman.

Miller noted that higher ethanol blends have proved successful elsewhere. "Brazil has been running for E-25 (a blend of 25 percent ethanol made from sugar) for 25 years," he said.

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