Ethanol: Our Answer to Reducing U.S. Dependence on Foreign Oil

by: Tim Plaehn August 26, 2008 | about stocks: ADM / AVR / PEIX / VSE    
Tim Plaehn

Tim Plaehn

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I have come across a couple of interesting news items recently that point towards continued viability and growth for the U.S. ethanol industry. As I have written in the past, I believe the U.S. corn based ethanol industry will grow as a viable part of the country’s vehicle fuel structure. The current environment of high corn prices is pushing these companies towards efficiency and innovation. The ground work they are laying now will lead to increased profitability as ethanol becomes a larger portion of total fuel consumption.

The first item is this article about ethanol producer POET expanding into cellulosic ethanol. POET is a privately held ethanol producer that is one of the nations largest, producing over 1 billion gallons per year from 23 plants. The company has announced it has developed the technology to process the corn cobs for additional sugars to refine into ethanol. According to the press release, using the corn cob along with the corn will increase ethanol production by 11% per bushel and 27% per acre of corn. It will be a simple process for farmers to harvest the cobs along with the corn and transport the crops to POET’s ethanol facilities.

Construction of the company’s pilot cellulose processing plant should be completed in the 4th quarter of 2008. POET and the Dept. of Energy are investing $200 million in the new technology. To me it makes a lot of sense for the corn ethanol producers to expand into cellulosic production than to try to start up a whole new industry from scratch.

The second item I found of interest was several articles on the use of ethanol blender pumps. Blender pumps allow the buyer to select the blend of ethanol he desires at the pump. These types of pumps now offer the different combinations of E10, E20, E30, E40, E50 or E85 with the corresponding higher octane rating as the percentage of ethanol increases. Prices also decrease as the percentage of ethanol increases. Recent studies show that blends of up to E30 work well in modern cars with positive effects on mileage. From a press release on one study:

These studies show that moderate 20-30 percent ethanol blends can reduce air pollution, improve gas mileage, and save drivers money in the most popular cars on the road today,” said Brett Hulsey, president of Better Environmental Solutions, an environmental health consulting firm. “Moderate ethanol blends are homegrown in America, can be delivered with existing pumps to current vehicles, and cost less than gasoline. Ethanol lowers CO2 emissions 20 percent from gasoline, making it one of our most effective greenhouse gas reduction programs currently in place.

Fuel retailers in corn states noticed when they installed E85 pumps many of their customers were blending the E85 and regular gas by hand to achieve optimum performance. Blender pumps had long been used in northern states to blend diesel fuel during cold weather, so the solution to offer ethanol blender pumps made sense. From a happy customer courtesy of DakotaFarmer:

“I found E30 was best. It costs less than unleaded or E10 and didn’t reduce my mileage,” says Al Kasperson. He is a former instructor at the Lake Area Technical Institute in Watertown.

By the end of 2009 ethanol producers will be producing enough ethanol to replace 10% of the 140 million gallons of gasoline consumed in the U.S. each year. As E10 is the standard for regular gas in many parts of the country, the ethanol industry needs to find ways to increase demand for their product. At this point there are only a handful of blender pumps installed in states like Iowa, Minnesota, Kansas and South Dakota, but their spread will definitely increase the demand for ethanol.

I have been making the point here that corn ethanol is an integral component of this country’s fuel structure. Those that are calling for an end to grain based fuels will not succeed and the ethanol companies will have a major (and profitable) role on reducing our dependence on foreign oil. I will close with this quote from the website of Senator Barack Obama:

"Twenty years from now our nation’s transportation fuels sector will be powered primarily by domestically produced biofuels, if we have the vision and the will to make that happen,” Obama said. “Just as we sent a man to the moon, we can harness our technological skills and entrepreneurial spirit to end our dangerous reliance on foreign sources of oil. In doing so, we will not only protect our national security, we will also protect our public health, create quality jobs for the next generations, and keep billions of dollars here at home, rather than sending them to nations that want to do us harm.”

