Revision as of 16:07, January 11, 2012 (edit)
Sasharussian - Director (Talk | contribs)

← Previous diff
Revision as of 19:01, March 18, 2012 (edit) (undo)
109.230.216.60 (Talk)
(Understanding fuel types)
Next diff →
Line 68: Line 68:
A 2008 report by the University of Nebraska shows that ethanol production now has a net energy gain of 1.5-1.6 units of energy out to every unit in. Furthermore, it shows that 13 gallons of ethanol are produced for each gallon of petroleum used.<ref>[http://seekingalpha.com/article/98914-study-shows-ethanol-energy-efficiency-is-growing?source=feed SeekingAlpha: "Study Shows Ethanol Energy Efficiency Is Growing"]</ref> A 2008 report by the University of Nebraska shows that ethanol production now has a net energy gain of 1.5-1.6 units of energy out to every unit in. Furthermore, it shows that 13 gallons of ethanol are produced for each gallon of petroleum used.<ref>[http://seekingalpha.com/article/98914-study-shows-ethanol-energy-efficiency-is-growing?source=feed SeekingAlpha: "Study Shows Ethanol Energy Efficiency Is Growing"]</ref>
-===Understanding fuel types===+It is good work even if their are some other areas of research that need to be reuspud to make it feasible. When burned as fuel the CO2 and H2O are expelled and so collecting these ingredients for the ethanol process will involve a mixture of capturing technologies probably from C02 producing industries in the early stages since filtering the stuff out of the air is currently a less than efficient prospect. That may change.There are various ideas for ethanol, biodiesel and such and some of them would be complimentary like how making biodiesel produces glycerol which, they have found, can be fermented into ethanol and since new techniques for filtering ethanol instead of distilling could make production far more energy efficient, it would make sense to combine the production facilities. This is even more evident when one sees that often organic stocks have different components that are better for one fuel than the other and that they both often have protein byproducts that can be used as animal feed, so close proximity helps save on shipping costs.I am not convinced that one of these fuels has the biggest niche in the energy market or even if they are answers to transportation needs but I can not imagine any future where ethanol is not at least a major industrial chemical and all energy technologies should be reuspud. The industrial technology spin-offs alone justify the efforts and I think that our ability to prioritize these emerging energy technologies is not sufficient at this point.
-Ethanol fuels are available in a number of different mixtures, but are rarely used pure. Ethanol is most commonly used as an additive (2-10%) in fuel mixtures; not only is government-subsidized ethanol cheaper than gas, but it also reduces harmful emissions when included in gas mixtures.+
-*E10 fuel uses ethanol as an additive (10%) to unleaded gas. At this concentration, most consumers can't notice any difference in the performance of E10 and normal gasoline fuel.+
-*E85 fuel is 85% ethanol. It can be used both by '''flex fuel vehicles''' ("flexible fuel vehicles," capable of running on E85, E10, or normal unleaded gasoline) and by "alternative fuel vehicles" specially equipped to run on E85 and E85 only.+
===Fuel Ethanol Capacity=== ===Fuel Ethanol Capacity===

Revision as of 19:01, March 18, 2012

Error creating thumbnail
Ethanol's future is intimately linked to that of the US corn crop.

See also articles on Biofuels, Renewable Energy, and Cellulosic Ethanol

In the world of biofuels, ethanol is king--the alcohol fuel is predicted to account for a full 9% of total US fuel usage by 2018.[1] In 2009 ethanol use declined, however the U.S. government has set a renewable fuels standard of 15 billion gallons per year by 2015 (enough to replace 75% of oil imports from Middle East in 2025).[2] After the 9% benchmark, however, the future becomes more uncertain. A likely discontinuation of government ethanol subsidies will mean that ethanol's price must drop to remain competitive against gasoline (which has about 40% more energy content per gallon).[3]

Although the alcohol fuel can be produced from a number of different biomass stocks (including wheat, sugar cane, and beets), in the United States, corn-based ethanol remains the most prominent possibility. (Brazil remains the world's largest producer of ethanol, distilling it from sugarcane for use within the country.) Strong corn-growing conditions in the US breadbasket and relative familiarity with the corn-ethanol production process mean that corn is probably the most efficient and feasible staple biomass stock for the fuel. But corn ethanol is not without its challengers--recently, cellusolic ethanol has also been receiving increasing amounts of media attention (and research dollars). Bio-butanol is another up-and-comer that threatens the corn-based camp's hold on American biofuel.

