A Bleak Outlook for Biofuel

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Corn FieldsThe downturn in the national economy has hit just about every major industry. And now it seems that ethanol is no exception. Yesterday, Archer Daniels Midland Co., or ADM, a major U.S. producer of ethanol, stated that ethanol production in the U.S. has dropped 21% since last year. Falling oil prices, a decrease in overall demand, and low profit margins are to blame.

As oil prices skyrocketed, the United States government issued numerous incentives to reduce foreign dependencies, including a number of benefits for new plants to produce ethanol. In response, production capacity for the fuel additive grew tremendously.

But now that oil prices have dropped again — coupled with the fluctuating price of corn, from which most ethanol in this country is produced, and the accompanying credit crisis — ethanol is no longer the safe, much less lucrative, investment that it was.

Ethanol at the PumpVeraSun Energy Corp. closed 12 of its 16 facilities after filing for bankruptcy as early as October of last year. Since that time, Northeast Biofuels; one of the subsidiaries of Panda Ethanol Inc.; and, just last week, Renew Energy LLC, a private distiller based in Wisconsin, have all filed for bankruptcy as well. ADM estimates that right now, the country’s plants are only capable of producing 10.2 billion gallons a year — whereas they managed 12.9 billion last year. The Renewable Fuels Association, an industry trade group, estimates production at 10.3 billion gallons.

Nonetheless, the prognosis for ethanol isn’t all bad. Current U.S. policy mandates that national ethanol usage increases incrementally every year until 2015 at 15 billion gallons, and many of the closed plants are actually sitting in a state of “hot idle” — wherein they could be started back up, producing at full capacity, in less than a week’s time. According to the Renewable Fuels Standard of 2009, refiners and blenders must blend 10.5 billion gallons of ethanol into gasoline this year alone. Ethanol producers can only hope that, given national regulations and the slight easing of economic woes, the tide will begin to turn soon, and ethanol will once again be in high demand.

Photo Credit: Dodo-Bird and Cote at flickr

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