Disclosure: None

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This article has 58 comments:

  •  
    Aug 26 03:32 PM
    Tim,
    I agree that ethanol is a crucial component toward lowering our foreign oil dependence. However, I completely disagree with corn being the answer. It is well documented that grasses (cellulose) blow corn away for ethanol yield per unit acre input. For example, see:

    www.sciam.com/article....

    www.nsf.gov/news/news_...

    Corn for ethanol drives up food prices and is carbon positive, whereas prarie grasses are carbon negative and would ease pressures on corn prices. For now, perhaps corn is the only way to go until this relatively new find is brought from R&D to actual production and market....none to soon.
    -Dave
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  •  
    Aug 26 03:59 PM
    Grain ethanol is NOT the answer!! We are just trading one problem for another down the road. It's not just that food prices for the western world will go up, but prices will go up for the 3rd world poor countries. Aid agencies will have to compete with ethanol producers for the grain. Ethanol producers will always be able to pay more for the grain then the poor.

    For once, let's think about out fellow man!
    Reply | Link to Comment
  •  
    Aug 26 04:25 PM
    Tim,
    I think your article comes from the right place in illustrating some of the alternatives for ethanol production, particularly in the cellulosic space where harvesting existing plant yields are not neccesarily put at risk. The extensive work being done in alternative biodiesel and biogas production, especially in Europe is also worth investigating, particularly from a vehicular perspective due to the higher mpg yields of these fuels.
    Thanks for writing on the topic and getting more exposure out there.
    Reply | Link to Comment
  •  
    Aug 26 04:53 PM
    Even if we (u.s) used all of our corn to make ethanol, with nothing left for food or animal feed, we could only displace perhaps 1.5 million barrels per day of this demand [U.S. consumption is 21 million barrels per day]. Clearly, corn ethanol is a part of the solution but by itself is not a sufficient long-term solution to our oil dependence. Ethanol is currently transported mainly by tanker truck or rail cars because it cannot be shipped in existing gasoline pipelines. The potential capacity for ethanol production from corn is fairly limited. In addition to concerns about feedstock limitations, corn ethanol derives much of its energy from fossil fuel inputs.
    Reply | Link to Comment
  •  
    Aug 26 05:31 PM
    Corn ethanol is no solution. It is a problem. Nor is planting trees to 'absorb CO2'. They are a problem. Sequestration etc etc

    The solution is very very simple, and very very cheap - drive less or drive more economically (= smaller more efficient cars). Pushing 'technology' as a solution is simply a cop out. Oil industry propaganda to keep full production into the future.

    Not that you will find me doing any of those things. Why should I care about the planet when the US continues to produce 25% of the pollution from 4% of the population.
    Reply | Link to Comment
  •  
    Aug 26 06:06 PM
    Brazil would love to sell us vast quantities of sugar-cane ethanol at prices significantly cheaper than home grown corn ethanol, shipping included. But this is blocked by tariffs.
    Reply | Link to Comment
  •  
    Aug 26 06:34 PM
    Everyone talks about "different" energy sources. Why can't we now talk about CONSERVING what we have and optimizing efficiencies?! Corn is not the answer and we've already seen the effects taking so much corn of the market has had on developing countries who use it as a staple food. When corn is more scarce, people starve. Ethanol is not worth this price, nor does it burn as efficiently and powerfully as petroleum.
    Reply | Link to Comment
  •  
    Aug 26 06:59 PM
    Okie -- how many gallon of oil and water does it take to make one gallon of ethanol from corn?

    Wake up!!!
    Reply | Link to Comment
  •  
    Aug 26 07:10 PM
    Ethanol is a ridiculous answer to the oil crisis. That's trading one antiquated fuel for a close relative. Industry needs to be encouraged to think outside the box, beyond antiquated internal combustion engines.
    If you read the current literature, fantastic strides are being made in discovering unbelievable sources of minimally polluting power. The answers are out there, but ethanol is not even a good bandaid.
    If the government outlawed the manufacturing of internal combustion engines by 2010 you'd see some quick answers from industry. An absurd statement, I know, but GM is not about to get off it's ass for anything.
    Reply | Link to Comment
  •  
    Aug 26 08:27 PM
    Ethanol is a bridge technology like natural gas. It's neither the answer or the problem. It should have a place in a broad-based energy plan.
    Reply | Link to Comment
  •  
    Aug 26 08:27 PM
    Distribution is a very important component to the "blend" where an increase supply of ethanol can likely reduce the demands for shipping fuels. Lessen the demand for gas in one area and home heating oil in another, and the composition of supply and demand changes dramatically.