The chart at left shows continuous front-month Ethanol Futures Contracts Traded on the Chicago Board of Trade (CBOT).

Prices

Ethanol futures contracts are traded on the Chicago Board of Trade (CBOT) under ticker symbol AK with delivery in every month of the year, while corn trades under the symbol "C". For electronic trading sessions, the symbols used are ZC for corn and ZK for ethanol.


Who wins?

  • ADM and Bunge are among the biggest winners from the ethanol boom: agricultural processors and agribusinesses. With massive resources at their disposal, ADM and Bunge can easily shift their focuses to corn planting and processing to maximize the effects of a coming ethanol glow.
  • POET is the largest U.S. producer of ethanol, but is privately held.
  • Deere and Agrium (agricultural supply products), and Mosaic, Potash Corp, and Terra (fertilizer/nitrogen products) may also find their products in higher demand if corn prices hike.
  • Monsanto and other agrochemical/genetically modified seed companies that target corn crops may also feel the positive effects of an ethanol boom. GM giant Monsanto is already engineering strains of high-starch corn that will maximize ethanol yields; if corn ethanol truly takes off, Monsanto's ethanol-maximizing corn will be sure to come along for the ride.
  • Valero Energy (VLO) Valero entered the ethanol production business in 2009, through its acquisition of seven ethanol plants from Verasun Energy (VSE) located in the United States for $477 million. The company has a yearly production capacity of 1.1 billion gallons. In December 2009 and January 2010, Valero acquired an additional five plants from various companies.[4]

However, due to the aggressive expansion in ethanol plants consolidations and bankruptcies have begun across the industry. In the first quarter of 2009 ten ethanol production plants filed for bankruptcy. These included plants operated by Aventine Renewable Energy Holdings (AVR) and Pacific Ethanol (PEIX). In 2008 Verasun Energy (VSE) filed for bankruptcy and sold an additional two plants to Green Plains Renewable Energy (GPRE) for $123.5 million.[5]

Who loses?

Error creating thumbnail
Not everyone is in favor of ethanol.
  • Delta and Pine Land Company (DLP) and other American companies that rely heavily on soybean demand will suffer, processors and seed companies alike. The sharp spike in US corn acreage due to corn ethanol's growing popularity would come at the expense of existing agricultural acreage--most likely the soybean crop. (The US is currently the world's leading producer of soybeans, at almost 40% of total soybeans produced.) So while agribusinesses themselves can switch crop emphasis and move into the lucrative corn business, companies which rely exclusively on soybeans (processing, products etc.) will find themselves in a more difficult situation as the soybean slack is picked up by Brazil.
  • DuPont and other companies that have invested heavily in other biofuels may also suffer. With its extensive investment in both bio-butanol and cellulosic ethanol research, DuPont is one such example (despite having its own strains of pest-resistant corn).
  • Ford, DaimlerChrysler, and other Auto Makers who have missed the boat on flex fuel or alternative fuel cars may find themselves in an increasingly difficult market, as consumer trends turn more and more towards biofuel-capable vehicles. In general, American automakers seem to be trailing the most (possible exception: GM, struggling with possible bankruptcy but currently leading the US drive for flex fuel cars).
  • As with the development of any renewable energy source, companies engaged in the exploration and production of oil will lose as ethanol becomes increasingly competitive. This includes companies engaged in exploration, production, and refining such as Exxon Mobil (XOM) and BP (BP) and also companies engaged in contract drilling such as Transocean (RIG) and Hercules Offshore (HERO).
  • Companies that purchase large amounts of corn will have to bear the steep (and still rising) price of corn, especially if corn ethanol catches on worldwide. This could affect the bottom line of producers of everything from meat products (livestock) to cereals.

