Local ethanol production has successes, failures

A new ethanol production plant under construction in Madison is in line to open later this year, but another in town and one that had been planned nearby in Granite City never got off the ground.

The birth and rise of the metro-east's ethanol industry is much like the tale of projects in these two cities: Not all have succeeded.

Meanwhile, the Center Ethanol Co. located outside Sauget remains the only private ethanol plant currently in production in metro-east, and the National Corn-to-Ethanol Research Center built with $14 million in federal money and $6 million from the state of Illinois operates on the campus of Southern Illinois University Edwardsville.

Abengoa Bioenergy Corp. in Chesterfield, Mo., has been building an ethanol production plant at the River's Edge business park in Madison and should open this fall.

ABG North America, a Canadian company, also was going to build an ethanol plant at the business park but pulled out.

A third company, Sioux Falls, S.D.-based VeraSun Energy Corp., filed for bankruptcy last year before it could build an ethanol plant off Interstate 270 in Granite City. On Thursday, an auction house will be taking bids and selling parcels of a 380-acre tract in Granite City that was purchased for ethanol production. The bankrupt company also is auctioning off 1,600 acres of Illinois farmland it had initially purchased to support its ethanol-related businesses, said Carl Carter, of Schrader Real Estate and Auction Co. of Columbia City, Ind.

"VeraSun is in Chapter 11, and they are really trying to sell these away so they can get the best value they can for their shareholders," Carter said.

Abengoa's new plant under construction in Madison will have a capacity of 88 million gallons --one of the larger-scale ethanol operations in the country. Executive Vice President Chris Standlee said most of the estimated 60 employees who will run the operation have been hired.

"Folks are on site, and the plant is coming along as anticipated," Standlee said. "All of our people are there and ready to assume the responsibilities to operate the plant as soon as it starts up."

Center Ethanol in Sauget was the first to come on line when operations began in April 2008. The plant produces 54 million gallons of fuel annually. Aside from replacing one of the tanks that failed last New Year's Eve, company president Barry Frazier said production has been running at 100 percent.

Frazier also said the market has improved a bit in terms of ethanol margins. He said the market is not near what it was a couple of years ago, but it has improved since the beginning of the year. He said there are a number of ethanol producers who are no longer producers, so the overall percentage of the industry's capacity that is actually operating is around 85 percent.

The current capacity of ethanol producers in the U.S., including all plants still being built, is about 14 billion gallons a year, Frazier said. The current renewable fuels standard says that the amount in the form of corn that is allowed to be produced in this country is 15 billion gallons a year.

"There are not going to be a lot of corn-to-ethanol plants developed from this point forward because of regulations," Frazier said.

Independent marketing advisor Dave Marshall, of TCFG LLC commodities brokerage in Nashville, Ill., said the ethanol industry also has been impacted by the sluggish economy. He said the margin for ethanol producers have been constrained over the past six months as energy demand has fallen and so has ethanol demand as consumers have driven fewer miles.

"VeraSun ran into serious issues financially and went bankrupt," Marshall said. "They have been sold off to other enterprises, many of those were bought by oil companies for pennies on the dollar that were able to buy a really new operational facility at a cost that they could not have bought those facilities for if they wanted to at those numbers. The industry has been consolidating, and major players have had financial problems. Those who continue to move forward appear to be well-capitalized."

Nevertheless, government continues to invest in ethanol production and research. According to the Congressional Budget Office, roughly one quarter of corn grown in the United States is now used to produce ethanol. The overall consumption of ethanol in the United States exceeded a record 9 billion gallons last year, and almost 3 billion bushels of corn were used to produce ethanol in the country -- almost a billion bushel increase over 2007.

But that has contributed to increasing corn prices, leading to higher animal feed and ingredient costs for farmers, ranchers and food manufacturers. Some of that cost is eventually passed on to consumers, since corn is used in so many food products.

The nonprofit SIUE research center opened in 2004 and focuses on teaching and training national and international groups seeking knowledge about biofuel manufacturing. Research Center Director John Caupert said that combined with the nation's struggling economy, the jump in corn prices and fall in ethanol production plants' margins created a "perfect storm." Commercial ethanol plants were being squeezed to the point where there were no profit margins whatsoever, he said. The nation's struggling economy also fed the downturn.

A third factor was what he calls the "rhetoric on food vs. fuel," a debate waged concerning expanding ethanol production and the coinciding rise in corn prices.

"This was a blatant major marketing campaign that was put on by other opponents of the ethanol industry," he said. "It was 100 percent myth. They didn't have one reference of fact to back up what they were saying. They got a whole lot of attention."

The research center has not drawn the international groups it once had. Although Caupert does not expect the industry to return to the level it had witnessed when the center opened, interest in the research site has re-ignited within the past three months.

"We're starting to see glimmers of hope again in the biofuels industry," he said.

Last month, the U.S. Department of Agriculture predicted that American farmers would produce their second-largest corn crop on record with almost 13 billion bushels -- more than 159 bushels per acre. With supplies carried over from last year, the current marketing year is expected to reach a record 14.5 billion bushels. More than 4 billion bushels would be used for ethanol production.

Citing the statistics from the Renewable Fuels Association, there are currently 127 plants producing ethanol across the country. By the end of the year, that number could reach 145.

Matt Hartwig, a spokesman from the Renewable Fuels Association, believes the market is better today than it was six months ago and demand is starting to rise.

"We're beginning to see plants reopen and come on line and production increase," he said.

Caupert at the SIUE Research Center agreed.

"I think some of the opportunities to make a profit again are back," he said. "It is not at the historic level that it was four or five years ago (but) there is an opportunity to make money for these guys again."