    We've only begum to see the change over and yet, arbitrage is a significant key to any sort of ethanol speculation as much as the concept. The possibilities of blending may well benefit all sectors of fuel, although the author carefully states that as much ethanol that can be produced can be used for transportation needs. The criticisms of ethanol do not consider a reduction for the demand of fuel, or the cost to transport that fuel and are therefore not fully warranted.

    The basic means test will be the day when a gallon of home heating oil once again, cost less than a gallon of gas. At that stage ethanol will have effectively saturated the market.
    Reply | Link to Comment
  •  
    Aug 26 09:21 PM
    Dave W:
    Corn is a type of grass.

    Tim:
    Sugarcane based ethanol is a far superior choice to corn based ethanol. We can import it from Central and South American countries.

    Of course Barack Obama supports corn based ethanol. He answers to the Acher Daniels Midland company and he is from a corn producing state, Illinois.
    Reply | Link to Comment
  •  
    Aug 26 09:55 PM
    Doorapan: Your statement "ethanol can not be transported by existing pipelines" is ethanol lie number 147. A 180 mile gas pipeline was cleaned and converted to ethanol transportation in Florida months ago. In central Texas, a complete gasoline distribution pipeline was also converted to ethanol transportation months ago. Stop repeating absurd lies and do your homework.
    Reply | Link to Comment
  •  
    Aug 27 12:06 AM
    Buy Verasun Energy, VSE under $6, below book, and below recent insider buying, while you still can. Crush spread is thin, but is the 800lb Gorilla in the space, with Welcome pending startup Reynolds halted. I also expect UL certification approval announcement soon for Blender pumps and will be a major positive. EPA answer to Gov Perry shows Government intent. Recent announcement of Shelf offering will allow debt repayment, stock buybacks, and cash for aquisitions, as it is perceived to be cheaper to aquire, than to build. I see BIOF or GPRE in the crosshairs, possiblly some small independents. AVR and PEIX not a good fit. VSE should see rev increase due to merger synergies from USBE, and Aurora corn oil processing soon. coursonc
    Reply | Link to Comment
  •  
    Aug 27 09:05 AM
    Ethanol has a significantly lower energy content than gasoline of any kind. Therefore, mixing it with gasoline, in any ratio, will REDUCE gas mileage - all other things being equal. So those happy farmers are deluding themselves - a little like those halcyon days of yesteryear when "high test gas" turned your 1982 Malibu into a virtual rocket ;-)

    T.C.
    Reply | Link to Comment
  •  
    Aug 27 09:29 AM
    We are paying farmers NOT TO GROW rice and their land is sitting idle while fresh corn goes from 10 ears per $1 to eat up to 2 for $1 per ear and my supplemental cattle feed has doubled in cost in one year. Hats off to Nunca Penoche and her ilk.
    Reply | Link to Comment
  •  
    Aug 27 09:56 AM
    The answer to the energy crisis is not to produce more energy. It is to drastically alter our lifestyles and stop being the 10% of the world population that uses most of the energy. Stop driving three blocks to pick up a DVD. Stop living in 3000 square foot mansions for two people that need huge amounts of power to heat, cool, and run the appliances, including that energy inefficient sub zero. Stop using up the remaining oil that our children's children will need. Stop depending on God "technology" to come up with a miracle when we need it. Wake up and look around.
    Reply | Link to Comment
  •  
    Aug 27 10:03 AM
    While biofuels are currently still the only viable replacement for oil, few people believe that ethanol derived from food-based feedstocks (e.g. corn) is the answer to the energy problem. Its just too dependent on subsidies and inefficient to boot (there's a neutral energy balance for corn).