Introduction to corn Ethanol

Ethanol production

Corn ethanol is produced in two different kinds of mills, dry and wet:

  • Dry corn mills are generally less expensive to build (about $1/gal of annual production capacity less than wet mills). However, dry mills also use more energy than wet mills, and also spend more in net corn costs. Dry mills account for 82% of all current US ethanol production (and nearly all of recent ethanol growth), and many of them are owned by small cooperatives of independent farmers.[6] Marketable byproducts include dry distillers grains (DDG, used as animal feed), flakes, grits, and captured CO2.
  • Wet corn mills are more expensive to build, but generally spend less on energy (largely because they don't have to dry distillers grains for DDG livestock feed production) and recapture more of their initial corn spending by selling higher-revenue byproducts like high fructose corn syrup. (Other byproducts include dextrose, starches, corn meal/feed, and corn oil.) Wet corn mills are owned almost exclusively by large corn processing companies, with most wet mills belonging to Archer-Daniels-Midland Company (ADM). As corn ethanol production's emergence as a high-profit and high-profile industry attracts more big-business participation, wet mill production may pick up.

The energy costs of ethanol production vary depending on whether natural gas or coal is used. Mills are increasingly turning to coal in an effort to cut themselves free from fluctuating/rising natural gas prices.

  • In order of production cost efficiency, with least expensive (most profitable) first: dry mill with coal, wet mill with coal, wet mill with gas, and dry mill with gas.

With corn prices through the roof, VeraSun Energy has delayed the opening of two completed ethanol plants, citing concerns shrinking margins.[7]

Is corn ethanol a net energy loss and polluter?

If you've read about ethanol, you've probably heard it before--apparently, corn ethanol's energy content is "negative," due to the amount of gasoline and other energy sources consumed in its production. But the 1995 USDA report cited [3] for this discovery has since been very decisively corrected.

The original authors of the 1995 report published in 2002 a second USDA study which reversed the results, showing that even from conservative estimates (excluding energy credits from reselling CO2, for instance), ethanol was a net energy gain--for every Btu used for ethanol production, 1.34 Btu of ethanol energy is created.[8] Furthermore, liquid fuels actually make up only 17% of the energy used to produce ethanol; for every 1 Btu of liquid fuel used, 6.34 Btu of ethanol energy is produced. The Pimental studies of ethanol as "subsidized food-burning" have been similarly disproved, with the inaccurate results attributed to data 20+ years old.[9] Two studies published in early 2008, in Science, however, have rekindled doubts about ethanol. According to the studies, ethanol can actually drastically increase CO2 emissions, when land use is taken into account. Farmers have been clearing grass lands and rain forest in order to grow additional corn crops. In doing so they release large quantities of CO2, enough to outweigh the C02 savings of burning ethanol, by a factor of hundreds.

A 2008 report by the University of Nebraska shows that ethanol production now has a net energy gain of 1.5-1.6 units of energy out to every unit in. Furthermore, it shows that 13 gallons of ethanol are produced for each gallon of petroleum used.[10]

It is good work even if their are some other areas of research that need to be reuspud to make it feasible. When burned as fuel the CO2 and H2O are expelled and so collecting these ingredients for the ethanol process will involve a mixture of capturing technologies probably from C02 producing industries in the early stages since filtering the stuff out of the air is currently a less than efficient prospect. That may change.There are various ideas for ethanol, biodiesel and such and some of them would be complimentary like how making biodiesel produces glycerol which, they have found, can be fermented into ethanol and since new techniques for filtering ethanol instead of distilling could make production far more energy efficient, it would make sense to combine the production facilities. This is even more evident when one sees that often organic stocks have different components that are better for one fuel than the other and that they both often have protein byproducts that can be used as animal feed, so close proximity helps save on shipping costs.I am not convinced that one of these fuels has the biggest niche in the energy market or even if they are answers to transportation needs but I can not imagine any future where ethanol is not at least a major industrial chemical and all energy technologies should be reuspud. The industrial technology spin-offs alone justify the efforts and I think that our ability to prioritize these emerging energy technologies is not sufficient at this point.

Fuel Ethanol Capacity

U.S. Ethanol Capacity
U.S. Ethanol Capacity[2]

Fuel ethanol capacity rapidly expanded from 2005 to 2008, but has leveled off through 2009. It has been driven by government support for ethanol and gasoline blends, adherence by the U.S. gasoline industry to renewable fuels standard requirements, protective ethanol import tariffs, and favorable relationships between the prices of blended fuels (including ethanol products) and ethanol feedstock (i.e., feedgrains). However, through 2009 demand has fallen due to declining ethanol profitability and expansion of U.S. ethanol production to levels approaching the U.S. government’s renewable fuels standard mandate in year 2015 of 15 billion gallons.[2]

Capacity has grown from 3.64 to 12.7 billion gallons from January 2005 through July 2009, an increase of nearly 250%. In 2009 the rate of expansion has slowed to 0.6% per month.

Pricing and Dependencies

From 2006 to 2008 the price of ethanol fell $2.5 a gallon, enough to make it competitive with then high oil prices. Ethanol prices fell because production capabilities were ramped up, and because of government subsides, which made each gallon used by refiners for gasoline blends eligible for a $0.51 tax return. This meant that ethanol could be sold at a sizable premium to regular gasoline as long as the premium was still less than the subsidy (most ethanol sells at a $0.46 premium). However, ethanol's significantly lower energy content and thus lower miles per gallon means that consumers will be willing to pay significantly less for E85; when these lower profits are passed from gas stations to refiners and from refiners to ethanol producers, the ethanol-to-gasoline premium may narrow or even disappear. At the same time, since ethanol is highly corrosive, many cars are not equipped to run on E85, and special storage tanks and transportation systems must be built for the distribution and use of high-ethanol content fuels.

As long as ethanol remains primarily an additive fuel, its price will probably remain premium-driven and thus heavily dependent on the price of gasoline. With oil prices a third of what they were in 2008, ethanol is no longer competitive. As of February of 2009, about 20% of all ethanol production capacity is idle.[11]

Corn ethanol production also relies on having massive amounts of corn. With current corn ethanol production already pushing corn prices up, a ceilingless increase could be problematic for ethanol producers, making ethanol production less appealing for new entrants and dropping or slowing corn demand until possible price seesawing settles into sustainability.

The "corn crush" is the difference between earnings from ethanol and the price of corn. It can be measured using the equation

Corn crush = {(Price of ethanol x 2.75 ) - Price of corn}.

In June 2006, when ethanol sold for nearly $4 per gallon and corn cost $2.35 per bushel, the crush was $8.42. The crush is now around a dollar, only because ethanol prices are rising; at its lowest in the past few years, it was just $0.53.[12] The crush represents profitability; because corn is so expensive and ethanol is rather cheap, the crush is low, albeit rising.

Hedging Against Rising Corn Prices Leaves Ethanol Companies Vulnerable During Commodities Downturns

Many ethanol companies, ironically, are also exposed to falling corn prices, because of hedging against price cuts. VeraSun Energy went bankrupt in October 2008 because the company placed bets on rising corn prices once they hit $8 in June 2008. During the financial crisis of 2008, however, when commodities prices fell and the value of corn dropped by half, the company was left illiquid, unable to pay off its derivatives.[13]

Weather Can Hinder Development of Corn Ethanol

Corn production is heavily dependent on the weather which eventually determines the price of Corn Ethanol. For example, heavy flooding after a summer storm in Iowa wiped out a tenth of the state's corn crop, sending July corn futures up nearly ten cents to $7.425/bushel and December corn futures up 11 cents to $7.76/bushel.[14]

The option of replanting corn that was damaged in May is dwindling as farmers are deciding whether they should replace their corn with a shorter growing season crop like soybeans. All ethanol producers can do now is desperately pray for sunshine as there is already a tight supply of corn available.