    What is the future is cellulosic ethanol (which uses non food-based feedstocks) . Energy balance and yields are significantly higher than traditional ethanol with the only problem being the expensive conversion process. That's why the U.S. DoE and companies such as POET are investing so much money into developing cellulosic ethanol. With government policies such as ten in twenty, ethanol will continue to grow in the U.S., but more so the 2nd generation biofuels such as cellulosic ethanol and BTL biofuels rather than traditional biofuels.
    Reply | Link to Comment
  •  
    Aug 27 10:51 AM
    What is needed is
    1 using less energy
    2 switching to a vegetarian diet (healthier and 5 times more efficient)
    3 switching to electric cars

    Ethanol will be part of the bridge to the future, but only for perhaps 5 years.
    Reply | Link to Comment
  •  
    Aug 27 10:56 AM
    Certainly, ethanol has a place in U.S. energy production. It's making it from CORN that's stupid.

    No amount of vote buying, lobbying, propaganda and poor science can change that. None of this alters the physical fact that it takes MORE energy to make the product than is DERIVED from it.

    This is simply a case of Medieval conjuring at work. Indeed, the Sun will orbit the Earth, we'll make gold from lead, and the ICE will run on water before corn ethanol makes economic sense!
    Reply | Link to Comment
  •  
    Aug 27 11:06 AM
    You know, we taxpayers bailed out the broke corn farmers, which is where this inane product came from. Now they've got a world full of hungry mouths to feed, and can remain prosperous.

    But, no, not satisfied with that, this is how they repay us. Pigs at the government trough (81 cents a gallon's worth, not to mention milk at $4 a gallon), and nothing else!
    Reply | Link to Comment
  •  
    Aug 27 11:09 AM
    Corn based ethanol is energy negative. At 27 gallons per Acre how can a 10% gain really matter? Even a 100% gain makes it a farce.

    aoxomoxoa - we do have an energy policy in the US. It is: "send your money to Exxon et al".

    There are some bio techs out there that could make ethanol realistic, if only that the big oil guys dont buy it up and bury it.
    Reply | Link to Comment
  •  
    Aug 27 11:51 AM
    Our energy and tax policy does not help. Preferential U.S. regulatory and tax treatment of ethanol automotive fuels introduces complexities beyond its energy economics alone. North American automakers promote a blend of 85% ethanol and 15% gasoline, marketed as E85, via their flex-fuel vehicles, e.g. GM's "Live Green, Go Yellow" campaign. The motivation is the nature of U.S. Corporate Average Fuel Economy (CAFE) standards, which give an effective 54% fuel efficiency bonus (which is patently untrue) to vehicles capable of running on 85% alcohol blends over vehicles not adapted to run on 85% alcohol blends.
    Reply | Link to Comment
  •  
    Aug 27 12:33 PM
    "Live Green, Go Yellow." I never heard that one before. But it sums up the current status of America QUITE NICELY!

    It would take GM to come up with that. After all, they've got to do something to deserve the $50 billion handout the D's and their Green minions (or is that Greens and D minions?) have voted them.
    Reply | Link to Comment
  •  
    Aug 27 12:35 PM
    Lies, lies, lies; and misconceptions galore.

    Regardless of the fuel, the ICE is only 30% efficient. We throw away 70% of the energy. Only 5 Quads of useful energy come from the 40 Quads of crude (5 Quads go to PLASTICS, ETC.; THAT MEANS ONLY 1/7 OR <15% IS REALLY USEFUL).

    So the answer is the burner* with waste heat recovery* that captures 90% of the energy* and makes it useful energy (as electricity*).

    Immediately, then, we've reduced our consumption to 7 mb/d from 21 mb/d of fuel. How's that for reducing crude (import and local)?

    Now that 1.5 mb/d biofuel looks pretty significant, doesn't it. And if we were to take the rest of the dryland farming community that gets paid to do NOTHING, and we put celulosic switchgrass, et.al., and canola where possible, etc., we can reach the 7 mb/d a lot easier than going for 21 mb/d which the roadblockers use as negatives, lies, etc.

    *So here we go again: A biofuel injected burner encapsulated with solid-state waste heat direct conversion to electricity devices powering a ChorusMotor and the only on-board energy storage device is the GRASS TANK; unlimited range; power of the Tesla; refuel at existing service stations with whatever % of biodiesel to ethanol desired. No drill, drill, drill (Houston) and no ICE, transmission (Detroit) and no capacitor, motive power battery, flywheel, etc (Storage).
    Reply | Link to Comment
  •  
    Aug 27 12:52 PM
    It's going to be interesting to see how the new Congress defines "Pay-Go" if NObama wins the election.

    Let's see, two trillion for SS and Medicare, another for free health care (Esp. for illegals - Oh, sorry, excuse me, undocumenteds), a half trillion each for Green energy and tax giveaways (Excuse me, stimulus) to people who didn't pay taxes in the first place, and another trillion or so before the next election just in case we missed buying anybody.

    That about sums it up. Maybe we can pay for it by just skipping the funding for our national defense entirely. The Russians and Chinese would certainly favor that, not to mention the terrorists (Sorry, enemy non-combatants).

    Reply | Link to Comment
  •  
    Aug 27 12:56 PM
    You want to see where billions of your tax dollars go? Payments to all kinds of farmers to do NOTHING!!

    farm.ewg.org/farm/dp_a...
    Reply | Link to Comment
  •  
    Aug 27 01:06 PM
    Regarding concerns about feedstock limitations, I offer the following:

    www.ncga.com/news/notd...

    Numbers Show How Livestock Benefits From Ethanol (8-14-08)

    When the U.S. Department of Agriculture came out with corn production numbers Tuesday that were revised upward to a bountiful 12.3 billion bushels, two areas of corn demand also saw an increase – the amount projected for ethanol use was increased by 150 million bushels to 4.1 billion bushels, and the corn for livestock feed was boosted 100 million bushels to 5.3 billion.

    Although the USDA estimates that more corn will go into livestock feed than any other use, these figures leave out another important statistic, according the National Corn Growers Association – the amount of livestock feed that will be produced from the same corn that goes into (is used for) ethanol.

    In fact, if the USDA projection holds true, then there will be an additional equivalent of 1 billion bushels of livestock feed derived from the corn for ethanol, in the form of distiller grains (25.3 million metric tons), corn gluten feed (2.6 million metric tons) and corn gluten meal (500,000 metric tons).

    “Critics lament how much corn goes into ethanol but often ignore the coproducts and calculate too high a figure,” said NCGA President Ron Litterer. “Distillers grains offer a high-protein feed for livestock and help us meet all needs.”
    Reply | Link to Comment
  •  
    Aug 27 01:12 PM
    Funny, no mention that blends above 10% are illegal unless you have an FFV. Otherwise, bye bye warranty.
    And the link to the ACE study is great. That piece of propaganda disguised as a "study" is hysterical. Has anyone actually read it?
    Reply | Link to Comment
  •  
    Aug 27 01:35 PM
    Most of what can be said has been. I estimate some 40 percent or more of the comments are crazy/unreasonable and I hesitate to associate with them but I would like to add the followinjg. I like my 7 passenger car and love to be on the road or drive 5 miles to pick up a DVD and want to see how this lifestyle can be continued.

    We should buy the Brazilian ethanol, they would buy the harvesting equipment, fertilizer, etc from us. Sugar cane ethanol returns 8 times the energy used to produce it, corn returns 2.8 times. (or so I've read recently). Globalization benefits everyone. We could grow more sugarcane in the south??

    Also not mentioned is Algae. There are quite a few pilot plants around the world growing algae, extracting oil and refining it into super clean deisel. Algae growth can double its volume in 24 hours. Genetic engineering, I'm sure, could increase the oil content. The residue after pressing can be used for animal feed.
    Reply | Link to Comment
  •  
    Aug 27 02:09 PM
    tylakewalker,
    Thanks for the botany toxonomy caviat, but it's completely irrelevant to the conversation (unless you were trying to inject humor, in that case: lol?). In case you were actually serious, mixed prarie grasses are not traded on the NYMEX, corn is, and that is one of MANY significant differences between the two. Take a look at the links I provided.
    Reply | Link to Comment
  •  
    Aug 27 02:11 PM