Government Push to Increase Ethanol Blend Met with Restraint by Refiners

Although the U.S. government raised the ceiling for the amount of ethanol that is mixed into conventional gasoline, refiners may be reluctant to sell gasoline blended with higher concentrations of ethanol.[15] The EPA is expected to raise the ceiling from 10% to 15% ethanol, but refiners are not obligated to increase the amount of ethanol blended into their conventional gasoline.[16] In fact, refiners are likely not to increase ethanol concentrations due to fears that they will be liable for any engine damage resulting from the higher levels of ethanol. Because the new ceiling does not include any liability protection, many refiners do not plan on increasing ethanol concentrations.[17] While increased concentrations of ethanol would benefit ethanol businesses, the increase also reduces the amount of gasoline sold per gallon of fuel.[18] As a result, the reluctancy of U.S. refiners to increase ethanol concentrations illustrates the limitations surrounding ethanol use as a fuel. Higher ethanol concentrations not only have the potential of hurting the refining businesses of U.S. refiners, but also may lead to engine damage.[19]

U.S. Reaffirms Support for Ethanol

On December 17, 2010 President Obama signed the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. Signing the act renewed support for ethanol use in the U.S. through extension of the Volumetric Ethanol Excise Tax Credit and tariffs on imports. The bill extended through 2011, per-gallon tax credits, an existing 54 cents per gallon tariff on imported ethanol and also a 22.67 cents per gallon tariff on ethyl tertiary-butyl ether (ETBE).[20][21]

The U.S. government is not giving up on its effort to expand the role ethanol plays as a fuel source. Beneficieries of the bill not only see the support of ethanol as a fuel, but support to reform the American transportation fuels market.[21]

References

  1. Domestic Fuel - Ethanol Ten Year Projections
  2. 2.0 2.1 2.2 O’Brien, Daniel and Woolverton, Mike, "Trends in U.S. Fuel Ethanol Production Capacity: 2005‐2009," Agricultural Economists K‐State Research and Extension, accessed on January 30, 2010
  3. Department of Energy Alternative Fuels Comparison Chart
  4. WSJ: Valero Energy 4Q Loss Narrows; Dividend Slashed, January 2010
  5. Kolb, Jon Ethanol:; Industry Consolidation May 28, 2009
  6. AgMRC - Ethanol Profile
  7. CNN Money: "2nd UPDATE:Ethanol Plant Closings May Come As Margins Vanish"
  8. [1]
  9. [2]
  10. SeekingAlpha: "Study Shows Ethanol Energy Efficiency Is Growing"
  11. Midwest AGnet - Ethanol industry feeling economic squeeze
  12. SeekingAlpha: "Are We at the Bottom of the Ethanol Barrel?"
  13. Financial Times: Lex: "Ethanol producers"
  14. Forbes: "Ahead of the Bell: Ethanol producers"
  15. bloomberg.com: Valero, Refiners Reluctant to Sell Higher Ethanol-Blend Gas, October 2010
  16. bloomberg.com: Valero, Refiners Reluctant to Sell Higher Ethanol-Blend Gas, October 2010
  17. bloomberg.com: Valero, Refiners Reluctant to Sell Higher Ethanol-Blend Gas, October 2010
  18. bloomberg.com: Valero, Refiners Reluctant to Sell Higher Ethanol-Blend Gas, October 2010
  19. bloomberg.com: Valero, Refiners Reluctant to Sell Higher Ethanol-Blend Gas, October 2010
  20. Zollars, Ed "Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010," December 17, 2010 ascpa.wordpress.com
  21. 21.0 21.1 "President Obama Signs Tax Bill Villwock and Others Pleased," December 19, 2010 hoosieragtoday.com


Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki